Commission Recap 02/26/19, Commissioners consider no rate increase for PUD customers

Commissioners Tuesday agreed not to increase electric rates this year for most customer classes to give themselves a year to study potential rate-setting policy changes and the results of a new cost-of-service study expected to be finished by year's end. (3:28:50 on the commission audio)

The proposal does not apply to the new Rate Schedule 17 for "evolving Industries," which covers cryptocurrency operations. Those customers will see the first of a stepped rate adjustment starting April 1.

Commissioners have yet to vote on the zero-increase decision, but all expressed support in principle. If a vote makes it official, it will be the first time since 2009 that Grant PUD customers won't face an annual rate increase.

The utility has depended on the annual increases to help improve financial strength. The current rate-setting policy fulfills customers' wishes that increases, if needed, be small and predictable.

The decision doesn't mean that more rate increases won't happen in the future. But with two new commissioners — Nelson Cox and Judy Wilson — and board members' desire to consider changes to the current rate-setting policy, commissioners want a year to study options before considering new increases.

The current rate-setting policy, created by Resolution 8768, dates to 2013. It pins rate increases to the cost to produce and deliver electricity to each class of customer. Costs vary by customer class. Under the current rate policy, actual rate increases also vary by customer class toward an overall, budgeted increase in rate revenue.

The policy grants preferred status and below-cost rates to "core" classes — residential, irrigation, small business and large business customers. Other rate classes, including industrials, pay above-cost rates.

Grant PUD staff had proposed rate-revenue increases of 2 percent this year, 1 percent next year and one-tenth percent in 2021. Commissioners Feb. 12 proposed a flat "postage-stamp" 1-percent rate increase across all customer classes, except the new Rate 17.

Commissioner Larry Schaapman expressed concern Tuesday, saying he favored the cost-of-service-based model and didn't want to do away with an existing rate policy that preserves the favored status of the "core" rate classes as it gradually adjusts rates so that by 2024 no customer pays less than 20 percent below the cost to serve nor 15 percent above.

"With a postage stamp rate, at the end of the day residentials could pay more than industrials (in relation to cost of service), Schaapman said. "I don't want to attack the resolution at this point, because it has value for core customers."

Schaapman proposed the zero increase to give the board time to study and potentially "tweak" the policy. Commissioner Tom Flint supported the proposal. He'd made a zero-increase proposal earlier this year.

General Manager Kevin Nordt told the board that rate increases would be needed in the future, but a zero increase this year was manageable, with minimal effect to financial strength.

Commission President Dale Walker also agreed, but said he was concerned that if the zero increase extended to multiple years, commissioners could be faced with approving a much larger increase in the future — something he and others want to avoid.

"More, smaller rate increases are better than one or two big ones by a long shot," Flint said.

"We'll get there," said Cox, of a future decision on rate setting, "but we need a year to get it all done."

Pat Ealy of Nouryon, a chemical producer in Moses Lake, spoke Tuesday in favor or maintaining the current policy and cost-of-service-based rate setting. (2:57:50 on the commission audio)

Product enhancements and pricing updates coming to wholesale fiber

Effective April 1 Grant PUD's wholesale fiber network will introduce a new service offering and adjust pricing for existing service options offered to internet service providers. The adjustments were approved by commissioners during Tuesday's meeting.

Service providers will now have access to a new mid-tier product providing 250x250 megabit per second throughput speeds. The new product offering is based on requests from service providers whose customers are looking for faster speeds as they integrate more internet-dependent devices into their residences such as 4K televisions, security systems and other smart home devices. Although they need more speed, many of these customers haven't yet reached the need for the existing 1 gigabit product. The wholesale network price for the new service will be $40 a month.

Other changes as part of the resolution include a $1 increase in the monthly costs for basic access (100x100 mbps). On April 1, the new monthly wholesale rate will increase to $30 up from $29 a month.

The resolution also lowers the monthly wholesale cost of the 1 gigabit connection product from $94 a month to $50 a month. Internal analysis shows that the current rate is above market price and is one of the factors of why only 50 customers out of more than 16,500 fiber users subscribe to the product. The adjustment to the pricing anticipates increased sales for the product which forecasts 2023 annual revenue of just over $250,000 compared to approximately $40,000 of annual sales it currently achieves.

Read more about the resolution on pages 9-22 of the commission packet and 3:14:15 of the commission audio.

In other business commissioners heard:

— Tree work to shift from trimming to removal Grant PUD has budgeted $650,000 this year to keep tree limbs trimmed away from powerlines to improve safety and system reliability. State law gives the PUD the right to trim any trees that are interfering or have the potential to interfere with powerlines. By policy, a PUD official first contacts and tries to get permission from the land owner before trimming or removing trees on private land. Going forward, crews will seek to remove more trees, rather than trim them to reduce costs longer-term, Chris Heimbigner, Line Office supervisor, told commissioners. Grant PUD has not charged private landowners for trimming or removal of interfering trees on private property. (2:36:05 on the commission audio and pages 36–46 of the presentation materials)

Commissioner Larry Schaapman suggested commissioners revisit the policy to review whether customers whose interfering trees are removed or trimmed shouldn't be billed for the costs.

— Sunland Estates residents spoke to the commission requesting use of Grant PUD property for their community park. They also asked the commission to negotiate an out-of-court settlement to their pending lawsuit against Grant PUD. Todd Thomas, president of the Sunland Estates Homeowners Association (HOA) told commissioners that property owners "wouldn't be bullied" into dropping their lawsuit in exchange for PUD-approved permits to maintain the existing private park and other shoreline-area developments that extend onto PUD-owned lands along the Columbia River.

The PUD has denied the HOA's permit application because the requested land uses do not provide public access and create the appearance of being private property.

The Sunland HOA is suing Grant PUD for using a residential lot Grant PUD owns at Sunland to access PUD managed shoreline lands — a use the HOA claims is inappropriate.

"Don't think your comments have fallen on deaf ears," Commissioner Larry Schaapman told Thomas. "I don't want you to think we're bullying you, but we do have some issues with the lawsuit." PUD officials feel Sunland has not fulfilled some requirements of the needed permits, Schaapman said, but added that he hoped the differences could be resolved. (Hear the discussion at 3:02:55 of the commission audio)

— The quarterly financial report outlining the utility's cash and investments, quarterly debt report and other financial statements. In 2018 investments yielded 2.6 percent up from 1.9 percent the previous year. Outstanding fiscal debt as of the end of the year was at $1.3 billion. No new external debt issued in 2018. Grant PUD paid $91 million in debt service cost in 2018.

Also in 2018 Grant PUD paid $29 million on outstanding principal to external bond holders on fixed rate bonds. (See the full details in the report on page 15-35 of presentation materials and 1:44:40 of the commission audio).

— Approved a change order to an existing contract with Voith Hydro for upgrades to the Priest Rapids Dam turbine units. The change order addresses nine different items including updated payment schedule, construction timeline and new wicket gate payment schedules. It also addresses headcover off-site storage for units 2 and 3, as well as machining work for units 3-9, new packing boxes for units 3-10 and additional engineering support hours. (3:14:50 on the commission audio. Read the full change order on pages 23-33 of the commission packet)