Commission recap 02/12/2019, Flat 1-percent rate increase eyed

Grant PUD commissioners Tuesday tentatively agreed to deviate from a rate policy in place since 2013 and support a flat 1-percent rate increase across all customer types, starting April 1. The decision won't become final until they vote on it at an upcoming meeting.

Commissioners had been considering alternatives to the already budgeted 2-percent rate-revenue increase, which establishes rate increases that differ by customer class based on each customer type's "cost of service" – the cost to supply and deliver their power.

Taken altogether, the varying rate increases would contribute 2-percent more revenue — about $4 million in 2019.

Under the current policy, rate increases are structured so no rate class will pay less than 20 percent below its cost to serve nor more than 15 percent above its cost to serve by 2024. Members of the current commission, including the two new commissioners Nelson Cox and Judy Wilson, have said they want to consider changes to the policy.

The 2019 budget, approved by commissioners last fall, assumes a 2-percent rate-revenue increase, starting April 1. Through positive market factors and careful spending Grant PUD's financial strength improved in 2018, PUD analysts say. With the staff-recommend 2-percent rate-revenue increase this year, the needed increase would drop to 1 percent in 2020 and to one-tenth percent in 2021.

As alternatives to the existing policy, commissioners were considering no rate increase or three consecutive years of 1-percent rate-revenue increases. They also weighed the flat-increase option.

Commissioners learned Tuesday that both alternatives would reduce unrestricted reserves by 2021. If commissioners continue to allocate $12.6 million to fiber-optic buildout, as they have this year, reserves under the 1-percent option would decline by $15 million and under the zero option by $26.7 million.

Debt-service coverage, a key indicator of Grant PUD's ability to pay its debt, would remain about the same by 2021 under the 1-pecent option. Debt-service coverage would drop from 2.01 to 1.94 under the zero-increase option. The minimum target for this indicator is 1.80.

Financial targets that fall below minimums can threaten Grant PUD's very good AA bond rating, resulting in increased interest rates on debt.

Commissioners tentatively chose to support a flat 1-percent increase for one year only to give them time to review the existing rate-setting policy and discuss the results of a new cost-of-service analysis currently underway.

"I'm not willing to worsen the financial condition of the district over it," Commissioner Tom Flint said of potential changes to the current rate policy. "But I've come off my zero rate increase because it would reduce the financial position of the district."

Commissioner Larry Schaapman said the gap between the customers who pay below cost — residential, irrigators and small and medium-sized businesses — and those who pay above cost — large industrial customers and others — would continue to widen under consecutive flat rate increases. He also cautioned against any policy that would create unpredictable swings in the rates customers pay.

If rates have to be increased, customers have repeatedly asked that the increases be small and predictable.

"I really believe the commission has to have a policy in place so, to the public, we're not whipsawing," he said.

General Manager Kevin Nordt said staff will have more information on the impact of a flat 1-percent rate increase at the next meeting Feb. 26. (04:05:35 on the commissioner audio. Click here for presentations on the financial impact of the rate-increase alternatives, pages 43-56).

Expenditures expected to end 2018 under budget

Total expenditures for 2018 are expected to end the year at $241.7 million — $8.7 million under budget, commissioners learned, despite some higher-than-expected labor and legal expenses.

Total expected labor expenditures of $69.3 million are more than $688,000 over budget. Much of the overage is from overtime expense, as Grant PUD works to fill a number of full-time vacancies, Chief Operations Officer Kevin Marshall told commissioners. Current full-time regular employees total 592 at latest count, below the budgeted 619 employees.

Legal expenses of just over $884,000 is expected to end the year 65 percent over budget. Grant PUD Attorney Mitch Delabarre attributed the increase to work on three lawsuits, one an internal employee dispute, another involving a construction job and the third with cryptocurrency firms who oppose Grant PUD's new Rate 17 for evolving industries. (01:46:45 on the commission audio. Find the presentation here, pages 12-19).

A plethora of enterprise technology enhancements coming to Grant

The enterprise technology group has recently piloted a secure business wireless program that will allow for full device mobility within all of Grant PUD's facilities. Once fully implemented this feature will allow employees to have a seamless experience accessing data whether they are connected to a wired or wireless network. This change allows for enhanced employee productivity so data can be accessed in a more timely fashion.

This was just one of the projects outlined during Tuesday's quarterly update from Chief Technology Officer, Derin Bluhm. Much of the work is part of the recently developed "technology roadmap," a multi-year plan that outlines key technology based projects set to bring improvements and increase productivity within business functions across the company.

The sheer number and pace of projects, combined with the reach these projects will have throughout the organization are a historic endeavor for Grant PUD's enterprise technology group, said Bluhm.

Another feature recently introduced is an asset maintenance tracking system. The web-based system will allow field crews to more accurately mange maintenance records, plans and results for substation and other power delivery assets. The program will ensure equipment receives the proper level of maintenance and will avoid occasions where some equipment may have been under or over maintained in the past. (See the presentation on slides 20-33 of the commission presentation materials and listen to the discussion at 02:17:00 of the commission audio).

Commissioners also:

— Learned that Grant PUD's top federal and state legislative priorities for 2019. On the federal side, Manager of External Affairs Andrew Munro said top issues include furthering talks with Canada to modernize the Columbia River Treaty, as well as efforts to promote the potential of hydropower as a clean, renewable resource and support expanded federal funding/loans for fiber build-out and other capital projects. At state level, funding for fiber/broadband build also makes the priority list, along with close monitoring of impacts to Grant PUD customers from Governor Jay Inslee's Clean Energy Bill. (03:27:30 on the commission audio. Find Munro's presentation here, pages 34-42).

— Unanimously agreed to extend a contract with the state Department of Fish and Wildlife for one year and increase the contract's not-to-exceed limit by $439,196.19 for additional, federally required monitoring and evaluation of the fish species associated with Grant PUD's hatchery programs. The contract extension brings the contract's new not-to-exceed total to $2,321,939.79. (Pages 60-66 in the Commission Packet. Discussion on this motion happed at the Jan. 22 commission meeting. Find the recap here).

— Accepted a bid from KVA Electric, Inc. to perform vacuum oil-filling and testing service on new power transformers. The contract was awarded following an open bid process and was deemed necessary as Grant PUD does not own the resources nor have the trained personnel required for the type of work outlined in the contract. The bid price for the project is $2,440,956.34. (Further details available on pages 8-12 of the commission packet).

— Awarded a company-wide janitorial services contract to Del Sol, Inc. The five-year contract will begin this month at a cost of $2,304,113.71. A review of costs showed performing the services via a contracted company has delivered the best value for Grant PUD. Del Sol provided the lowest bid for the project and is the current contracted company providing janitorial services. (Further details available on pages 13-17 of the commission packet).

— Approved a resolution updating Grant PUD's management benefit policies. The change now integrates the previous part-time policy into the benefits policy, incorporates the Health Reimbursement Arrangement into the medical benefits policy and modifies the mechanics of Grant PUD's professional certification pay for those employees who earn job-related certifications. (See an outline of the integrations on pages 18-45 of the commission packet and hear a discussion surrounding the policy modifications on 01:18:15 of the commission audio).

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