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BPA Buyback Plan Fizzles with Irrigators by Mike Lee, Herald staff writer Tri-City Herald, February 28, 2001

The Bonneville Power Administration's attempt to buy back power from irrigators this summer appears to have flopped in the Mid-Columbia.

Prices BPA offered are just too low, irrigators said.

In short, most farmers find less risk farming than in the low-ball purchase plan, which would idle farm ground for the year and make power used for irrigation available for others.

And that means the region won't get much relief trying to meet power demands this summer when California air conditioners are humming and Northwest irrigators are pumping water onto their fields.

"I don't think we'll get any takers this year," said Ken Sugden, Franklin Public Utility District manager. "They're not offering enough money."

The final BPA offer was delivered Monday afternoon, giving irrigators and utility managers just a few days to respond before planting decisions must be made.

Depending on a variety of factors, irrigators can get approximately $75 to $130 per megawatt-hour they sell back. The variables are many. For instance, water in August is worth more than in May, and water above McNary Dam is worth more than below because it can be used to turn another turbine.

Irrigators were hoping for more, given that spot-market prices for power this summer could reach more than $500 a megawatt-hour.

For each megawatt-hour BPA doesn't buy from irrigators for about $100, it likely will pay four or five times to meet peak summer demand.

"I wish Bonneville would use it as an opportunity for irrigated agriculture to help out both the power shortage in California and the water shortage," said Dick Beightol, farm manager at Mercer Ranch. "They seem to have taken a different view than that."

Benton REA Manager Chuck Dawsey said irrigation customers have shown significant interest in selling power back but that BPA has dashed hopes of windfall profits. At best, he said, the program may allow some farmers to lose less money than if they were irrigating.

At Mercer Ranch, a large irrigated farm near Paterson, Beightol wasn't impressed with BPA's numbers.

"That they would come across with an offer ... and there would be absolutely no profit on the side of the producer doesn't sit well with me," he said.

Mercer is considering the buyout option because the processor that had been buying its corn shut down, leaving the farm with about 1,000 acres of ground for something else.

If it wasn't for that, Beightol said, Mercer wouldn't consider short-term cash from BPA, given the long-term prospect of undermining the farm's relationships with buyers.

At BPA's office in Spokane, regional manager Rick Itami said BPA was breaking new ground with the buyout offer and trying to learn what kind of program would work. The price, he said, was set to account for all the risks BPA is taking by buying back power.

Between weather changes and volatile power markets, "There are all kinds of things that can happen," he said, noting the program was pieced together in about three weeks to try to make it feasible for irrigators.

Itami said BPA doesn't have a target for the amount of power it would buy back from irrigators. "We've never done this before. We are just pricing (power) in a way that makes good business sense for us, and we'll see what happens."

The program, BPA's first for irrigators, was designed to reduce power needs during peak summer months, when power is expected to be extraordinarily expensive.

"It's being done to try to stop the flow of dollars out of Bonneville to buy power," said Jim Sanders, Benton PUD manager. "Bonneville is in pretty dire straits right now."

Benton PUD commissioners approved the utility's participation in the program Tuesday, with reservations about how idled farmland would harm an economy that relies on those products.

"If they don't grow crops that are processed and you don't have crews working, the ripple effect just blows your mind," said Benton PUD Commissioner John Goldsbury.

Indirect effects are also heavy on the minds of the region's processors, which fuel a substantial chunk of the Columbia Basin's economy.

"Anytime we are faced with a situation ... that could affect raw product supply to our processing members, then we are extremely concerned," said Bill Albee, interim president of the Northwest Food Processors Association. "They have contracts, customer bases that must be met, and interruption of that ... could be extremely harmful to the long-term relationships."

He urged growers to look a few years down the road rather than at this year. "It may appear that an alternative is good for this year, but then what are they going to do?" Albee asked. "It will put processors in a position that they ... will have to look at other alternatives also."

At the J.R. Simplot Co. in Boise, spokesman Fred Zerza said the company was watching buyback scenarios across the Northwest.

With a substantial oversupply of potatoes in the Northwest, it doesn't appear that some acres going dry would hurt processors such as Simplot.

"We're hopeful that it's not enough to cause us significant problems either in terms of availability of potatoes or loss of major fertilizer sales," Zerza said. "It depends on the type of (crops) that are taken out as well as the number of acres."