Commission summary, 9/27/2022 — 2023 draft budget; evolving industry rate; more...
Inflation has an impact on Grant PUD's 2023 budget
Grant PUD is not immune to the same inflationary pressures affecting the rest of the U.S. economy. During a presentation regarding the proposed 2023 budget, John Mertlich, senior manager of Financial Planning and Analysis, said that inflation is the most significant reason the 2023 budget is higher than the 2022 budget.
The proposed 2023 budget assumes an overall cost structure increase of 8.7%. The consumer price index is presently at 8.3%. The rising cost of material and services and labor are contributing to about 68% of the Operations & Maintenance budget increase, Mertlich noted.
Grant PUD has not had a price increase for all customers in Grant County since 2019. That is expected to change this year, as a projected overall retail rate increase of 2 percent is included in the proposed 2023 budget to help the utility meet rising costs and remain on a strong financial footing. Commissioners asked Mertlich to provide them with the details of how a 3 percent overall rate increase would affect the budget.
"The hard thing about it is that inflation is out of control," said commissioner Tom Flint. "We're going to have to live with it."
The proposed 2023 budget meets Grant PUD's targets for Electric System Liquidity, Days Cash on Hand, Debt Service Coverage, and Debt-to-Plant Ratio. It does not meet the targets for Return on Net Assets or Retail Operating Ratio.
Grant PUD's adopted operations-and-maintenance budget was $156.9 million in 2022. The 2023 budget is projected to be $191.2 million. Helping to offset those additional O&M costs is an increase in net power revenues, which are projected to be $95.2 million in 2023 compared with $78.2 million in 2022. Total expenditures are budgeted at $316.8 million in 2023 compared to $309 million in 2022.
Some of the more significant capital projects funded in the 2023 budget include $51.9 million in major upgrades to Priest Rapids Dam's embankments and generating units, as well as about $70.6 million for 10 projects to improve power and fiber service. See the full presentation on pages 30 to 71 of the presentation materials. Here the full discussion at 1:53.08 on the commission audio.
Three public hearings are planned for the 2023 budget in October. There are two hearings on Oct. 11. The first is at 2 p.m. in the Grant PUD Headquarters Commission room at 30 C St. SW, Ephrata WA 98823. There is also a virtual option for that hearing. See details here. The second Oct. 11 hearing is a virtual-only hearing at 6 p.m. See details here. Another in-person only meeting is set for Oct. 13 at 6 p.m. at the Port of Quincy Boardroom at 101 F St. SW, Quincy WA 98848.
Cryptocurrency again meets risk factors for higher rate
Mining cryptocurrency once again meets the requirements for concentration and regulatory/business risk to be classified as an Evolving Industry.
Evolving Industries purchase their power under Rate Schedule 17 which is updated periodically to reflect changing market conditions and risk factors. Most cryptocurrency mining customers are currently on Rate Schedule 7, a below cost core customer rate, and will be transferred to Rate Schedule 17 if the Commission approves updated rates later this year.
Commissioners heard Tuesday from the utility's Large Power Solutions team, which determined that cryptocurrency mining is again a candidate for the higher rate class because it surpasses the threshold for the combination of current loads and future requested load, "concentration risk", and continues to display both business and regulatory risk.
According to Grant PUD's customer service policy a business is defined as an evolving industry if it meets the conditions of exceeding 5% concentration risk compared to all Grant PUD loads and having business or regulatory risk associated with nascent industries.
Cryptocurrency mining is an activity in which firms use specialized, high-energy-use specialized computers to profit by processing transactions in digital currencies like bitcoin.
Rate Schedule 17 was created in response to a boom in hook-up requests from cryptocurrency miners when the market surged in 2017-2018.
When the rate fully took effect in 2020, Grant PUD saw demand from cryptocurrency firms drop from approximately 20 megawatts of electricity to less than 1 megawatt and most cryptomining new load requests were canceled. At that point the industry fell below the concentration risk and no longer met the criteria as an Evolving Industry and customers were placed on the appropriate rate schedule - mostly Rate Schedule 7 for small and medium-sized businesses.
Current policy classifies customers on Rate Schedule 7, along with Grant PUD's Rate Schedule 1 (residential), Rate Schedule 2 (small commercial), and Rate Schedule 3, (irrigation) as "core customers" who are entitled to below-cost electricity as the utility's longest-standing, traditional rate classes.
Commissioner Larry Schaapman said cryptocurrency is not a core customer and even if it is removed from the Evolving Industry class it should not get the below-cost rate core customers receive.
The Large Power Solutions team Tuesday suggested a change to current policy that would require a firm, once designated as an "evolving industry" to remain so until Grant PUD staff determines the firm no longer meets the higher risk profiles. The team will also explore creating a new rate specifically for cryptocurrency.
The team will return at a future commission meeting to propose a rate change for cryptocurrency firms.
Currently, approximately 13 cryptocurrency firms operate in Grant County over 22 locations and, collectively, use approximately about 28 megawatts of electricity. This compares to a county-wide average of system load of about 635 megawatts. No other business type operating in Grant County or awaiting hookup has been identified as an evolving industry under Grant PUD policy, commissioners heard.
—Heard from Internal Manager of Internal Services Fallon Long about the projects, priorities and budget status through September in her sub departments of Security, Facilities, Emergency Management and Transportation. See the full presentation on pages 72-89 of the presentation materials. Here the full discussion at 3:30:19 on the commission audio.
-- Heard from Manager of Human Resources Tod Ayers and Employee Experience Lead Scott Sundberg about a strategic new focus to make human resources more proactive in helping employees stay mentally and physically healthy. Also, the second "Employee Engagement Survey" will launch Oct. 10 to assist with measuring employee engagement and efforts made toward Objective 2 of the Strategic Plan. . The first survey happened in 2020 and will happen every two years. See the full presentation on pages 90-115 of the presentation materials. Here the full discussion at 3:56:06 on the commission audio.
-- Heard from Senior Manager of External Affairs Chuck Allen, Community Outreach Coordinator Annette Lovitt and Senior Policy Analyst Ryan Holterhoff about Grant PUD's efforts to educate the community about hydropower, support the Snake River Dams, and align with the other mid-Columbia River PUDs to speak with one voice when lobbying for state and federal legislation. See the full presentation on pages 116-128 of the presentation materials. Here the full discussion at 4:27:55 on the commission audio.
-- Heard from Grant PUD Safety Manager Craig Bressan that the number of recordable injuries has increased for 2022 compared to 2021, but the good news is that most of the recordable cases are less severe than in the past year. In 2021, there were six total lost workday cases. Through August, there were only three. In all of 2021, there were 13 total recordable injuries (any injury requiring treatment beyond first aid). In the first eight months of 2022, that number is 18. Eleven of the cases in 2022 did not require lost workdays or job modifications while the injured worker recovered from the injury. Bressan added that the team completed a one-year evaluation and audit of the utility's confined-space training program. Similar evaluations and updates are planned for electrical safety, hearing conservation and crane safety programs. See the full presentation on pages 1 to 26 of the presentation materials. Here the full discussion at 1:13:48 on the commission audio.
-- Unanimously approved Motion 3417, authorizing the general manager to execute Change Order No. 5 to a contract with ARCOS Workbench, increasing the not-to-exceed contract by $43,125 for a new contract total of just over $1 million. The change order extends the existing contract for software that field crews use to track work to be done in the field. For more information, see pages 7-17 in the commission packet.
--Unanimously approved Motion 3418, authorizing the general manager to execute a contract with Arch Staffing and Consulting in an amount not-to-exceed $10.37 million for consulting work and contracted staff augmentation related to a host of projects. The contract extends through Dec. 31, 2025. For more information, see pages 18-55 in the commission packet.
-- Unanimously approved Motion 3419, authorizing the general manager to execute a contract with Volt Workforce Solutions in an amount not-to-exceed $8.62 million for specialized consulting work and contracted staff augmentation for a host of projects. The contract extends through Dec. 31, 2025. For more information, see pages 55-96 in the commission packet.