Commission Recap & Budget Hearing, Oct. 9, 2018

More money for fiber build-out recurring theme at budget hearings

Grant PUD commissioners hosted the first of three public hearings at Tuesday's commission meeting to discuss next year's proposed $279.6 million budget, which includes a 2-percent increase in 2019 electric-rate revenue toward a goal of much lower increases in 2020 and beyond. (2:42 on the commission audio. See full budget presentation here)

Small, consistent rate increases over time are a key part of Grant PUD's strategic plan to grow sustainably and ensure long-term financial stability, while keeping rates as low as possible.

The 2019 budget is 11 percent larger than the $251.8 million projected for year-end 2018 driven by a combination of higher capital and O&M and smaller beneficial offsets from off-system net power sales and customer-financed construction. Grant PUD Chief Financial Officer Jeff Bishop presented key budget figures.

Capital: Capital projects totaling nearly $132 million account for just over 47 percent of the 2019 budget after offsets. Key portions are:

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• $81.3 million associated with Priest Rapids and Wanapum dams for projects that include unit upgrades, spillway and seismic resistance
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• $50.7 million in electric system projects that include upgrading existing substations, investing in technology and investment in the fiber network.
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• The 2019 budget currently allocates $2.7 million for expansion of the fiber-optic network as a carryover from 2018 plus $3.1 million for connections and existing infrastructure failure replacement. Most of the six members of the public who spoke at the Ephrata budget hearing, along with several commissioners, called for more money for fiber expansion in 2019. Discussion will continue.
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• "Technology Roadmap:" The "Technology Roadmap" is a five-year initiative to better deploy technology and data to improve the District's decision making and management capabilities, increase cost effectiveness of operations, leverage human and equipment resources, and manage risks. . (Presentation, slides 9 and 10)

O&M: Operations and maintenance expenses total $121.9 million. Of that, 42 percent is associated with power production, 33 percent with administration and shared services and 25 percent with power delivery.

Debt: Interest and principal payments is budgeted at just over $87.5 million next year, $9.5 million lower than projected in past budgets following a successful effort in late 2017 to refinance a portion of the debt just before tax laws changed.

Revenue: On the revenue side, the budget predicts retail operating revenues of $211.3 million increasing with load growth and a 2-percent rate increase, net wholesale power sales of $49.4 million, sales to power purchasers of $26.4 million, wholesale fiber sales of $8.8M, customers' Contribution in Aid of Construction (CIAC) at $3.7 million, and other revenues of $1.8 million. There is also interest income of $11.4 million anticipated in 2019.

Liquidity: The District has studied its cash and reserve needs and is proposing to lower the Reserve and Contingency (R&C) fund by $50M. Staff will be working with the commission and meeting with bond-rating agencies next week to determine if removing these reserves will have a negative impact on Grant PUD's high AA bond rating. More discussion to follow in the coming weeks and months.

One member of the public attended the budget hearing in Moses Lake, where fiber also dominated the conversation. Three people attended in Quincy.

In other meeting highlights, commissioners:

— Approved a one-year wheeling agreement. Continued discussions between Grant PUD, the Federal Bureau of Reclamation and local irrigation districts have resulted in a one-year extension of the rates the Bureau will pay to transport federal electricity over Grant PUD transmission lines to Grant County irrigators who use federal Columbia Basin Project water.

The commission unanimously approved the 2019 "wheeling" agreement during Tuesday's commission meeting. All parties involved had the opportunity to address the commission during yesterday's meeting.

A representative from the Bureau and the Quincy Columbia Basin Irrigation District expressed satisfaction of moving forward with the one-year agreement.

The issue of fees charged by Grant PUD to the Bureau for wheeling services has been a topic of conversation throughout the year. Both parties entered an agreement last summer that governs the delivery of federal power, using Grant PUD's power lines, to local irrigation districts. That agreement runs through the end of this year.

The new one-year agreement for 2019 models the existing agreement regarding the rates the Bureau is currently paying. A proposed contract presented to the commission in September would have replaced the current interim agreement. At that time, a representative from the Quincy Columbia Basin Irrigation District spoke to commissioners regarding their concerns about the contract. Specifically the differing opinions their consultant has with how the cost-of-service model is applied for the wheeling rate.

Throughout the next year, the Bureau and local irrigation districts plan to continue looking at the wheeling rate and working with Grant PUD staff. The goal is for all parties to come to an agreement on a longer-term contract.

Grant PUD purchased transmission lines from Bonneville Power Administration decades ago, part of the purchase agreement included providing wheeling without charge for 40 years. That original 40-year agreement expired June 30, 2017. Since that time, both parties have been operating under the interim agreement. (Discussion begins at 27:15 of the commission audio and then again at 2:30:00)

— Unanimously approved a change order that adds $1.65 million to a contract for construction inspection and material-testing services with MacKay Sposito of Vancouver, Wash. for a new contract value of $8.26 million. This change order also extends the contract completion date to June 20, 2021. (Pages 10-13 of the commission packet and 2:25:10 of the commission audio)

This company has been an important partner in Grant PUD construction projects since 2011, including work on the Wanapum Dam spillway, Priest Rapids Fish Bypass, recreation projects and dam safety projects. Due their history with Grant PUD and a need to avoid any lapses in construction, the District seeks to extend the contract to continue to use MacKay Sposito inspectors throughout the approximately 2-year Priest Rapids Right Embankment Improvement Project, scheduled to begin in early 2019 to improve the embankment's seismic resistance.

The use of McKay Sposito inspectors allows Grant PUD to catch and rectify quality control issues as soon as possible. Their services have been flexible, qualified and cost-effective, but are needed only intermittently. This is why it's more cost-effective for Grant PUD to contract this service out, rather than train and certify District personnel.

— Unanimously approved adding $100,000 to a contract with Anchor QEA for a new contract amount of $670,000 and new completion date of Dec. 31, 2019, one year longer than the previous date. Anchor QEA specializes in permitting for capital projects near shorelines. Grant PUD first executed this contract in March 2011 for permitting services associated with federally mandated capital projects associated with Grant PUD's approximately 20 recreation sites and hatchery projects. Anchor QEA is currently developing environmental documents for the Priest Rapids Right Embankment Improvement Project scheduled to begin in early 2019. (Pages 15-19 of the commission packet and 2:26:50 of the commission audio)

— Unanimously authorized the General Manager on behalf of Grant PUD to increase the contract value with Alstom Grid by $408,242 for a new contract total of $1.1 million and to extend the contract to Aug. 31, 2020. Contract will extend Energy Management System Software Support Services for two years. (Pages 20-26 of the commission packet and discussion begins at 2:28:10 of the commission audio) This software support system is required to meet federal critical infrastructure protection and compliance standards.

— Unanimously approved a contract to address corrosion to the interior of the Quincy Chute Penstock. It is recommended that instead of individually repairing each corroded spot it would be more economically feasible to replace the coating. A new coating will also be applied to the above-ground air valves which have also been in service for more than 30 years and are in need of repair. Work will begin at the conclusion of the 2018 irrigation season and draining of the canal with completion of the project to be done in time for the 2019 irrigation season. (Pages 27-32 of the commission packet and the discussion begins at 2:32:20 of the commission audio)

— Heard from Managing Director of Power Production Rich Wallen, who presented the department's quarterly update. Wallen told commissioners that the Priest Rapids reservoir operating restriction was lifted last week when the pool level was raised back to its normal operating level. The pool was lowered earlier this year by approximately three feet, still within the normal operating range, when excess leakage due to a disbonded lift joint was discovered on the spillway. Following a thorough investigation of the leakage, drainage holes and additional instrumentation devices were installed throughout the spillway. All the devices are responding as expected with the increase in the reservoir level. In collaboration with federal officials, it is anticipated that non-emergency "Emergency Action Plan" could be lifted later this week. (Pages 1-20 of staff presentation materials) / (Presentation begins at 27:15 of the commission audio)

— Recognized the hard work of Grant PUD staffers Devon Williams, Paul Dietz, Shane Lunderville, Diane Chestnut, Jeremy Nolan, Rich Cole, Casey Sprouse, Brent Bischoff and and former staffer Steve Fisher for months of analysis that went into Grant PUD's new Rate 17 for evolving industry and new procedures for handling electric service requests. (1:51 of the commission audio).