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Running a Modern Dairy Chews Up Electricity by Deirdre Gregg Puget Sound Business Journal, June 29, 2007

Ruling raises power bills for profit-squeezed farms

Two Sisters Dairy in Carnation, where the 50 dairy cows have names instead of numbers, is a labor of love for the Magnochi family.

But no matter how hard the Magnochis work, they're hard-pressed to cope with a jump in their power bill.

Almost everything they do, from milking cows to running refrigerators to heating water to sterilizing equipment, sucks up electricity. And the price of milk is set by the market rather than by the producer, so they can't pass the increased price along to customers.

"We don't get to negotiate what we sell our milk for," said Diane Magnochi.

The Magnochis, like other small farmers throughout Washington, are seeing bills increase by 13 percent to 17 percent as a result of a federal appeals court decision that the Bonneville Power Administration could no longer offer a credit to residential and small-farm customers of investor-owned utilities. Those utilities serve nearly half of the state's electricity users.

The change affects the customers of investor-owned utilities such as Puget Sound Energy and Avista Corp., but not customers of public utilities such as Snohomish County PUD or Seattle City Light.

For residential customers, the loss of the credit means an average increase of about $10 on each month's power bill, said Roger Thompson, spokesman for Puget Sound Energy. But for small farmers and irrigators, the price increase can add anywhere from $7.60 to $365 onto monthly bills.

The first bills reflecting the new rates went out in June.

Puget Sound Energy's customers are not alone. Seven Pacific Northwest utilities, which together serve about 60 percent of the population in the region, will lose monthly payments of about $25 million. The utilities plan to fight the decision and will appeal this summer.

The court ruling stems from a dispute that dates back almost 30 years. The federal Northwest Power Act, passed in 1980, was intended to allow residential and small-farm customers of both public and private utilities to get a share of the benefits from the Northwest's federal hydroelectric system. The act allowed the Bonneville Power Administration to offer payments to investor-owned utilities. Those utilities then passed the payment on to their residential and small-farm customers in the form of a credit.

But public utilities sued, saying BPA's settlement formula was driving up costs to their customers. On May 3, a three-judge panel of the Ninth U.S. Circuit Court of Appeals ruled in favor of the public utilities. As a result, BPA suspended its payments to the investor-owned utilities. Those utilities eliminated the credit and are now sending higher power bills to households and small farms.

Puget Sound Energy and the other investor-owned utilities plan to ask the full court to rehear the ruling this summer, Thompson said. He said representatives from the investor-owned utilities, public utilities and BPA started a series of meetings in early June to try to resolve the issue.

The loss of the credit affected about 95 percent of Puget Sound Energy's customers, Thompson said.

The credit was about one penny per kilowatt-hour, said Thompson, so the loss of the credit will be felt most keenly by big electricity users, such as dairy farmers.

The price of milk has increased recently, which is a relief to many dairy farmers, said Jay Gordon, executive director of the Washington State Dairy Federation. "Producers are crawling out of a hole," he said.

But with prices everything for fuel and feed shooting upward, and now an increase in power costs for some farmers, Gordon said, "the hits just keep on coming."