OK: Lots of stuff to read and to say.
I am totally the alpha. I have no issue letting either dog have it when they deserve it. I understand that Sandy is typically the "unstable dog" per the thunderstorm stuff, but she's totally tolerant of everyone, just scared, during the whole experience. We nearly always crate her during these times.
As far as the dog vs dog stuff, Sandy lost that fight a long time ago, like a year ago. That isn't the issue, Sandy has NEVER tried to assert herself at all, not even when Lucy weighed 10 lbs.
Sandy is a chow/german shepard mix. Despite those two breeds histories', she is really sweet. She's great with the kids, and the thunderstorm thing has always been there. She has a history. I don't know what it is. She stopped by my parents house five years ago when I was just moving out in central New York and wouldn't leave. We built her a dog house (insulated - winters are tough and my parents wouldn't have her inside) and showed it to her, brought her inside after realizing that she wasn't going anywhere. To get her to use it at all, we needed to put it (huge and heavy, by the way) ON the front steps. We moved it away a little at a time until it was finally off of the front lawn. We didn't even put her on a leash, she was that good of a dog. She moved down with us to South Carolina. Hung out in the back seat of a Civic during long roadtrips with no problem, etc.
I ignore her or crate her during thunderstorms. Never coddling. I promise, I am not a coddler. If I am around and Lucy gets in Sandy's face, she gets a swat. Not one of the swats intended for the kids behind, but a swat. I want a whimper, dogs are strong.
Lucy is the opposite. She's a SPCA special. My wife's dog, really. She was the runt of her litter. She's collie/lab, so the herding thing isn't that new, but it's never been aggressive before. She has really bad hips. Before her medicine, she was always in pain but now we have it under control. It's only Sandy that gets her goat.
Now for the new news. The Nanny noticed that Lucy would go and bark at Sandy (while she was in the crate!) today immediately after Christopher (our 8 month old) cried. Even though he was upstairs in his crib. Freaky. So for some reason Lucy feels like she's protecting the kid. Sounds great until she thinks my older son is the problem. He's 2 and under 30 lbs.
Trust me, I am very protective of the kids. Whenever they scare the kids, get playing too rough near the kids, etc, they get a talking to.
Now for the 'bad owner' part. We are a family with two kids, two dogs and a cat. She works part time and is taking classes for her masters degree. I work full time and travel too much (although less lately) and get to take care of everything during the masters degree thing while I job search like a madman. We don't walk the dogs. We have a fenced in area for them to play in, and we try to let them out to play in the yard with us twice or so a week. Lucy's really not supposed to walk more than a mile or so at a time anyway, due to her hips. Mostly because she's a total idiot Collie at heart, once when playing fetch in the snow, her legs fell out from under her, both back legs. What does she do? Proceed to drag herself the rest of the across the yard with the stupid toy in her mouth with her front legs only.