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Electric rate hikes could ignite storm
All of the indicators are lining up for a "perfect storm" that could devastate Washington's economy like last fall's hurricanes clobbered Florida.
Right now, our state is the eighth most expensive state in which to do business. Of the five key economic indicators measured by the Washington Alliance for a Competitive Economy (WashACE) in its annual state-by-state comparisons, only the cost of electricity is below the national average.
But that may soon change.
On average, Washington's power rates are 16 percent lower than other states. For years, low cost and reliable electricity kept Washington competitive and masked the impacts of other higher costs like taxes, wages, regulations and permitting. But energy costs are rising - particularly for industrial customers, the factories and smelters that provide family-wage jobs and spur economic activity in the service sector.
In some places, paper mills, which had the lowest energy costs less than a decade ago, now struggle with the highest. On a per kilowatt hour basis, energy costs for Washington industries are now above the national average, and what was once a vibrant aluminum industry is now a shell of its former self.
And it may get worse.
First, the snow pack in the Cascades and the Rockies is nearing an all-time low, and since our state generates more than three-quarters of its power from hydroelectric dams, we could soon see power traders scrambling to buy electricity at any price.
Second, President Bush wants to raise Bonneville Power Administration (BPA) rates to what is called "market-level" as opposed to the current "cost of service based rates." Forget about the terminology, it means BPA rates could bump up by 20 percent a year for the next six years.
According to noted economist Robert McCullough, the president's proposal could cost Washington and Oregon between 40,000 and 60,000 jobs between now and 2010. That's on top of the 105,000 jobs lost in the primary metals and paper industry following the 2000-2001 energy crisis.
Finally, if that's not enough, the Washington Legislature is considering an array of new legislation that could further increase the cost of doing business. For example, some lawmakers want to undo the 2003 unemployment insurance reforms before they even have a chance to phase in.
Apparently, they've forgotten the 2002 testimony of Boeing Commercial Airplane Co. President Alan Mulally, who pointed out that Washington has the highest unemployment rates of any place in the world that Boeing operates.
According to WashACE, our state's average unemployment cost of $695 per worker is the highest in the nation compared to the national mean of $228. No wonder states like South Carolina confidently make overtures to Boeing to build part of the 787 (formerly 7E7) at Charleston. South Carolina's unemployment insurance costs are $140.
Today, more than ever, costs matter. In this highly competitive world market, many of those costs cannot be passed on to the customers. They are driving decisions where companies locate or relocate.
With that in mind, three things must happen:
1. President Bush must back off his market rate proposal;
2. Washington's Legislature must reduce employer costs, not pile on more; and
3. Hope for an unusually wet spring and dream of a "White Easter."
Otherwise, we could be in the eye of the perfect storm that will devastate our economy for years to come.
Don C. Brunell is president of the Association of Washington Business.