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Idaho Power Buybacks Impose Hidden Costs by Ken Dey Idaho Statesman, September 9, 2001

Farmers, towns, utility might all end up as losers

Bill Ringert is reluctant to be photographed in his weed-choked field that once produced fertile crops.

"I'd hate to have other people see the condition it's in," Ringert said. "It was great producing farm land."

Situated on a plateau nearly 700 feet above the Snake River, Ringert's land is part of the 38,144 acres -- more than 40 percent of all irrigated land -- in Elmore County that sit idle this year because of Idaho Power's irrigation buyback program.

The program launched in March was the utility's answer to rising energy costs and an anticipated energy shortage this summer.

Idaho Power Co. agreed to pay farmers in 18 Idaho counties if they didn't irrigate this year. The program took more than 150,000 acres out of production and saved Idaho Power nearly 500 million kilowatts of power. The participating farmers received $75 million.

The utility paid farmers 15 cents a kilowatt hour to not use the amount of power they'd historically used. The 15 cents a kilowatt hour was determined by how much money the farmers would lose by not producing crops.

At the time, it looked like a win-win situation. Farmers would break even, or even make a profit, while Idaho Power -- and its ratepayers throughout Boise and southwestern Idaho -- wouldn't have to spend upwards of 30 cents a kilowatt hour to keep those irrigation pumps humming.

But now the benefits of the program aren't as clear. Farmers and communities are trying to calculate the hidden costs of the program, including:

• A significant loss of agriculture dollars spent in farm communities this year.

• The costs of reclaiming extremely dry farmland taken over by noxious weeds.

Maggie Brilz, Idaho Power director of pricing, said Idaho Power's program costs would be hard to quantify unless the utility kept track of every purchase, because the price for power fluctuates so much.

When the program started, Idaho Power was paying about 30 cents a kilowatt hour on the volatile open market. If that price had held, the buyback program would have saved Idaho Power $75 million.

But the price of wholesale power dropped dramatically over the summer and is now less than 4 cents an hour -- well below the 15-cent break-even price for the program.

Of the 18 counties that took advantage of the irrigation buyback program, Elmore County is far and away the leader. A total of 38,144 irrigated acres out of 91,513 irrigated acres in the county went into the program, earning farmers $17.4 million in payments from Idaho Power.

Owyhee County ranked second by putting 12,527, or 9.5 percent, of its total irrigated acres into the buyback.

The sheer number of acres idled in Elmore County has created some serious problems for businesses that rely on agriculture spending.

This time of year, Ringert's land and that of his Elmore County neighbors should be bustling with activity. Mint crops should be harvested and mint oil distilled; farmers should be readying for the mid-September potato harvest; alfalfa producers should be completing their third or fourth cutting of hay. But on a mild September day last week the land sat awaiting a harvest that would never come.

Far below the plateau, in Mountain Home and the other communities of Elmore county, businesses should be bustling as well, as the money generated from those farming operations makes its way from the local farm supply store to the neighborhood grocery. But like the fields that sit idle, drying in the warm Idaho sun, sales at local community businesses are also drying up.

Ripple effect

Ron Swearingen, director of economic development for the city of Mountain Home, said the community felt a significant "ripple effect" from the loss of agriculture dollars in the community.

"To the farmer who took advantage of it (buyback program), it was good for them," Swearingen said. "But for many businesses, their business has gone way, way down."

Elmore County Extension Educator Mir M. Seyedbagheri say it's difficult to make a cash estimate on how much money will be lost in the community, but he said a survey of county businesses shows that business is down in the range of 15 to 30 percent.

Swearingen and Seyedbagheri said the loss of migrant farm labor also has to be factored in.

Because of the buyback, between 300 to 500 migrant laborers aren't in Elmore County this season.

Swearingen said an typical farm laborer earns about $50 a day, and much of that money finds its way back to community businesses.

"That's a lot of money in a city of 29,000 people," Swearingen said.

Don Hedges, branch manager for the Snake River Division of Western Farm Service, said that business is down by 40 to 50 percent, a direct result of the irrigation buyback program, he maintains.

When the buyback program went into effect, growers stopped buying the company's products -- everything from fertilizer to machinery.

Because of the rapid decline in business, Hedges said, Western Farm Service had to lay off five of the company's 20 employees in the region that covers Elmore and Owyhee counties.

Across the company's service area, which stretches along the Snake River from the Oregon border to St. Anthony in eastern Idaho, sales from the company's 16 retail locations are down an average of 20 percent, according to general manager Chuck King, who added that statewide sales could be down as much as $20 million this year.

Meanwhile Seyedbagheri said most farmers getting Idaho Power payments should receive about what they would have earned if they'd planted crops.

Based on the type of crop, profits can range from $350 to $500 an acre, which on the nearly 40,000 acres in the buyback program would have netted farmers anywhere between $16 million and $20 million.

Idaho Power paid $17.4 million to Elmore County farmers.

Why Elmore County?

Lynn Tominaga, executive director of the Idaho Irrigation Pumpers Association, said Elmore County dominated the program because of its abundance of "high-lift" irrigators.

High-lift irrigators are those that have to pump water either from deep wells or up to great heights. Ringert is among them. His irrigation system uses electric pumps to pull water up 668 feet from the Snake River to the canal at the top of the plateau.

For low-level irrigators who tend to rely on minimal pumping and gravity to water their crops, the buyback program at 15 cents a kilowatt hour wasn't nearly enough to make it worth their while. But for Ringert and others who were facing mounting power costs, Idaho Power's offer was very appealing.

"The power costs are daunting at that depth," he said.

For high-lift irrigators there's also a certain irony that high electricity costs that have idled their land, because it was cheap power costs that first made high-lift irrigation a reality.

Before the 1960s, much of the plateau land in Elmore County wasn't farmed, Ringert said. But in the '60s and early 1970s, an abundance of inexpensive power from Idaho Power made it affordable to bring water up from the Snake River via massive irrigation pumps and open the land to production.

Those days of cheap power are gone.

In 1973, Ringert estimated, he spent about $25 per acre to irrigate the 800 acres of land above the river, but today it's $125 an acre. In the most recent five-year period, Ringert said, he's used 3 million kilowatt hours to irrigate his land.

Tough decisions

When irrigators signed on to the program in March, Ringert said, it seemed like the best decision. The markets for crops were still down. The power crisis in California was in the news on a daily basis. Significant price increases from Idaho Power seemed likely.

Ringert said his decision was sparked in part by a dismal contract for this year's mint crop and the likelihood that both the alfalfa and wheat markets would continue to decline.

Still, Ringert added, the potential loss to local businesses weighed on his mind.

"It was an agonizing decision for me and I would expect for others as well," Ringert said. "Everybody has to determine how much loss you can afford to take."

Ringert said there's a misconception that irrigators are making a great deal of money from the program. In a normal growing year with a strong market, gross income would be double what the buyout figure was, he said.

For Ringert there was also the emotional decision of removing land from production that has been growing crops for decades.

"It's depressing to go to that place now," Ringert said.

For Idaho Power the decision to implement the program was based on the potential of how much energy could be saved.

"A major goal was a significant reduction in energy production this summer," Idaho Power's Brilz said.

To accomplish that, Brilz said, the program targeted only irrigators who used at least 100,000 kilowatt hours a year. The price to be paid for the buyback was ultimately set by the Public Utilities Commission and based on how much money irrigators would need to make up for not planting crops.

"We asked them to look at their full operation and make that determination," Brilz said.

Brilz said Idaho Power won't know for sure how well the program succeeded in saving power until the final count of kilowatt hours bought back is tallied at the end of the program this fall, but on the Fourth of July, when urban air conditioning and rural irrigation are typically at their energy-using peaks, the company saw a reduction of about 500 megawatts compared with the previous year.

Idaho Power recognized that the program could affect local businesses, but the company had no way to judge how many irrigators would sign up.

"At the time we put the program in place, it was definitely the right thing to do to get our system back in balance," Brilz said.

Despite the loss to Elmore County businesses, no one seems to be pointing fingers at the irrigators who took advantage of it.

"We're not upset at our customers; they've been getting beat up with the ag economy," said King, the regional manager at Western Farm Services. "If I were in their shoes, I would probably do the same thing."

There's also a general agreement that as the program winds down, the pros and cons of the program need to be weighed as irrigators look toward next year's growing season.

An unsure future

No one knows what the 2002 growing season will hold, but Idaho Power says it now has no plans to offer the buyback program next year.

Brilz said that it was a "one-year temporary program" and that the utility expects it won't be needed next year as more power plants come on line.

With a buyback program off the table, farmers will have to put the land back into production, and that won't be easy.

In Ringert's case, weeds have become the dominant crop and he's not sure how well his alfalfa and mint crops will come back after a season with no water.

"The flower is not as sweet as it seems," he said. "I really wonder if it's a break-even thing by the time we get the land back into production."

Hedges said getting the weeds back under control will be a significant challenge to farmers. They'll also have to deal with acreage that is bone dry.

Hedges expects farmers to incur significant costs reclaiming the land. Weeds probably will have to be removed chemically because mechanical removal will not completely kill them. Some farmers may have to irrigate their land before any planting can take place.

And Hedges said he expects the losses incurred this year because of the buyback will affect Western Farm Service for some time to come. He already plans to stock less fertilizer next spring in case some of the land doesn't go back into production, a decision that could drive up fertilizer prices if there's too much demand and not enough supply.

In the future, Hedges would like to see an end to programs such as buybacks and subsidies.

"Agriculture needs to figure out a way to pay a fair price for a quality product and quit all these games," he said.

Ringert said it's easier now to look back at decisions and make judgments, but at the time of the buyback program, the future was unsure. As with every farmer, he has decisions that have to be made and lived with.

"There will be a backlash from every decision you make," he said.