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By Sandra DeMent
Citizen Sandy 

Proposed PUD rate increase: needed or not?

 

April 24, 2019



Like a lot of people, I’ve worked for decades, Monday through Friday, week after week. I didn’t take time off to participate in public hearings, governmental commissions, or other civic events. My excuse was that I was too busy, or had scheduling conflicts, or traveled too much. Now that I have retired, I am diving into civic participation. When I attend a commission meeting or hearing, I am doing it for those of you who are still working, and I will try to keep you advised through the occasional factual article and analysis. —Sandra DeMent

KPUD has proposed a 1.5 percent rate increase beginning June 2019. It will generate an additional $450,000 a year for the utility. Sounds like a small number, but the story is much more complicated: KPUD is actually forecasting—although it is not presently requesting—an increase in its rates by an additional 1.5 percent every year for the next five years, through 2023. The cumulative increase conceivably could therefore be up to 7.5 percent by the fifth year.

First, keep in mind that KPUD has an annual budget of over $50 million, roughly the same size as the Klickitat County budget. To be more exact, KPUD’s recently audited 2017 budget was for $48 million, the $2018 budget was $52.3 million, and the 2019 budget is projected to be $68.4 million. To be fair, the 2019 budget includes at least $12 million of new revenue from the renewable natural gas (RNG) facility that just went into operation in January. Without the RNG revenue, KPUD’s 2019 budget would be $56 million.

The RNG deal is with British Petroleum (BP) and guarantees KPUD a fixed share of RNG revenues at a fixed price for five years. It allows KPUD each year to pay off at least $7 million of the $35 million it cost to build the new processing facility. It’s a very smart deal for KPUD, which shields ratepayers from the new debt. After 2023, KPUD gets 75 percent of the RNG revenue at Market prices, and BP gets the rest. Of course, no one knows what the Market price of natural gas will be in five years.

Today across Washington State, the price of electricity generated by natural gas has dropped by about 7 percent, and utilities are filing rate reductions as a result. KPUD, of course, does not use natural gas to generate electricity; they buy most of their electricity from the Bonneville Power Administration (BPA). The cost of BPA’s hydro power has slowly increased over the years.

KPUD knows from its painful history that gas prices can drop. When it first began to produce electricity from the methane generated by the Roosevelt Landfill in 2011, hopes were high. But the price of natural gas dropped sharply as a result of the abundant supplies being drilled in Wyoming and the Dakotas, leaving KPUD with a $130 million facility that they could barely afford to operate. Now, that facility is largely mothballed, although a team of bright staff are trying to come up with a use for it. The $130 million debt remains to be paid; 30 percent of our electric rates are dedicated to repayment of the 2011 debt, to the tune of $10 million a year.

The good news is that at the end of the five year period, after making annual payments of $7 million on RNG debt and continuing to pay $4.5 million on Roosevelt debt, KPUD should have reduced its debt to about $100 million, from its current $160 million, courtesy of RNG revenues and 12,600 local ratepayers.

So, does KPUD need a rate increase? The proposed 1.5 percent increase amounts to about $2 per month for the average household that uses 1200 kilowatt hours of electricity. By 2023, if the forecasted rates are adopted, ratepayers will pay an extra $10 per month. (If KPUD proceeds with the rate increase, KPUD should certainly increase its budget to help financially strapped families keep the lights on, from $75,000 to $100,000).

My view is that KPUD should wait, at least a year, before it implements any rate increase. I agree everyone needs raises, vegetation needs to be trimmed, and facilities need to be upgraded and maintained. But KPUD needs at least a year to assess how its new RNG $12 million revenue stream—$5 million a year for operations as well as $7 million for debt—is being absorbed by the company, and whether KPUD will continue to have new revenues as solar and wind projects pop up on the Klickitat County landscape. In the meantime KPUD will continue to monitor the Market price of its RNG production.

The old Chinese curse comes to mind: “May you live in interesting times.” KPUD is entering an interesting time, with new revenue opportunities, new competitors, changing markets, and a growing county. All of the RNG debt and a third of the 2011 debt will be paid off in less than 10 years, and the rest of it by 2036. Ratepayers do not deserve to be further burdened to speed up debt repayment or to build a fund for future capital ventures. Until the 2011 debt is paid off—without asking ratepayers to accelerate their payments—there should be no increases unless the utility faces dire and unexpected developments. If capital is needed, KPUD is already in a position to seek loan or bond funds from the capital markets. KPUD should not confuse ratepayers with capital markets.

 

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