The telephone call -- and the realization that a serious crisis was at hand -- came on Jan. 16. Land O'Lakes officials were told they would lose all energy in 30 minutes at their milk processing plant in Tulare, Calif. The call came from Southern California Edison, the plant's power provider and one of California's two largest utilities.
At first, no one was greatly alarmed. Despite a few brief power interruptions in late 2000, the plant had never experienced a serious energy loss in its 10 years.
This time, however; was different....
On Jan. 16, as California's energy reserves fell to less than 1.5 percent - creating a stage-three (crisis situation) alert - power to the Land O'Lakes plant was cut for 10 consecutive hours. The following day, power was shut off for 17 hours. On Jan. 18, after the plant had been without power for more than 10 straight hours, Land O'Lakes officials made an agonizing decision.
"We had to keep the plant running," says Alan Pierson, vice president of finance and administration for Land O'Lakes' Western Division. "So we chose to pay premium rates in exchange for keeping the power on. We had no choice."
Land O'Lakes paid a high price for its dilemma. To process the 11 million gallons of milk it was receiving daily, the plant incurred extra costs of $70,000 an hour to keep the power on. That week, its losses soared to more than $1 million. Many of its 220 members were forced to divert millions of gallons of milk - much of it to calf-feeding operations - because they had no way to store or process their highly perishable commodity.
That was the case at the Van Beek Bros. Dairy farm near Tulare, one of three large dairy farms operated by Bill Van Beek and his two brothers. Although they have back-up generators to keep their milking machines running during a power outage, the Van Beeks had to sell milk for only pennies on the gallon to a calf-feeding farm when the Land O'Lakes plant shut down.
"We lost close to $1.50 a gallon on more than 5,000 gallons of milk," Bill Van Beek says. "Yesterday (March 20) the farm itself was hit by a power outage for the first time, which lasted about an hour. It slowed us down a bit, but we're afraid the power situation is going to get worse this summer."
From Jan. 1 to Feb. 28, the Land O' Lakes plant sustained 19 power outages. Each time, the plant, which sits in the heart of California's $4.3 billion dairy industry, was forced to stop its processing operations for hours. Lights, phone service and computers were useless.
"We had never experienced power interruptions like that before," says Pierson. "It was literally a nightmare."
Power shock
Land O'Lakes power problems may be among the worst, but the milk processor is certainly not the only California co-op hit hard by energy troubles these days.
Across the Golden State, agricultural co-ops of all kinds --from fruit and nut, to cotton, plant nursery and dairy - are caught in an unprecedented energy crisis. They are wrestling not just with power blackouts and the threat of more to come, but with skyrocketing energy prices for electricity, natural gas and diesel. Many co-ops have seen a five-fold increase in monthly power bills.
"The energy crisis has been disastrous for California agriculture," says Bob Graf, executive vice president of field operations for Pacific Coast Producers, a fruit processing and marketing co-op in Lodi, Calif.
All this could not come at a worse time. Certainly, California has faced crises before. But now, the state's farming woes have come together all at once in a "perfect storm" that has created a situation of emergency proportions.
Prices for nearly every agricultural commodity in the state are down. It's been a drier-than-normal winter, and water may be in short supply. On top of that, the economy appears headed for a slowdown, a further blow to the state's already beleaguered agricultural industry.
"We've always had issues and challenges to deal with in California," says Rich Ghilarducci, CEO of Humboldt Creamery Association, a 75-member dairy marketing cooperative in northern California.
"But if it's industry specific, you have the knowledge and experience to take care of it," Ghilarducci says. "The energy situation is out of our control. It's hard to make decisions to take care of this challenge."
Worst of all, this winter's energy crisis may be just the beginning. Fears of what looms on the horizon are widespread, especially with the approach of California's triple-digit summer temperatures. Power demands are expected to rise even higher when the state's residents turn on their air conditioners, increasing the threat of more blackouts.
At the same time, growers and processors will be faced with the harvest demands of many of the state's perishable food crops. Will there be power, they ask? And if so, at what cost? Co-ops, consumers and utilities alike are bracing for the worst.
"The magnitude of this problem has not sunk in for most people," says Pierson. "This summer will be worse than anything we've gone through so far."
The consequences of California's energy problems are far-reaching. California has the world's sixth largest economy, is the nation's most populous state, and, with a $27 billion farming industry, is the No. 1 agricultural producer in the United States.
What caused California's energy crisis is open to heated debate. Critics point to the state's flawed energy deregulation policy. Others cite the lack of new power plants, caused in part by what they say is too much bureaucratic red tape and an over-zealous environmental regulation which "handcuffs" energy development efforts. Everyone is pointing fingers these days.
What matters now, though, is just getting through the crisis. And for the state's agricultural co-ops, that hasn't been easy.
Uneasy aftermath
Today, the Land O'Lakes plant in Tulare is running with bated breath. By early March, the blackouts had diminished. Still, its employees keep the lights and the thermostat turned down. All available power goes to production to make butter, cheese, whole milk, non-fat powders and fluid milk. While the plant has not had to resort to layoffs, it has curtailed employee hours.
"The Public Utilities Commission has temporarily waived the fees we incurred during this winter's power interruptions," says Pierson. "But the issue is not resolved."
Land O'Lakes - like many industrial businesses in California - operates on an interruptible power contract with Southern California Edison. Under its agreement, the plant agrees to curtail energy use for up to 6 hours at a time whenever California's power reserves are threatened.
In return, the plant receives a 15-percent discount on its power rates. If it chooses not to lose power during those peak energy times, it keeps its energy but pays severe fines. January's outages, which lasted more than 6 hours at a stretch, remain a point of contention for Land O'Lakes. At issue is whether the utility had the right to implement back-to-back interruptions with no break in between. While it works to resolve its differences with Southern California Edison, Land O'Lakes has remained on its interruptible contract.
"After this winter's power interruptions, our first reaction was to get off the interruptible system," says Pierson. "But then we realized rolling blackouts, which come without warning, are more devastating. At least, under the current system, we have some warning."
Interruptible power - an iffy situation
But there are many businesses on the interruptible power system that are deeply unhappy with it. Fruit Growers Supply Co., the supply arm of the Sunkist Growers citrus cooperative, tried to get out of its interruptible power contract with Southern California Edison when it came up for renewal in late 2000. Although its contract assured no more than 150 hours of outages a year, the co-op was concerned. It had already sustained a few outages at its carton-making plant in Ontario, Calif, and feared the situation would get worse. But Fruit Growers Supply was not allowed out of its contract.
In January, at the peak of carton-making operations, the Fruit Growers Supply plant sustained repeated outages. "In one week in mid-January, we had 45 hours of interruptions," says Vice President Fielding Thompson, who heads up the co-op's supply division.
As operations fell behind, Fruit Growers Supply incurred unusually high overtime costs to keep employees working through the weekend to catch up on order commitments.
"In late January, as reported through Southern California Edison, the Public Utilities Commission (PUC) announced there would be no more fines for those on interruptible power who chose to keep their power on," Thompson says.
"Frankly, we are concerned about their credibility, especially when it comes to saying there won't be any fines," he says.
Power bills skyrocket
While many co-ops did not experience power interruptions during the January-February crunch, the energy crisis has been a nightmare for them all the same.
At Humboldt Creamery Association, soaring natural gas prices have increased the dairy co-op's monthly energy bills by a whopping $100,000 per month since Dec. 1, 2000.
"On top of that, Pacific Gas & Electric (PG&E) implemented a new 15-percent surcharge that started in February," says Ghilarducci. "That new surcharge alone costs us $15,000a month."
PG&E is one of the state's three major utilities, along with Southern California Edison and San Diego Gas & Electric.
Though subject to rolling blackouts, Pacific Coast Producers of Lodi, Calif., has not suffered any power outages yet. But with its peak harvesting and canning season set to begin in June, the 150-member co-op is deeply concerned about the energy situation. To process its fresh fruit and tomatoes, Pacific Coast Producers relies heavily on natural gas to fuel its canning and evaporation operations. The co-op's cold storage warehousing and shipping operations also use substantial amounts of energy.
"We cannot afford to lose power availability or experience delays during the harvest," says Graf. "We would lose a considerable amount of raw and canned product. We have to pay whatever it takes to keep our operations going. If we were to shut down, our losses would be even greater.
Like many other co-ops, Pacific Coast Producers says it is not that easy to pass on costs to customers. "Higher costs just might be enough to make a consumer turn away from fruit to eating a Twinkie instead," Graf says.
The situation is the same for Humboldt Creamery, where natural-gas price hikes have raised the co-op's production costs by 5-6 cents a pound. The co-op is absorbing the increases.
"I can't just go out and raise our prices," Ghilarducci says. "Sixty percent of our sales are outside of California. My competitors outside of California don't have these problems or these added costs."
What's being done
Although Humboldt has not experienced any blackouts, it has stood on the brink. More than once, the co-op has received notice that its power would be shut down in an hour. For a facility that processes 100,000 gallons of milk a day, that's too close for comfort. As a result, the co-op is looking at diverting milk away from energy-hungry operations like powder drying that rely on natural gas. Instead, Humboldt will process more milk in its ice-cream manufacturing facilities.
Humboldt Creamery also is considering the purchase of a powerful generator that could supply power during any future outages. The price tag for the new generator, says Ghilarducci, is a hefty $500,000.
Likewise, Land O'Lakes has approved a $2.7 million capital expenditure to buy a 6.5-megawatt generator to serve as a back-up for the Tulare plant. Fueled by natural gas, it will provide 60-70 percent of the plant's energy needs.
Saticoy Lemon Association, a 350-member co-op with four packinghouses in Ventura County, has rented three generators to provide back-up power during outages. Together, the generators will raise the co-op's expenses by $20,000 a month. Saticoy, which also operates on an interruptible power system, experienced 14 power outages from December through February.
"Our biggest concern is what is going to happen this summer, which is our busy season," says Saticoy president Glenn Miller. "We may have to purchase one or two more generators. I've learned a lot about power in the last couple of months. We can expect that there won't be enough power and there will be rolling blackouts."
Fruit Growers Supply has located a 1.5-megawatt generator to serve as a back-up power provider. But the co-op hasn't hooked it up yet. Cost to complete permitting and setup for the generator, says Thompson, is $70,000. Then another $12,500 a month would be spent to lease the generator, with additional costs for its diesel. By March, as the power blackouts came to a stop, Fruit Growers Supply was still studying the ramifications of installing the generator.
"Legislation is being proposed that would limit blackouts to no more than six hours per day," says Thompson. "If that were to be the case, we could schedule our operations around that. If the generator is not needed, it's not a good decision to spend that kind of money to hook it up. The problem is we don't know what's going to happen. If the energy situation gets worse, there won't be any generators available when we need them."
Gloomy outlook
Co-ops across the state are working with state officials to find solutions to the crisis, particularly in the area of power availability, rate increases and the interruptible power system.
Whatever solutions are developed must keep the long term in mind, Thompson says.
"We need to make sure we get the energy system in California under control without making mistakes now that will cost us for many years to come," he says.
Many stress the importance of building more dams, which would not only provide hydroelectric power but, at the same time, increase water-storage capacity - a critical issue in a state where so much of the agriculture depends on irrigation. And they believe the recent crisis has encouraged state officials to be more receptive to new power generation. But they recognize that such projects will not happen quickly.
"Building new power generation will take at least two years," says Saticoy's Miller.
Faced with uncertainty and the threat of more blackouts, most are not optimistic.
"The worst is yet to come," says Humboldt Creamery's Ghilarducci. "California's power demand increases by 50 percent in the summer. If we can't make it now, how are we going to make it through the summer""
Tulare County dairyman Bill Van Beek lays most of the blame for the power crisis on what he and many others consider to be overly-stringent environmental regulations that have deterred construction of new power generating plants in the state. The "half-way" approach the state took to power deregulation has also left California with some of the worst of both regulated and deregulated power systems, he adds.
Environmental regulations are also frustrating Van Beek and his brothers as they pursue plans to build another, 2,700-head dairy farm in the Tulare area.
"Environmental organizations from San Francisco are fighting us in the courts, even though the local community is behind us," Van Beek says. "Why should they be able to tell us we can't build a new dairy farm in Tulare - where farming is the lifeblood of the economy - and create 30 new jobs and who knows how many indirect jobs in a county where we have 16 percent unemployment" It just seems as though some of these organizations want to make it impossible to do business in California."
Has he ever thought of moving his operation out of the state? "No. This is where I grew up and where all my family is -- this is my home. It's where I want to farm - if they don't turn out the lights on us." [end]
Editor's note: Merlo is a freelance writer based in Bakersfield, Calif., with extensive experience working for, and writing about, cooperatives.
