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Price Caps Kill Diesel Generator Projects

SDS, other power generation developers see end of diesel dream

When the Federal Energy Regulatory Commission (FERC) placed price caps on the cost of energy recently, the results quickly filtered down to Klickitat County.

After the caps took effect on June 19, market prices for power began running below what it cost to operate the portable diesel generators. As a result, virtually all of the mobile electrical-generating units sprinkled around the county were quickly taken out of service, and work has halted on several diesel projects that were not yet completed.

At least 45 portable, diesel-powered electrical generators had been brought into the county in recent months. Sites included Bingen, Glenwood, Roosevelt, BZ Corner, and John Day Dam.

According to the Dow Jones Newswire, the FERC order capped prices at $92 per megawatt hour. Since it costs approximately $95 per megawatt hour to run the generators, based on 24-hour-a-day operation, those running the generators would actually be losing money.

Jason Spadaro, president of SDS Lumber Co., said the three diesel generators that had been operating on the Bingen mill site were no longer operating. He added that the portable units would temporarily remain in place in the event conditions change.

Spadaro said he didn't think there was much of a future for the generators, however. He explained that several large scale energy plants will be going into service in the region over the next few months.

"So the urgency and crisis and the shortages that drove prices up -- that should be over by the time the price caps are lifted," Spadaro explained.

The price caps currently in place expire in September 2002.

Further, Spadaro said the SDS application for a proposed temporary natural gas plant on Bald Mountain has been withdrawn.

"Because of the FERC order and the price caps, it has killed the economics on a number of projects in the county, including ours," Spadaro explained. "So I've withdrawn our application for a special use permit with the county."

In a July 10 letter to Curt Dreyer, planning director for the Klickitat County Planning Department, Spadaro explained the reasons for SDS Lumber's withdrawal from the Bald Mountain project.

"Due to changes in economic conditions, a direct result of Federal Energy Regulatory Commission implementation of price caps on power sales in all Western states, SDS Lumber is hereby withdrawing its special use permit application for 36.4 megawatts of portable natural gas fired combustion turbines at the Bald Mountain site," Spadaro wrote.

Spadaro said a minimal amount of site cleaning has already taken place on Bald Mountain, but the project will be shelved.

The SDS project had been challenged via appeals by several landowners and other groups. The SDS decision makes those appeals moot.

However, Spadaro said the project could be reborn if conditions change.

"It's a valuable site," Spadaro noted. "We may look at the potential for a longer-term plant that would be more economical to operate. That's an unknown for now. Right now, nothing is planned for the site."

Spadaro said he was disappointed by the turn of events, and warned that power blackouts might be seen in Washington as a result of the loss of the temporary power facilities.

"It's obviously a disappointment," he explained. "It increases the likelihood of blackouts throughout the Western states. There have already been blackouts in California and Nevada, and this increases the likelihood of blackouts in Oregon and Washington."

According to Spadaro, approximately 400 megawatts of electric power from the various "diesel farms" around the county were on line or would have been in operation shortly.

"And all of it is now being curtailed or taken off line because they can't be operated economically," he said. "It's unfortunate. If it had all worked, it would have been a way for the Public Utility District to see their way through the BPA rate increases."

Nevertheless, some area residents were glad to hear that the diesel generators would not be running.

Terry Gaddis, who filed an unsuccessful appeal after the Klickitat County Planning Department approved the placement of four diesel generators near his private residence north of BZ Corner, said the price cap fallout was good news.

"I'm very glad," Gaddis said. "Maybe now they'll think twice before stepping on everyone else's toes for their own personal financial gain."

Gaddis added he thought the decision to place diesel generators near where people live was misguided from the start.

"That never should have been allowed," he said. "With the corrupt county government we have, I'm really wondering what's next, if they'll let something like that in where there are houses. Maybe they could use these generators in times of need, but they don't belong near where people are. They need to be far away from everything."

Gaddis pointed out that when the BZ Corner generators were run one day, they filled the area -- and his house -- with white smoke.

Tom Svendsen, power manager for the Klickitat Public Utility District, said the price caps were not expected.

"The (Bush) administration said all along, `No price caps,' then they did a reverse, and it caught the diesel guys by surprise," Svendsen said.

According to Svendsen, the price caps had a huge impact.

"I don't think the diesels have been running since the power caps were put into effect," Svendsen said.

He noted, however, that the PUD is not currently anticipating any power shortages.

"Power supply has not been a problem, but this time of year, the Northwest is a net exporter of energy," Svendsen explained. "The worry is in the winter."

Svendsen said the loss of the diesel generators could have a negative outcome.

"The chances are a lot greater for blackouts now than before the price caps," he said.

Svendsen added that PUD customers may see a price hike of as much as 23 percent later this year.

"We'll know later on this summer," he said.

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