California Bound?
Missouri's co-ops face rising costs
but no power shortage

by Bob McEowen

It's often said that anything new happens first in California and works its way to Missouri months or even years later. That's fine when the subject is the latest Hollywood fads but when it comes to skyrocketing energy prices and power shortages we'd prefer Californians kept their trends to themselves.

David Miner, associate dispatcher, keeps an eye on energy demand at Associated Electric Cooperative's power dispatching center in Springfield. The wholesale supplier of electricity to Missouri's co-ops has built new power plants to meet ever-greater demand for power but still faces increasing fuel and regulatory costs.

California is in the midst of a crippling electricity crisis. Some consumers have seen their monthly bills triple while others have faced rolling blackouts. The state's largest utilities face bankruptcy and the governor has entered the power business, committing billions of taxpayer dollars to purchase electricity.

"It's been a great thing for the people of Missouri to watch and not have to experience," says Nancy Southworth, manager of corporate communications at Associated Electric Cooperative which supplies wholesale power to electric cooperatives in Missouri and parts of Oklahoma and Iowa. "We're getting a real cheap education about the utility business at California's expense. We see what really can happen when you jump head long into deregulation."

Indeed while Missouri lawmakers took a wait and see attitude, California led the nation toward electricity deregulation. The bill they passed in 1996 required utilities to sell off power plants, forcing them to purchase nearly every kilowatt on the spot market. The bill also froze retail prices for most consumers but placed no restraints on wholesale costs.

Two of the state's largest utilities nearly went broke buying high-cost power — much of it power they once produced themselves — to sell at prices far below their costs.

"They really tied one hand behind the back of the power producers," Southworth says. "They were buying a day-ahead and hour-ahead power to supply a system the size of California. That's absolutely nuts."

It's not likely the same mistakes will be repeated in Missouri but a hopelessly flawed deregulation plan is not the only culprit in California's energy mess.

Power producers themselves are at fault for failing to build new plants and transmission lines. What power they did have was fueled, in large part, by natural gas, which saw dramatic price increases this year. Fingers are also pointed at environmentalists for regulations which make it almost impossible to locate plants in California. Even ordinary consumers are blamed for crying "NIMBY!" (not in my back yard) every time a new plant or transmission line was proposed.

All of this forced Californians to rely on power from other states. This year there just wasn't as much electricity available as light rainfall limited power production from hydroelectric dams in the northwest. When power was available utilities had to compete for inadequate transmission capacity. To top it all off, a new breed of independent power brokers was more than willing to extract huge profits from every energy sale.

To borrow from the concept of a recent movie, it was "The Perfect Storm" of energy markets as many factors came together to produce a disaster. But while Missourians watch in amazement what people here really want to know is whether we're next?

"Could it happen here? Probably not," says Jim Jura, CEO of Associated Electric Coopera-tive. "Brownouts, blackouts — you can never say never but I don't believe we will have the reliability problems they're facing and the reason is because, unlike California, we have planned and have acted to meet our future load growth."

In recent years the Springfield-based cooperative has spent more than a billion dollars building new power plants to meet increasing demand and provide a reserve cushion about 14 percent above current needs. By comparison, California imposes rolling blackouts when reserves drop to 1.5 percent.

Still, Missouri's electric co-ops are not immune to the problems Californians face, says Jura who once headed Oregon's Bonneville Power Administration.

"Some of what is happening in California is already happening here," he says. "We are seeing dramatic increases in the price of fuels as well as wholesale electricity prices. The entire country is experiencing that."

All of Associated's new generation facilities are fired by natural gas. While not as dependent on gas as California utilities, the co-op has felt the effect of rising prices.

Meanwhile the cost of operating coal plants is increasing as well. Besides paying higher prices for coal, Associated has spent $100 million on emissions upgrades at its plants. Add in the cost of buying wholesale power on the open market during plant shut-downs and you have a problem that, while not of California proportions, does have an impact on Missouri's electric co-ops.

"We're still going to be alright but we're going to have some significant upward pressure on prices," Jura says.

When and if those pressures result in increased electric rates for cooperative members is something Jura says his board of directors and the directors of local co-ops will have to decide. But he's quick to put some perspective on any talk of price hikes.

"In most cases electricity has been a product that has not increased in price for the last several years," he says. "In real terms people are paying a lot less today than they were five, 10, 15 years ago. I think most consumers don't understand that."

One thing most consumers do understand, though, is that Missouri does not want to follow the trend set in California.

While Missouri shares the Golden State's increased appetite for electricity, so far, we've avoided the mistakes made by Calfornia's legislature. But even as we watch California's crisis unfold at least four bills to deregulate Missouri's electric industry are being debated in the General Assembly.

While not advocating deregulation, Missouri's electric co-ops are attempting to educate lawmakers on the issue and have put forward a bill that would protect residential consumers and require the state's low-cost power to go first to Missourians. At least one other bill presented to the legislature and supported by large industrial power users would allow the state's power to be sold wherever prices are highest.

Time and the legislative process will tell when and if deregulation will ever come to Missouri and whether it will be a boon or a bust for the state's co-op members.

A few things are already clear however. Thanks to the forsight of Missouri's electric co-op leaders we are better prepared to meet rising demand than our West Coast cousins were. But we, along with all Americans, will begin to see upward pressure on energy prices.