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Irrigators Try to Fend Off Electricty Rate Hikes by Chris Mulick, Herald staff writer Tri-City Herald, December 17, 2000

Mid-Columbia utilities are hoping to protect a deal that would partially shield irrigators from sharp electricity rate increases that would kick-in for the 2002 growing season.

But higher than anticipated wholesale energy costs and turf battles between Bonneville Power Administration customers has forced a new round of contract negotiations that could unravel an agreement that already would leave irrigators paying more.

And without some sort of mitigation, irrigators could be looking at increases high enough to put them out of business.

"There's a lot of concern in agriculture right now," said Ray Anason, the irrigation manager for Sun Heaven farms near Prosser. "There are those who couldn't take any new increase."

Rate cap would limit exposure

The BPA, which sells all the deliciously cheap power produced at Northwest federal hydroelectric dams, has traditionally cut deals with irrigators encouraging them to gorge themselves on power in the summer months when electricity is cheapest. But power isn't so cheap in the summer anymore.

Increasing demand for electricity has outpaced construction of new power plants in recent years. And retail deregulation of the industry in California is being partly blamed for boosting rates to unprecedented levels in the Golden State, which drives the entire West Coast market.

Now, as Bonneville renegotiates power sales contracts set to expire in October, demand for the BPA's cheap energy is soaring and competition is fierce. Already, the agency has announced a new rate structure that follows the market, with rates being highest in the summer. Without some sort of break, wholesale irrigation rates would be as much as an average of 60 percent higher, said John Saven, executive director of Northwest Irrigation Utilities.

While a rate increase of that size would largely inconvenience homeowners, it would disable irrigators, who rely on high-powered pumps to bring water from the river to their crops.

Tom Mackay, vice president of finance for AgriNorthwest, said electricity makes up 8 percent to 10 percent of the company's expenses.

(bluefish notes: AgriNorthwest is the largest of the thirteen agribussiness pumping from Ice Harbor Reservoir. In 1991, AgriNorthwest spent $933,000 to pump water from Ice Harbor Reservoir to irrigate 10,000 acres. The thirteen agribusinesses combined spent $2,472,055 to irrigate 36,389 acres. Source: ACOE Walla Walla District, Investigation of Pumping Facilities, Lower Snake River. 4-13, Table 4-3. 1991)

That's why, without some sort of break, "the irrigators really get hammered hard," said Benton PUD Manager Jim Sanders.

The deal Bonneville has agreed to would, under traditional contracts that provide a block of power to utilities, limit wholesale rate increases on average to 7.5 percent between the months of May and September. It also exempts irrigators from having to pay for impromptu rate increases during times when the spot market power Bonneville has to buy to meet its obligations spikes in price.

All in all, it's a pretty sweet deal compared to scheduled rate hikes other customers will have to pay for. And that's why it may be difficult to keep intact.

Bonneville is being pulled several different directions by its customers. Public utilities, such as the ones serving the Tri-Cities, and rural electric cooperatives, such as the Benton REA, are trying to protect their status as Bonneville's preference customers, ensuring their needs are met first.

Private utilities, such as Pacific Power, want more electricity or cash equivalent for their small farm and residential customers. Power-guzzling aluminum companies, some of whom have closed plants due to high electricity prices, want more of the cheap BPA power to stay afloat but have no legal entitlement to it.

Environmental groups want more money generated to pay for salmon recovery efforts.

And then there's irrigators, a quiet constituency among the stakeholders, who, like aluminum companies, are seeking a break just to make ends meet.

Like a pack of dogs fighting over a soup bone, each customer class is pitting itself against the others.

That's why some want the plan for an irrigation rate cap to keep a low profile in front of competing interests.

"Let's not go advertise this and shove it in their face," Franklin PUD Manager Ken Sugden told a small group of irrigators recently.

"I know you're sitting here thinking it's already tough to make ends meet," Saven said at the same meeting. He warned that competing Bonneville customers may ask, "Why should these stinking irrigators get this special break?"

The Northwest Energy Coalition, a collection of environmental groups, wants the benefit for irrigators phased out over time.

"They should be subject to the same deal as everyone else," said coalition spokesman Mark Glyde. "If it looks like farmers would be going out of business, that'll be something we'll have to discuss."

Glyde said there is more sympathy for irrigators than for aluminum companies because, as customers of public utilities, they have a legal entitlement to Bonneville power.

That could come in handy considering agriculture's relatively meager political strength and organization. Earlier this year, the aluminum companies got their proposed allotment of BPA power increased by going to Energy Secretary Bill Richardson.

Irrigators would be hard-pressed to match that kind of pull.

"Agriculture has no clout," Mackay said. "Agriculture has always been a diverse and disjointed group."

Saven, who helped negotiate the agreement, said he's confident he can keep it together -- but he makes no promises.

"I'm not ruling out the possibility of everything falling apart," he said.

Rate cap may not be enough

Even if the agreement is held together, there remains some question as to how beneficial it will be. Though utilities in the Mid-Columbia are rethinking their stance, all have initially indicated they would attempt to get only a third of their power under the traditional block contract.

That's because they believe they can get better flexibility out of the so-called "slice" offering. It allows utilities to purchase a percentage of the output of the federal dams and nuclear power plant north of Richland.

Sometimes that slice would be more than enough to meet utility needs, giving them an opportunity to sell to the market, and other times it wouldn't be enough, forcing utilities to buy from the market.

And while some believe the market dealing could ultimately limit rate increases for all customers, others aren't so sure. The risky slice product does not include protection for irrigators from scheduled or unscheduled rate increases.

Even if utilities ultimately agree to subscribe to the traditional block offering, thus maximizing the deal arranged for irrigators, there's some concern it wouldn't be far-reaching enough.

The agreement caps energy rates between May and September. But many growers begin irrigating in February and some don't finish until October. Unshielded during the months of February, March, April and October, average wholesale rate increases over the entire irrigation season could push beyond the 7.5 percent cap being advertised.

Though it's the kind of deal other customer groups would love to get their hands on, it still could weaken agriculture.

Ultimately, uncertainty rules the day. Utilities will be asked to commit to a contract offering next month, possibly before they have a good idea what the rates will be.

Deals aren't expected to be sealed until June, just a few months before existing contracts expire.

At this point, some are concerned for irrigators if the rate cap plan is as good as it gets.

"It still doesn't look real good," said Benton REA Manager Chuck Dawsey.