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Shock: PacifiCorp Pushes Up Rates by Mateusz Perkowski Capital Press, March 22, 2012

Farmers resort to flood irrigation as hikes overwhelm efficiency gains

Irrigators, sawmills and food processors served by PacifiCorp are worried about staying competitive as the utility increases electric rates.

The cost of electricity is rising faster than the prices companies are able to charge for their products, said Melinda Davison, an attorney representing the Industrial Customers of Northwest Utilities.

"At some point, it becomes unsustainable," she said.

Power rate hikes have prompted some irrigators in Oregon's Klamath river basin to return to flood irrigation, said Tom Mallams, president of the Klamath Off-Project Water Users. Unlike sprinkler irrigation, flooding doesn't require electricity for pumping. But it puts greater strains on the water supply, he said.

More efficient irrigation is a key component of a legal settlement between farmers, tribes and environmentalists over water use in the region, said Hollie Cannon, executive director of the Klamath Water and Power Agency.

"Without affordable power, they can't make the diversion limitations work," he said.

While the price of lumber is slightly below the level it was five years ago, the rates PacifiCorp charges timber companies and other industrial users in Oregon has increased about 47 percent, said Davison.

Other power utilities haven't increased rates as quickly, and in some cases have lowered them, she said.

Norpac, a food processor owned by a farmers cooperative, pays higher rates at its facilities in Oregon's Willamette Valley served by PacifiCorp than at subsidiaries served by other companies, said Mark Croeni, the firm's vice president of operations.

The company uses a lot of electricity for refrigeration of its frozen foods, he said. Efficiency measures haven't been enough to offset the rising cost.

"It affects your competitiveness against other places if they don't have those increases," Croeni said. "If you can't stay competitive, it will eventually cost jobs."

PacifiCorp has aggressively pursued rate increases since its takeover in 2006 by MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett's Berkshire Hathaway investment firm, Davison said.

Since then, PacifiCorp has increased retail rates by more than $880 million, according to the company's financial reports.

Last year, regulators allowed PacifiCorp to increase rates 15 percent in Idaho and 4.6 percent in California.

It's seeking rate hikes of 4.3 percent in Oregon, 9.7 percent in Utah, 10.4 percent in Wyoming and has reached a settlement for a 1.5 percent hike in Washington.

Rising retail electricity rates come as the wholesale price of power has fallen due to reduced demand and increased wind power generation, said Richard Lorenz, an attorney who has represented irrigators in rate disputes.

"The power price right now is extremely low," he said.

Bryce Dalley, director of regulatory affairs for PacifiCorp, said rate hikes must be approved by state and federal authorities and the company takes every increase seriously. "There have been increases in all of our states as the result of the investments the company has made in terms of infrastructure," he said.

The wide margin between wholesale and retail power prices doesn't have much of an impact on PacifiCorp's costs, as the company generates much of its own electricity, Dalley said. "Customers pay for the cost of service."

PacifiCorp saw $555 million in net income in 2011 on total revenues of $4.6 billion, a profit margin of 12 percent, according to a financial report.

Dalley said the company's profit margin is necessary to get funding from shareholders and bondholders.

"To meet the needs of our customers, we need to attract capital," he said.

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