Business Columns & Blogs

Bill Virgin: Don't count on cheap energy

The Northwest has lived for decades on a legacy of cheap hydropower, supplemented by relatively cheap coal, even cheap conservation. Absent the development of an almost perpetual motion machine, say goodbye to that.

Some basic economics here: When a recession reduces demand for goods or services, it usually means a drop in price for those goods or services.

That’s not necessarily desirable when it comes to housing prices, at least for those who are trying to sell a house or are watching the purported market value of their home sink below the outstanding balance on their mortgage. Of course, if you’re one of the few who are buying in this market, it’s all gravy.

Now consider energy prices. Fewer people commuting to work should mean less demand for gasoline, which ought to drive down prices. Industries curtailing their production should mean less demand for natural gas and electricity, and thus drive down prices. What’s not to like – unless you’re a shareholder of an energy company, or you’re no longer commuting because of what the recession did to your job.

But in the real world, energy prices don’t work so elastically in response to demand, for an infinity of reasons. Some of them: supply (natural gas prices have been down, having more to do with huge quantities of shale gas being added to potential reserves than a drop in demand), weather, politics, regulation, economics.

So consumers and businesses haven’t seen nearly the same sort of price-cutting on energy bills that they have on house values.

In fact they can expect to pay more, maybe a lot more, for the energy they use.

When? Starting yesterday. Tacoma drivers know this from watching those flashing numbers on the gas pumps add up just a little faster. The most recent AAA report on gas prices pegged the average of a gallon of regular at $3.262. A year ago? $2.816.

Tacoma Power customers know this if they’ve followed coverage of the proposed 5.8 percent increase in electricity rates this year, to be followed by another 5.8 percent increase next year.

We’ll stay with the theme of electricity for the moment, because a lot of trends are at work here, and almost none of them favor those who pay the bills.

We’re going to need more electricity. Our economy will recover from the recession, and our population will grow, both prompting more energy consumption. We will use still more electricity to power and recharge the proliferating gizmos and screens in our lives, not to mention our cars if electric vehicles become more than a curiosity.

In fact we will not only need more electricity to accommodate growth, we’ll need more to replace sources that we could be losing.

Where is the extra juice going to come from?

The Northwest Power and Conservation Council, the regional planning body, is betting on conservation and improved efficiency – so much so that its latest power plan, adopted a year ago, says there’s enough available and cost-effective conservation to meet 85 percent of load growth for the next 20 years.

But conservation isn’t free, even less so as efficiency has to be achieved in thousands of individual households and businesses rather than at a few large consumption points.

How about natural gas? Gas-fired combustion turbines can be deployed fairly quickly, and the fuel has actually declined in price. But if that shale gas proves more difficult or expensive to get, either because of geology or regulation, prices will start climbing.

Wind? There’s some out there, but it has to be backed up with something else, and getting the wind power onto the grid poses its own expensive challenges.

Coal? Hah. The coal-fired plant in Boardman, Ore., will eventually be idled, and enviromentalists would love to see the same thing happen to the Centralia generator. That’s capacity that will have to be replaced. You’d have better luck proposing a new nuke than a new coal plant in the Northwest.

Not that you’d get very far with nuclear either. In the Northwest the issue of nuclear power is as much one of finances as it is environmental or safety, thanks to WPPSS.

Hydro? Good luck building a large-scale project, especially if there’s a salmon anywhere near. In the Northwest the talk is more about taking out capacity, not adding it.

Tidal? Solar? Biomass? Small-scale wind and hydro? Lots of interesting work is being done by everyone from huge companies and research institutions to garage tinkerers. But each one has environmental or cost issues, or is years from being ready for prime time, or may make only incremental contributions.

Beyond the issue of which one of the options, or combination thereof, the region chooses to keep the lights on is this big one: Whatever the choice, it’s going to cost more than what we have now.

You might not have thought your energy bills were much of a bargain even during the recession. But cheer up – they’ll look a whole lot better when you see what’s headed your way.

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at