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Boise shocked by power costs

Press release from the issuing company

Wallula - Boise's paper mill and container plant in Wallula produce about 420,000 tons of paper products a year using 55 megawatts of power.

That means Boise pays about $21 million annually for electricity from Portland-based Pacific Power, a division of PacifiCorp.

The utility, which serves about 130,000 customers in the Yakima Valley and Walla Walla-Dayton area, including just more than 700 industrial customers, recently proposed a rate increase of 20.9 percent.

That request, which is under review by the Washington Utilities & Transportation Commission, would add $4.4 million a year to the mill's electricity costs, said mill communications manager Destry Henderson.

That could make the mill uncompetitive and may result in layoffs, Henderson said. "We can't really pass on the costs to customers."

The Wallula facility manufactures corrugated boxes and various kinds of paper, including the one used to make address labels. The Wallula plant also provides about 600 well-paying jobs and had a 2009 payroll of close to $52 million.

Since 2007, the mill's power bill has gone up 20 percent while use has increased only 2 percent. "Rate negotiations are a yearly struggle," Henderson said.

The rapid increases have Boise and many other Pacific Power customers reconsidering where they'll buy their power.

Pacific Power's latest proposals will hurt residents and small-business owners at a time when they are struggling, said Walla Walla County Commissioner Gregg Loney.

For an average residential customer using 1,300 kilowatt-hours per month, the electricity bill would go up by almost $20. The fixed customer charge -- for being connected to the grid -- would go up from $6 to $9 monthly.

It also "will make it difficult for Boise to stay competitive," he added.

The county wants Boise to stay open, Loney said, and plans to write a letter to Pacific Power requesting it to review its request. The mill's estimated property tax bill for 2010 will bring in $2.5 million to help pay costs of the region's various government agencies.

Pacific Power has asked for a rate increase request every year since 2007, Henderson noted. Typically, it requests a high rate and eventually settles for less. For example, in 2009, Pacific Power requested an increase of about 15 percent and settled for 5.3 percent.

Uncertainty about long-term power rates makes it difficult to plan for capital improvements, he said. Boise has shared that concern with community leaders and is looking for options, including joining the ranks of customers who are shopping for a new electricity provider.

Boise is part of the Industrial Customers of Northwest Utilities, a nonprofit association of the Northwest's large industrial electric customers. The industrial customers also have asked the utilities commission let them join other stakeholders that want to testify about the rate proposal.

Pacific Power's rate increase requests are based on the need to offset increased costs for power, said spokeswoman Jan Mitchell.

In addition to generating its own power, Pacific Power buys from other utilities, she said, and many of its old, low-rate contracts have expired or are close to expiring. Renewals will mean higher rates, Mitchell said.

If approved, the utility's $56.7 million rate increase would take effect in April. It would raise Pacific Power's overall average Washington rate to about 8 cents per kwh, she said.

Since 2000, the overall average Washington rate has increased by 3.6 percent yearly, from 4.69 cents in 2000 to 6.40 cent in 2009, Mitchell said.

Some costs are going up and may be justified, said Simon J. ffitch, senior assistant attorney general for the state. But some of the proposed increase will mean an increased profit margin and more returns for shareholders, he said.

"There is no justification for that, especially in this economy," he said.

His office represents the interests of residential and small business customers. He said he wants to ensure the company is not passing on costs of executive compensation to customers.

"A 21 percent increase is shocking," he said.

Sarah Shifley, assistant attorney general, said there's a trend of utility companies seeking frequent rate increases. Often, it's to cover increased power costs, volatility in energy pricing and increased capital investment to meeting increased demand, she said.

In 2008, Pacific Power asked for a $34 million increase and was allowed $20.4 million by the commission, and in 2009, the company sought a $38.5 million increase and settled for $13 million, Shifley said.

To avoid that, Boise has been talking with the Columbia REA about taking care of its power needs, Henderson said.

But Columbia REA, a member-owned nonprofit utility based in Dayton, must wait until October 2011 to serve Boise when it will be free to buy power from nonfederal sources, said Scott Peters, manager of marketing and member services at the REA, which serves Columbia and Walla Walla counties and Umatilla County in Oregon.

A part of the NorthwestPower Act that prevents Columbia REA from selling power to Boise expires next October, he said.

In the past few years, many agricultural firms, schools and government agencies have switched from Pacific Power to Columbia REA, Peters said.

Several more businesses and homeowners served by Pacific Power recently have called to inquire about joining the cooperative.

"We'll serve them if they are reasonably close to our lines," Peters said.

Columbia REA would have to spend about $1.5 million to build a new substation and install transmission lines to serve Boise, he said.

The REA perhaps can provide a lower power rate, but there are no guarantees, Peters said. Things can change over the next 15 months in the volatile energy market, depending on such issues as proposed cap and trade legislation, offshore drilling and developments in the Middle East, he said.