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Posted on Apr 3, 2015

‘Best use of power’ debate fuels irrigators’ challenge of Grant PUD rates

EPHRATA — Farmers who use electricity to power irrigation pumps will see their Grant County PUD power rates increase by some 39 percent over the next 10 years — a rate increase six times greater than the increases paid by the county’s sprawling computer data centers.

Is that fair? Dan Miller doesn’t think so.

Miller, spokesman of the Ag Water Power Users of Grant County, says farmers, who have long been a pillar of the county economy, want thePUD to maintain the nearly 40-percent subsidy the farm sector receives on its power rates.

Commissioners decided in 2008 that current subsidies need to be adjusted, but not eliminated, to make rate-setting more equitable for everyone.

The first of what could be 10 consecutive years of rate increases happened this year.

For much of its history, the utility raised rates evenly across the board to all rate classes.

After much discussion, commissioners in 2008 opted instead to pin rates to “cost of service” — the actual cost of delivering power to each of its varied classes of customer over the utility’s network of powerlines, switchyards and substations.

We’re questioning the science behind the cost-of-service formula,” says Miller, whose group represents the approximately 1,300 individuals and companies that use power for irrigation measured on 4,700 meters, countywide.

I’m not against growth or server farms,” he said, “but you have an organization that consumes massive amounts of power, but provides few jobs. Is that a good use of our power?”

Amid many competing interest groups, the “best use” of the region’s locally owned and controlled, low-cost electricity becomes a complex issue.

This is especially true as increasing local demand whittles away at the revenue from surplus generation that these utilities have historically used to keep local power rates lower than the cost of service.

Growth in demand for Grant PUD power has forced some hard but thoughtful decisions.

Lured by wide expanses of cheap land and hydropower, fast Internet and the convenience of nearby Interstate 90, big industry has arrived en masse to Quincy and Moses Lake over the last decade. The growth includes the megawatt-gobbling computer data centers, which power the Internet.

All this adds to a healthy mix of large vegetable-processing companies that already called Grant County home.

In 2004, Grant PUD powered the entire county with 341 average megawatts of electricity. Last year, that need had grown nearly 46 percent to 497 megawatts, an approximate annual growth rate of 4.6 percent.

That compares to historic annual growth at Chelan and Douglas PUDs of about 1 percent to 3 percent per year, although both saw much higher annual growth rates in 2014. Chelan PUD is currently rethinking its own policies for supplying customers with big power demands.

At current levels of expected growth, Grant PUD is faced with potentially reaching the contractual limits of the low-cost power it can take from its Columbia River dams in about seven to 10 years, Kevin Nordt, the utility’s chief financial officer, said for this report.

Grant went from the quiet, hometown, stable utility to one that has to wrestle with the same questions that bigger utilities have wrestled with for decades,” Nordt said. “Rates that are too high would stifle growth, and that would mean less revenue to keep rates low for other ratepayers. It’s an exciting, but technical problem. And a policy problem.”

Immersed in this atmosphere of historically high growth, Grant PUD commissioners launched public discussions in 2008 and 2013 to study the factors that contribute to rate setting.

In 2013, they agreed to pin rates to the cost of service, but still ensure that “core” customers — farmers, residential ratepayers and small businesses — were first in line for the low-cost power from its dams.

According to the cost-of-service model, commissioners target rate increases that vary by rate class but that, altogether, produce about 2 percent more rate revenue per year through 2024.

Some rate classes will pay more than cost, so the core customer groups can continue to pay less. But, by 2024 no single rate class will pay more than 15 percent above its cost of service or less than 20 percent below.

This currently isn’t the case. Irrigators are paying about 40 percent less than the cost to supply their power. Residential customers are paying about 24 percent less.

Their low rates are being subsidized by the largest industrial customers, including the data centers, which pay nearly 38 percent more than the cost to serve them, PUD records show.

Rate adjustments over time show that irrigators will get a higher percentage rate increase through 2024 than the large industrial customers – 39 percent compared to 5 percent. But they’ll still be paying 20 percent less than the cost to serve them. The data centers, as one of the rate classes that will help subsidize the “core” classes will be paying 15 percent more.

Other classes whose rates would subsidize the core customers are the industrial, vegetable processing and ag boiler rate classes, which would see rate increases of about 50 percent to 60 percent by 2024.

With rate revenue covering cost of service, Grant PUD officials can use the utility’s revenue from the sale of power not needed for local demand — expected to be about $60 million this year — to pay down debt or save for unexpected expenses, like the $69 million repair of the crack discovered last year in the Wanapum Dam spillway.

This subsidizing model differs from Grant’s neighboring PUDs in Chelan and Douglas counties, which depend on revenues from surplus power sales to cover the cost gaps and keep rates low.

The rate classes had gotten farther and farther apart over the last 20 years,” Grant PUDCommissioner Dale Walker said. “Everyone got the same (percentage) rate increase. But those rate classes that were paying under what it cost to deliver power kept getting farther and farther under.”

He added, “This whole discussion about how the rates are fine right now, that’s great if you’re a farmer or residential user, and not so great if you’re a heavy industrial user.”

Miller, spokesman for the irrigators’ group, questions the validity of the factors the PUD uses to calculate cost of service, and feels it discounts the contribution that ag irrigators and other core Grant County business make to economic stability.

According to a 2011 study commissioned by the Ag Power Users, the agriculture industry employs directly or indirectly some 41 percent of the Grant County labor force. Of that, 24 percent of employment is linked directly to irrigated agriculture, the study shows.

Farmers and farm-related industry have been core PUD customers since the utility built its Columbia River dams in the 1960s, Miller said, adding that their diversified crops, which require water at different times of the year, help stabilize the county’s demand for electricity — a benefit for the PUD.

The true value of those factors should be taken into account when assigning rate increases, Miller said.

Commissioners have tabled further discussion of their criteria for continuing to subsidize the core rate classes until June, when the irrigators and members of other rate classes can further express their concerns.

We’re headed in the best direction we can for everybody,” Walker said. “The industrial users, farmers and other rate classes are all reasonably charged for their power now.”

He doesn’t expect the June discussion to drastically change the policy they have in place, but it will be another chance to make sure everyone understands are how their rates are derived.

The commissioners didn’t feel farmers should be subsidized any more than the residential customers,” Walker said, “because that’s the way it originally was. Over the years, things have gotten more and more out of whack and, unfortunately for agriculture, it’s going to cost them more money now.”

 

— By Christine Pratt, Wenatchee World

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