Commission Recap 03/12/2019, No rate increase for most Grant PUD customers this year

Most Grant PUD customers will not receive an electric-rate increase this year, commissioners unanimously agreed Tuesday, to give the board a year to study and potentially modify the existing policy for setting rates.

The new Rate 17 for cryptocurrency and other "evolving industries" will continue as planned with the first of a three-year, stepped rate increase starting April 1.

The decision not to raise rates for most customers follows years of successful financial planning to improve financial strength, reduce total debt as a percentage of plant assets, and preserve Grant PUD's very good AA bond rating, which is critical for low-cost borrowing and refinancing.

PUD staff had recommended a 2-percent increase this year, a 1-percent increase in 2020 and a one-tenth percent increase in 2021. Commissioners instead opted for no increase. Staff analysts have said the decision for a single year will not weaken current financial strength.

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 — on board, the commission will study potential changes to the current rate policy before considering new rate 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. 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, and small and larger commercial customers. Other rate classes, including industrials, pay above-cost rates.

The new Rate 17 for cryptocurrency and other evolving industries will begin its three-year phase-in April 1 with a 15-percent increase for most of these customers, a 35 percent increase in 2020 and a 50-percent increase in 2021.

When Rate 17 enters full effect in 2021, smaller firms will have seen their rate increase from $4.9 cents per KWh to 13.7 cents. Larger firms will see their all-in rate increase from 2.6 cents per KWh to 7.9 cents. The impact of Rate 17 will vary by customer, based on energy use above or below the average load of their customer class as a whole.

Rate 17 is designed to protect Grant PUD and its customers from the risk of a potentially large concentration of customers that are unregulated with uncertain stream of revenue. Commissioners approved the new rate August 28, 2018. (2:57:00 on the commission audio)

Verizon Media's conservation efforts benefit all Grant PUD customers

Verizon Media was recognized by Grant PUD commissioners on Tuesday for their charitable donation to the utility's customer support programs. The company chose to donate the $81,650 conservation rebate it received as a result of energy efficient upgrades made at its Quincy data center.

Most of the donation, $69,650 is directed to Grant PUD's community-sponsored Share the Warmth program. Share the Warmth funding helps the neediest families throughout the county pay their electric bills when they have no other options.

Verizon Media plans to contribute the remaining $12,000 of the rebate towards providing energy efficient LED light bulbs for Grant PUD's qualified senior/disabled low income customers as part of the Grant PUD's Pay-it-Forward Partnership.

The donation and rebate were possible due to the collaborative effort between Grant PUD and Verizon Media. Every two-years, as part of the state's Energy Independence Act (I-937), qualifying utilities are required to report their energy conservation achievements to the state.

Grant PUD has established a conservation goal for the 2018-2019 biennium of 34,000 megawatt-hours (MWh). To achieve this goal, Grant PUD works closely with the large commercial and industrial customers in documenting energy efficient changes customers make to their buildings and other facilities.

Efficiency modifications can include a variety of enhancements including optimization of heating and cooling systems, equipment modifications, lighting updates or other custom projects.

Achieving the conservation requirements benefit all customers by ensuring Grant PUD can maintain some of the most competitive electrical rates in the nation. If Grant PUD doesn't accomplish the established conservation goal, a penalty of $57 per megawatt hour shortfall is assessed.

Verizon Media is the first organization to participate in Grant PUD's Pay-it-Forward partnership. Any company looking to implement conservation programs to save energy can partner with Grant PUD in the available Energy Independence Act programs. The Pay-it-Forward Partnership allows customers to use their rebates to fund nonprofit programs benefiting Grant County residents. (2:18:15 on the commission audio and pages 25–42 of the presentation materials)

Commissioners also:

— Approved refinancing as much as $50.5 million in existing debt to help pay for capital improvements to the electric system.

— Learned that Grant PUD ended 2018 hitting most of its key financial targets, while continuing to cover an increasing amount of its capital expenses with cash rather than debt.

"It's a pretty happy of story in terms of targets that have been laid out, which are not easy targets," General Manager Kevin Nordt told commissioners.

Grant PUD ended 2018 with unrestricted reserves (liquidity) of $258 million. Much of the 2018 net bottom line of $89.9 million will be used to help fund capital expenses budgeted at $141.7 million this year. (NOTE: This paragraph has been updated to correct an error in the total liquidity figure)

Consolidated debt-service coverage, currently budgeted to end 2019 at 1.91, is expected to remain above the minimum target of 1.80. This target means Grant PUD needs at least 1.8 times more income annually than debt service.

The ratio of total debt to the book value of net plant assets, now 62 percent, is expected to continue declining to a longer-term target of below 60 percent and remain there.

Another key metric, return on net assets, measures annual income as a percent of the value of assets. Results are expected to remain below the target — greater than 4 percent — for the medium term, but is not critical to Grant's bond rating.

Grant PUD Lead Financial Analyst Jeremy Nolan told commissioners that growing above-cost loads (industrial customers) is a key driver of business success. Continued growth is in the forecast for Grant PUD, but that could change if energy use from key customers doesn't grow as expected, Nolan said.

Into the future, the wholesale market prices Grant PUD fetches for its surplus generation will continue to influence financial performance, especially if lower-than-forecast market prices coincide with lower-than-forecast load growth. (3:38:30 on the commission audio and pages 43–69 of the presentation materials)

— Learned Fish and Wildlife is exploring engineering alternatives to help with water intake at the Carlton Acclimation facility, located on the Methow River. The facility is used to acclimate 182,000 summer Chinook during the winter months to Methow River water.

Changes in the upper basin have caused the river channel to migrate away from the intake of the building. When water is needed limited flow and freezing temperatures have hindered the intake and a long-term fix is needed.

The group is analyzing five different alternatives to help solve the issue and hope to have a preferred design method finalized this summer. Actual construction may not commence until sometime in 2021 following project design, obtaining the necessary permits and public outreach. Initial estimates show the project could cost as much as $2 million. However specific construction amounts won't be known until the preferred approach is finalized.

Fish and Wildlife is also determining how best to address three dry wells that serve the Priest Rapids Hatchery. A total of eight wells provide the facility with water used to grow fall Chinook to the required size before they can be released in the spring. Fish growth at the facility is about two weeks behind where they are typically at this time of year due to the limited water resources.

The three wells first went dry when the Priest Rapids Reservoir was lowered to accommodate work on the dam's spillway. When the reservoir was raised, the wells began working again but went dry a short time later. Crews hope to have the situation resolved by September when well water at the facility is also used to hold returning adult fall Chinook. (1:44:15 on the commission audio and pages 43–69 of the presentation materials)

— Learned that Grant PUD Cultural Resources continues to work with the Wanapum to target archaeological sites and traditional cultural properties around the Priest Rapids and Wanapum Dam shorelines that have been negatively affected by erosion through dam operations. Work is planned this year to begin mitigating some of this damage. Grant PUD is monitoring nearly 700 "significant archeology sites."

Last year, Cultural Resources finished creating a geo-database containing all its archaeological site data, making it faster to find and archive data, according to Manager of Cultural Resources Brett Lenz. (1:32:10 on the commission audio and pages 1–9 of the presentation materials)