Governor Gary Locke’s Remarks
Annual Meeting of the Washington Public Utilities Districts Association
December 6, 2001

Thank you, Ned [PiperCowlitz PUD Commissioner and past president of the PUD Association, ].

Ned and I met two years ago in Moses Lake when I signed the PUD telecommunications legislation. That was a great day. It was March 2000, and Ned’s grandchild had just been born. (And Ned, I hope you brought some pictures...)

I mention this because, as a dad myself, I think a lot about what kind of world we are handing over to our children.

So today, I want to talk about the future and share some thoughts about where I think we are in Washington state and the Pacific Northwest with regard to energy.

First, I want to say what a great pleasure it is to be here today, because I finally get the opportunity to thank you all for the incredible leadership, skill and plain hard work that you provided in dealing with the energy crisis this year. Our PUD commissioners, managers and staff proved themselves to be public servants of the highest caliber. I am extremely proud of all of you.

What impresses me most is that even while the PUDs were busy addressing the energy crisis, many were also making terrific strides to bring advanced telecommunications to underserved areas of our state. I am constantly hearing about significant deployment of state-of-the-art telecommunications infrastructure in places like Chelan, Clallam, Okanogan, Pend Oreille, Douglas and Grant counties. I am heartened, too, that many of these investments are being done in partnership with private companies.

Your efforts to deploy advanced telecommunications are key to economic development in much of rural Washington. You are bringing needed services to businesses that must compete not only with those in urban areas of Washington, but around the globe. Thanks to you, citizens now have increased educational opportunities, expanded government and commercial services, and even improved health care. This is no less historic than when the PUDs first brought electricity to rural communities some 70 years ago.

I am proud to have proposed and signed Senate Bill 6675. But its real success is due to the willingness of the PUDs -- the publicly elected commissioners and their managers -- to use the authority the bill provides to the benefit of their communities. Again, I commend you for your leadership.

Let’s talk about energy.

The past 18 months have been a period of enormous challenges in the Northwest. California’s failed energy restructuring led to power plant shutdowns that reduced energy supply and drove prices sky high not only in California but throughout the west. And a near-record drought limited the amount of hydropower our region could produce.

The impact of all of this on our state was -- and still is -- enormous. Your utilities were forced to raise rates and it may be some time before those rates come down. With reduced hydropower, many of you were forced to frantically shop for power on the dysfunctional spot market. Many businesses in Washington curtailed their operations or shut down altogether. Thousands of workers were sent home, many permanently. Farmers in your communities sat out the season because they couldn’t afford to irrigate their crops. Ocean fishers wondered if they’d have affordable cold storage for their catch. And day after day we wondered if we’d have enough power to make it to tomorrow.

But in the end we avoided power blackouts and kept the lights on. And we did it because we took responsible steps early. We used emergency authority to streamline the permitting of temporary generation that you used to help our region meet demand last summer. Many of you curtailed your own energy use, invested in conservation and implemented irrigation and industrial buy-back programs. And you helped me get the message out for citizens to voluntarily reduce their energy consumption, and citizens responded.

The Northwest Power Planning Council now says the chance of blackouts in the Northwest this winter has dropped from 17 percent to less than 1 percent. That’s good news.

And looking further out on the horizon, we are in fairly good shape. New generating plants are being built in Washington. There are currently six gas-fired plants under construction, bringing an additional 2,100 megawatts on line within two years. We are also home to the nation’s largest wind project, a 300 megawatt-capacity project along the Oregon border in southeast Washington. About 75 megawatts are already operational and connected to the grid.

This year, with the help of many in this room, we passed a comprehensive package of energy legislation that streamlined our power plant siting procedures and provided tax and regulatory incentives for alternative energy. We now have almost 4000 megawatts of gas-fired projects in the state and local permitting processes. We also have several wind projects in the planning stages. Clallam PUD is even looking at ocean power!

We are seeing expansions in pipeline capacity necessary to transport gas to these plants. Both interstate pipelines serving Washington have expansion “open seasons” under way. We understand they have additional expansions planned in the next two to three years.

And our region is moving forward on transmission. BPA owns more than 80 percent of our transmission lines and it has eminent domain authority over the construction of new lines. It has identified nine projects representing 300 miles of new transmission that are needed. These projects are under development and should be completed between 2002 and 2005.

You are no doubt aware that BPA needs additional borrowing authority to make these transmission upgrades as early as possible. That’s why I have been urging Congress, OMB, FERC and the administration to support increased borrowing authority. Right now, that is the number one transmission issue facing the Northwest. I am cautiously optimistic BPA will get the authority it needs.

But even as our energy picture improves, we must not forget the harms we suffered and the sacrifices we made this year. Because if we do, we are condemned to repeat them.

So now the real challenge begins. Now that we have weathered the short-term crisis, it is time to look to the future.

How do we address our energy future -- our children and grandchildren’s energy future? We know that despite the events of September 11 and the current recession the fundamentals of our economy are strong. As our economy begins to grow again -- and it will -- our demand for energy will grow. We must be prepared to meet that demand.

But we must do so responsibly. We must avoid wild-eyed schemes to deregulate energy markets that lead to boom and bust cycles of energy development and focus instead on establishing policies that ensure secure and affordable power while managing economic risks to our utilities and their customers.

We must avoid complacency and instead be prepared for events outside of our control. We must expect that we’ll have future droughts. We must anticipate Endangered Species Act requirements that put pressure on our hydro systems. We must anticipate that volatility in wholesale power markets may be a fact of life in the future.

We must avoid policies that adversely affect our environment and focus instead on policies that recognize both our need for energy and our responsibilities to the health of our land, air and water.

And we must resist at all costs those outside our region who would take our low-cost power and focus on ensuring that the benefits of the Columbia River System -- that the people of the Northwest have been paying for for more than half a century -- stay in our region where they belong.

So how do we get there?

Well, the single most important thing we can do right now is to understand that energy is not just another commodity. Energy is not like soybeans or pork bellies. As my friend Dick Hemstad often reminds us, calling electricity just another commodity is like calling oxygen just another gas. Electricity is as vital to our economy as water is to our bodies.

Last month I had the opportunity to meet with the Federal Energy Regulatory Commission in Seattle. They came to town asking how federal policy can help promote infrastructure investment.

While some responded by calling for new governance structures, new market structures, greater roles for FERC and more limited roles for the states, I had a different message.

I said that as we’ve seen only too well this year, restructuring energy markets is a grand experiment that can go terribly wrong. If it must go forward at all -- and to me that’s a big “if” -- it must be done right. And there must be a way and willingness for government to step in to stop those experiments that go wrong. Because when it goes wrong it affects the lives of real people -- real families -- and real communities.

You know by now that I am a skeptic when it comes to the benefits of energy restructuring. Almost five years ago, our state Legislature considered retail restructuring on the assumption that it would result in competitive markets that offer consumers innovation and lower prices and better service. Washington declined to restructure its retail energy markets and the disastrous experiences since then in California, Montana and elsewhere only serve to reinforce my skepticism.

That is not to say that I don’t believe in markets. I do. I strongly believe that free and fair competition can bring tremendous benefits to consumers. But I am not convinced that free and fair competition is possible in the energy market the same way it may be for other commodities.

In a free market, there is elasticity of demand. When the price of a commodity goes too high, the consumers of that commodity can and will find substitutes. Yet what substitute does a farm or factory have to using electricity? Sure, it can stop purchasing electricity, but then it must curtail operations, lay off workers and hurt families, and deprive consumers of the goods it produces or the crops it grows.

So, in my view, we need to change the tone of the discussion. Let’s quit talking about energy restructuring itself as if it were a policy goal. Deregulation itself should not be the policy goal. Competition itself should not be the policy goal. There is one and only one public policy goal -- to ensure reliable and affordable energy for businesses and consumers who depend on it day in and day out.

In Washington, we have chosen to achieve this objective through local utilities, like PUDs, that have a legal obligation to serve. Competitive wholesale markets can help our utilities manage a portfolio of resources and keep rates low. But I see these wholesale markets as a complement to state- and local-regulated retail electricity service, not a substitute for it. Federal policies regarding wholesale power and transmission markets should complement state and local regulation in Washington -- and not supplant it.

I am glad that FERC appears to have backed off its call for a single west-wide RTO [regional transmission organization]. But I am still nervous about what Congress may do next year with regard to energy markets, transmission systems and state authorities. I am glad our state’s U.S. Senators are with me when I say, “hold on.” Let’s not advocate change simply for the sake of change. Instead, let’s clearly identify the problems facing our region that must be addressed -- and let’s address them.

But let’s be certain that we have correctly identified the problems before we impose untested solutions. And where the benefits of change are speculative or uncertain, let’s make sure that the costs of getting it wrong don’t dwarf the benefits of getting it right.

Most importantly, Congress and FERC must understand the special characteristics of our region -- because our region is different.

Because of BPA, we in the Northwest already essentially have open access to wholesale transmission, coordinated scheduling and operation, regional planning and eminent domain authority -- the very benefits that some seek through creation of new organizations.

More than half of our power is hydropower. That means that energy policy in the NW is inextricably tied to agriculture policy, environmental policy, transportation policy, state-tribal relations and recreation.

Moreover, most of our power generation is publicly owned and serves publicly-owned utilities. We don’t fit into a west-wide, one-size-fits-all organizational model. And I will not support any new organization that undermines the historic and ongoing role of public power in driving our economy and ensuring the continued prosperity of our region.

As I said before, where the risks of getting it wrong far outweigh the benefit of getting it right, it is imperative that we do it right the first time.

So let’s keep focused. At the federal level, let’s work together to ensure that BPA has increased borrowing authority.

Let’s work together on reliability legislation that ensures a proper role for both state and federal entities.

Let’s work together to rebuild confidence that the wholesale power markets are effectively policed.

And let’s acknowledge that both the states and the federal government have important roles to play in governing and regulating energy markets.

And at the state level, let’s continue working to fulfill our proper role in ensuring our energy future.

First, we are continuing to streamline permitting of new energy facilities. The events of this past year made clear that investors need to be able to act quickly to respond to market signals and build facilities quickly to serve increased demand. In doing so, we won’t turn a blind eye to environmental and other concerns -- far from it. But we must establish clear standards.

Legislation we passed this year allows smaller projects to be sited through local permitting agencies. For larger projects, we’ve reduced the size of the state Energy Facilities Site Evaluation Council -- or EFSEC -- from nine agencies to five, and encouraged shorter timelines for EFSEC decisions. And I have asked Jim Luce, our new EFSEC chair, to develop clear and objective criteria for new facilities to avoid the uncertainty that has sometimes complicated permitting proceedings in the past.

Second, we are moving to diversify our region’s energy resources. Just as a private investment portfolio should be diversified, our energy portfolio must be diversified to cushion the impact of events outside of our control on any one source. Our hydroelectric system is dependent on good snowpacks and water, and is limited by ESA. Gas prices -- though they’re low right now -- could go up again tomorrow. As a region, we need to hedge against such occurrences.

That’s why our state policies encourage the development of alternative energy, such as wind, solar, landfill gas, fuel cells and ocean power. I believe that giving consumers a “green option” for power will promote the development of these resources. Net metering and fuel mix disclosure requirements, as well as sales and use tax exemptions for wind, solar and fuel cells, will further promote these alternative technologies.

Third, we must promote investments in energy efficiency.

Let’s increase our investments in conservation. The Northwest Power Planning Council has set conservation targets of 100 megawatts per year for the next three years. Those targets are clearly achievable.

Let’s continue to support BPA’s Community Conservation Challenge, which aims to encourage voluntary action by people and businesses in the Northwest that result in reduced electricity consumption. Many of you are already active participants in that program and I commend you for that.

Let’s promote our region’s clean energy industries. A recent study concluded that with the right policies, our region has the potential to nurture an industry providing as many as 32,000 jobs and adding $6.4 billion to the region’s economy each year. Now we must work together on strategies to transform new and innovative technologies into commercially viable products and develop markets for them.

Fourth, we must ensure energy assistance is available to our most at-risk citizens -- the poor and the elderly.

Finally, we must protect BPA as a regional resource. We must work hard to block attempts by those in other parts of the country to amend the Power Act and undermine public preference to BPA power. I expect that discussion to escalate in the coming years, especially as BPA looks at power allocations after 2006. We must be prepared to protect our interests.

If we take these steps, then I believe we are making significant progress to secure our energy future. I want my children, and Ned’s grandchildren, to be secure that they will have light, heat and communications, and that the communities in which they live are healthy, safe, vibrant and prosperous.

The PUDs and the PUD Association have played a critical role in shaping Washington’s future, both in energy and telecommunications. To all of you, thanks for a job well done.
Related Links:
- Energy Facility Site Evaluation Council
- Bonneville Power Administration
- Federal Energy Regulatory Commission
- Northwest Power Planning Council
- Washington State Office of Trade and Economic Development, Energy Policy Group
- BPA's Community Conservation Challenge
- Washington Public Utility Districts
- Washington State Legislature
- U.S. Senate

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