Commission Meeting Recap: Commissioners set rates for 2018 and more

Grant PUD Commissioners set rates for 2018 (2:47:30)

New rate will increase average monthly residential power bill by $1.49

Grant PUD commissioners Tuesday approved the next of a proposed series of small, annual electric-rate increases that will generate an estimated 2-percent more revenue over 12 months. New rates take effect April 1.

The increase aligns with commissioners' strategy of small, predictable rate increases over time that protect core customers, including residential and irrigation, from less-frequent, double-digit increases.

Customers have said this is their preferred strategy to help keep Grant PUD on a sustainable financial path with outstanding service reliability, while keeping rates as low as possible.

"Careful, data-based planning, budgeting and spending are critical to sustain financial strength and provide outstanding service and value for our customers," Commission President Terry Brewer said after the vote. "These rate increases are critical to cover needed capital upgrades at our dams and substations and plan for the future at a time when wholesale market prices for our surplus power have declined."

The increase generates $3.8 million in revenue. Each rate will increase by the following:

*Bill increases for industrial customers are based on too many factors to be characterized by a single average figure.

**These columns show the rate currently paid as a percentage above or below its cost of service (COS) v. their 2024 forecast

For details about how rates are applied, see Page 22 of the March 13 commission packet.

Commissioners in 2013 approved a policy (Resolution 8690, 10/7/2013) of small, predictable increases with the objective of adjusting rates over time until no customer class pays more than 20 percent below nor 15 percent above the cost to provide electric service by 2024. They affirmed this policy in 2015 (Resolution 8768).

The resolutions define residential, general service, large general service and irrigators, as "core customers" who, will continue to benefit with rates as much as 20 percent below the cost to provide their power.

Commission receives public comment regarding rates and more (2:19:15):

Commissioners split their votes on the rate increase. Bob Bernd, Terry Brewer and Larry Schaapman voted in favor. Tom Flint and Dale Walker voted against. Before the vote, commissioners heard comments from Grant County residents present during Tuesday's meeting:

Marvin Price of Moses Lake told commissioners he'd questioned Grant PUD financial staffers and concluded a rate increase wasn't needed this year, based on the amount the PUD has in reserve funds (2:19:15).

Dennis Conley called for a flat 2-percent rate increase across all rate schedules (2:40:30). Sharon Hastings and Deb Murphy, both of the "Fiber Active" citizens group, said they were disappointed that PUD officials declined for administrative-liability reasons their group's offer to be a citizen advisory board, but urged commissioners to provide them updates on the network's financial performance (2:32:45).

"I'm not necessarily opposed to the 2-percent increase. I oppose the structure," Commissioner Flint said following citizen comments. "We have a pretty big debt load, six-to-seven years out. It's certainly a lot more palatable to have a consistently smaller increases than have a period of none and then six and eight and 10 percent. My challenge is the erosion of the preference birthright of the farmers and ranchers who have built and paid for Priest Rapids and Wanapum dams in conjunction with others. That's probably my biggest angst. That's why I voted in opposition to the motion."

Commissioner Walker said he agreed with Price about not needing an increase.

"I've always felt we've failed miserably as a commission in support of the rate increase. A zero rate increase I think would take $3.5-4 million off the books. It's difficult as a commissioner of this PUD for me to stand here and say we need another 2 percent out of your hip pocket when we have as much cash as we have on hand."

Commissioner Schaapman defended the increase.

"Cost to serve really is the best analysis to use when it comes to setting rates," he said. "When I looked at rates set way back in 1971, most were done on political will. When you look at where we at now… We've set the goal posts – the 15 percent over and the 20 percent under. It's fair and equitable, yet the heritage core customers of this utility – the ag and residential customers on Rate Schedules 1 and 3 – will still enjoy the biggest discounted rate. We have to continue with this small, incremental increase to achieve the goal we have over the next 15-20 years. That's the reason I stand on the increase."

Responding to the citizens who commented, Commissioner Bernd and Commission President Brewer both said a flat rate increase would only accentuate the rate disparities that already exist among customers and defended cost-of-service-based rate setting.

"I appreciate the information the cost of service analysis has given us," Bernd said. "I agree it's not the only thing we base our rate increases on, but I think we've set a worthy goal, popular or unpopular… That's my justification for… passing this resolution."

"I came into this commission, same as Bob, when we were looking at no rate increase one year, then the next year it would be 6 percent. That was hard to explain and didn't make sound business practice," said Brewer. "The path we're on today hopefully sets us up financially with fiscal stability for all of our customers, generations into the future. We're still spending a lot of capital… We're borrowing money for the majority of that. But at the same time, in order to be more fiscally sound going forward, we're trying to lower our debt-to-asset ratio. That means spending more cash on these items than we have in the past. (2:59:28)

In other action, commissioners also:

– Approved a $1.44 million change order to a contract with Alstom Power Inc. for rehab of 10 the generators at Priest Rapids Dam. The change brings the new contract amount to $106.33 million for all 10 units. (1:09 on the recording)

Jeff Niehenke, Grant PUD project manager for the upgrade work, told commissioners the increase in contract cost stems from lessons learned during rehab of the dam's first unit, which is now complete.

Crews hope to save $55 million to $77 million of total project cost by rehabbing as many of the units' parts as possible, rather than replacing them with new parts, Niehenke said. Disassembly of the first unit revealed more wear and lead-abatement work than expected – work that will also be needed on the second unit, which is now disassembled, and on the remaining units.

Rehab of the first unit also provided insight in many areas of the project, including efficiencies that could be gained in reassembly and equipment staging during work, Niehenke said. These lessons learned extended the unit's total down time from the expected 12 months to 16 months. They're planning 13 months for the second unit and 12 months for each of the eight remaining units.

"So much of this depends on what you find when you take them apart," Niehenke said, adding that the total project budget contains contingencies in anticipation of potential for additional work. Capital costs budgeted this year to upgrade units at Priest Rapids and Wanapum Dams total $85.84 million. The project is still on budget, he said, despite the delays and added work discovered.

–Approved Resolution 8880 revising Grant PUD Right of Way Policy and rescinding resolution No. 8581 to include certain primary distribution and telecommunication facilities and an administrative process. (3:06:14 on the recording and pages 29-70 of commission packet)

–Approved Resolution 8881 adopting the Wanapum Comprehensive Water System Plan. Grant PUD owns and operates five separate water systems in the general vicinity of Wanapum Dam. Grant PUD intends to consolidate the six different water systems into one retail service area as part of this Wanapum Comprehensive Water System Plan. Five of the water systems are owned by Grant PUD and the sixth although historically owned by Grant PUD was sold to Zirkle Fruit Company as part of the Wanapum Village in 2016. Additionally the plan will also allow Grant PUD to identify and schedule water system improvements that correct existing system deficiencies to ensure safe and reliable supply of water for current and future customers. The plan also meets all applicable Washington State Department of Health and Department of Ecology requirements. (3:07:19 on the recording and pages 71 to 107 of commission packet.)

Other Commission Meeting Highlights:

Commissioners learned that Grant PUD is meeting or exceeding all but a few of the performance targets on its 2018 "Strategic Dashboard." Consolidated return on net investments is expected to end the year at 2.7 percent – shy of the less-than-or-equal to 3.6 percent target. Grant PUD Financial Analyst Baxter Gillette said some $22 million in additional income will be needed this year to hit the target. General Manager Kevin Nordt said that would have to come with careful spending and hoped for new growth. (3:20:22)

Targets for fiber-optic buildout are subject to further analysis, Chief Financial Officer Jeff Bishop said. In the 2018 budget, commissioners allocated $7 million in reserves toward expansion of the fiber network to the 30 percent of Grant County residents who still don't have access. Further annual funding allocations will be made based on network performance and available electric-system income. Total estimate cost to complete the buildout is $66 million to $76 million.

Quarterly business reports provided to the commission (1:18:15)

Cultural Resources and Fish and Wildlife departments both provided their quarterly program updates to the commission reviewing their top activities and accomplishments of 2017 and goals for 2018. It has been 10-years since the implementation of the relicensing of the Priest Rapids Project. The license outlines various requirements Grant PUD must adhere to within both programs. Both update presentations are available as part of the staff presentation materials to the commission.