POWER AGENCY FEELS THE HEAT AS CUSTOMERS SHOP AROUND

POWER AGENCY FEELS THE HEAT AS CUSTOMERS SHOP AROUND

For the first time, aluminum and chemical companies that rely on a cheap and stable supply of electric power are in position to squeeze a beleaguered federal power agency that once was the unchallenged source of electricity in the Northwest.

Banded together as Direct Service Industries Inc., eight aluminum and two chemical companies are negotiating with the Bonneville Power Administration to force the agency to lower rates and provide greater access for outside utilities to its network of transmission lines.The DSI companies are taking advantage of deregulation under the 1992 Energy Policy Act that allows private power producers to sell their electricity outside their service area and requires utilities to make their power lines available, at a cost, for transmission.

"Marketing aluminum is basically being able to contract for affordable, reliable electric power," said John Carr, executive director of DSI. The Northwest produces about 10 percent of the world's aluminum supply.

About 30 percent of the cost of aluminum smelters is associated with electricity, and the ability of a smelter to compete in the world marketplace is tied inextricably to the cost of power.

Perry Gruber, a press officer for the BPA, said the agency is renegotiating contracts with DSI and others that will provide lower rates and simpler contract provisions.

Countered Mr. Carr: "The tide has turned and I don't know if BPA's proposed rate reduction to us is enough." The BPA has offered DSI companies a 13 percent cut, he said. New contracts and redesigned rates are supposed to be in place by Oct. 1.

"Our No. 1 priority is to make sure BPA's transmission lines are opened up," Mr. Carr said.

About 90 percent of DSI's power needs come from the BPA, "but that will go down in the near future, perhaps significantly," he said. About 25 percent of the BPA's revenue comes from the aluminum and chemical companies.

For the BPA, the rate negotiations are another in a host of problems.

The utility's fate is intimately linked to budget cutters in the "other Washington," local efforts to replenish salmon stocks, the retirement of nuclear plant construction debts, deregulation, low-cost competitors and the muscle of the DSI companies.

For 60 years, the Bonneville Power Administration has been the Northwest's dominant power broker, a federal agency providing almost unbelievably cheap electricity - in 1993, the average Northwest residential rate was 4.8 cents a kilowatt hour, compared with the national average of 8.3 cents. It still provides 50 percent of the power used in the Northwest and owns 75 percent of the region's transmission lines.

So until recently, there was no need for companies served by the BPA to even think of shopping elsewhere.

The BPA used to have a huge cost advantage, Mr. Carr said, but with all its added responsibilities - such as salmon and wildlife recovery missions, irrigation subsidies and debts - alternate suppliers can undercut the agency by 10 percent to 20 percent.

The BPA currently charges business customers about 2.87 cents for each kilowatt hour. A kilowatt hour is the amount of energy needed to burn 10 100- watt light bulbs for an hour.

With the glut of cheap electricity available from private power producers, many using gas-fired turbine generators that burn inexpensive natural gas from Canada, companies are increasingly using those suppliers, and the BPA's customer base is eroding.

Even though the BPA owns virtually all of the transmission lines, alternate suppliers - who must pay transmission fees to the BPA for the use of those lines - still can undercut the agency.

Kaiser Aluminum and Chemical Co., for example, recently announced plans to buy 50 megawatts of electricity from Washington Water Power Co., of Spokane, Wash., for about $7 million less than the BPA can provide.

The change has left the agency scrambling to transform itself from a ''utility bureaucracy to market competitor," in its own words.

"We're basically in the needs satisfaction business now," a big change

from the traditional approach, said Mr. Gruber, the BPA press officer. "We feel that we are responding to the marketplace, but only the customers and the market will determine if all we've done and are trying to do will work."

But the lights are flickering.

The U.S. Congress, looking for ways to reduce government and the federal deficit, is debating the future of the Department of Energy, where the BPA resides. Bills to turn the BPA into a federal corporation and to link salmon- recovery funds to the amount of revenue generated by the BPA are before Congress.

The BPA's $6.7 billion debt somehow must be refinanced and it has to service an even bigger debt load caused by the failure of its venture into nuclear power generation in the 1970s. It's faced with mounting yearly costs - more than $400 million this year - mandated under U.S. law for salmon recovery efforts at the same time that it is cutting staff, reducing costs and lowering rates.

Environmentalists, meanwhile, complain that the salmon-recovery effort is not good enough and that ratepayers continue to subsidize businesses.