Commission recap 10-13-2020: 2021 budget reflects growth and strength, despite COVID challenges
Grant PUD commissioners got their first look at a proposed $380.6 million budget for 2021 that invests in employees and critical assets, continues roll-out of key technology initiatives, controls costs, and doesn't raise rates.
The budget aligns with Grant PUD's Strategic Plan and top priorities of Grant PUD customers — reliable electric service, good customer service, clear and timely communication and keeping rates as low as possible.
"We're a growing utility," Commissioner Larry Schaapman said during the first of three virtual budget hearings, Oct. 13 and 15. "We've expanded greatly over 10 years. With it comes more work and more responsibilities."
The 2021 budget contemplates 37 new job positions, accounting for approximately $7 million of the total $11 million increase in wages and salary adjustments, over the 2020 budget, John Mertlich, senior manager of Financial Planning and Analysis, told commissioners. Many of those positions could be filled by existing staff, he said. The positions include more linemen, fiber technicians and project-management specialists for a balance of both managerial and union/craft employees.
The budget includes $143.6 million in operations-and-maintenance (O&M) expenses, a $17 million increase over the 2020 budget. Power production – expenses that go toward the generation of electricity – account for 39% of the total O&M. Administrative and general expenses account for 39% and power delivery — the electric grid and infrastructure – accounts for 22%. See pages 15-18 of the budget presentation for a further breakdown of budgeted O&M expenditures.
The proposed 2021 capital budget of $143.3 million is a $2.6 million increase over the 2020 budget. The electric system accounts for $73.7 million of the total, driven by a second phase of investment in substations and transmission and $11 million of additional fiber-optic-network expansion. Power production accounts for $69.7 million, with major drivers that include $16 million for right-bank (Yakima County-side) improvements at Priest Rapids Dam and continued unit rehabilitation there.
Technology upgrades account for $3.1 million in 2021, up slightly from an aggressive expansion in the 2020 budget that included moving business systems to the cloud and improving cost tracking.
Total expenditures of $380.6 million are offset by $102.1 million in revenues that include money paid by customers to build infrastructure and wholesale power sales, both by contract and on the regional wholesale market. The budget total of $278.4 million reflects these offsets.
Load growth — demand for electricity within Grant County — is forecast to grow at an average of 4.1% annually through 2030. That's down from the pre-COVID forecast of 6.2% but still well above the historic average of 3.6%, Mertlich told commissioners. The majority of forecasted growth is associated with new large customers.
Retail energy revenues – sales to Grant County customers – is budgeted at $211.8 million in 2021, down from the original 2020 budget forecast of $222.9 million. The approximately $11 million dip is linked to slower than expected large customer growth, an updated forecasting methodology, the economic impact from the COVID pandemic and a decline in demand from cryptocurrency firms.
Grant PUD sells excess power not needed to serve Grant County customers on the regional wholesale market, resulting in net wholesale revenues. Net wholesale revenues are forecast at $77.8 million in the 2021 budget, up from $55.7million in the 2020 budget.
The 2021 budget forecast exceed financial metrics for Liquidity and Leverage, but not for Profitability. "This year has been challenging to say the least," Chief Financial Officer Jeff Bishop told commissioners. "Whatever we do, we've got to keep Grant PUD's financial health in mind and the impact to customer rates and service."
Listen to the budget presentation in its entirety by selecting the second audio recording available on the commission webpage. View the budget presentation here. See a one-page summary of budget highlights here.
Grant PUD's Campground See Record Use
Commissioners learned that despite being closed for 45-days in March, April and May due to COVID-19, Grant PUD's campgrounds saw a record number of visitors this season. Through Labor Day weekend, the campgrounds had experienced a 20% overall increase in the number of campers across all campsites compared to the previous year.
"We have had an unprecedented busy season, it really has been remarkable," said Manager of Lands and Recreation, Shannon Lowry.
Lowry added that considering the challenges of COVID-19, staff has been focused on keeping the crews and members of the public safe throughout the eventful season.
Commissioners also heard result of the financial analysis that has determined the total net cost of providing public use of Grant PUD's recreation areas on an annual basis. Based on financials and capital costs from 2009-2019 the total net annual cost of providing recreational amenities was determined to be $6.8 million.
The total net annual costs take into account a $2 million offset which includes revenues from campground, golf course and special permit fees, and Crescent Bar residential lease rents and marina fuel sales.
The report showed that although $2.5 million of the overall annual net costs were attributed to Crescent Bar, the Crescent Bar Recreation Areas also responsible for a vast majority of the revenues earned from all of Grant PUD's recreation areas.
As part of its FERC license Grant PUD is required to provide recreational opportunities on the Columbia River for the public.
CEO/General Manager Kevin Nordt added that even though providing recreation does have a cost, the recreation staff does a tremendous job of providing recreational opportunities as efficiently as they can to meet the utility's multi-use obligation.
See the full quarterly Lands and Recreation program report on pages 27-42 of the commission presentation materials. Listen to the discussion starting at 1:30:45 of the first commission audio.
During Tuesday's meeting Commissioners:
— Heard from Chief Technology Officer Manager Derin Bluhm about the details of Grant PUD's Enterprise Agreement with Microsoft, which is up for a 3-year renewal. The $1.4 million agreement covers nearly all the Microsoft products and cloud services used by Grant PUD. The agreement ensures Microsoft software products are up to date and provides a 20% cost discount, among other benefits. (Listen to the discussion beginning at 46:30 of the first commission audio. View the presentation on pages 1-7.)
— Heard from Enterprise Risk Manager Paul Dietz that Grant PUD will manage its categories of risk, including financial, operational, reputational and marketplace, to international standards under ISP 31000. The Enterprise Risk team is putting the structure in place now to be able to provide the commission with quarterly risk reports by category, likely starting at year-end. Dietz said property insurance rates next year will likely increase 15% to 20%, as insurance companies are stressed by catastrophic pay-outs elsewhere in the country.
— Unanimously approved authorizing the General Manager/CEO, on behalf of Grant PUD, to execute a contract Bernardo Willis Architects PC for a not to exceed contract of $2,500,000. BWA will provide professional architectural and engineering services as requested by the utility on an "as‐needed" project by project basis for utility facilities projects related to the maintenance, rehabilitation, upgrading of the existing facilities, and new facilities. The contract is good through December 31, 2025. In January, Grant PUD issued a request for proposal which a committee reviewed all responses. (2:53:50 on the first commission audio. Pages 8-24 in the commission packet)