Okanogan PUD Reviews Long-term Financial Plan

Wednesday, May 8, 2013

 

Periodically, Okanogan County PUD reviews its long-term financial plan to determine if revenues are sufficient to ensure good financial health in the future.  In December, staff and consultants presented the Board with the first draft of an updated Equity Management Plan (EMP).  Due to the large rate impacts presented in the draft, the Board wanted to involve some community members in the process.  The EMP review panel included eight members of the community in an effort to do two things:  help educate the community on our long-term plans and finances and provide feedback from the community regarding PUD finances and rates.  Panel members were selected by the Board with input from staff.

SAIC, a consulting firm out of Seattle, collected data and provided preliminary draft reports for the panel to review.  The review looked at revenue, operating and maintenance expenses, and capital outlay along with the District’s load forecast and borrowing assumptions for the 2013 – 2022 time frame.

The preliminary results of this analysis and discussion was SAIC’s presentation of a base case and three scenarios to maintain our long-term financial health:

·         Base Case includes expenses and capital outlay as presented in the PUD’s 2013 Budget. The Base Case includes costs for the construction and operation of Enloe Dam.  Under the Base Case the PUD would need rate increases of 13% in 2013 and 2014 followed up with 3% increases in 2015 through 2017.

·         Scenario 1 reduces capital outlay by one third over the 10 year study period, reducing the 2016 debt issuance to $7m, and rate increases of 13% in 2013 and 2014 and 2% in 2016 and 2017.

·         Scenario 2 includes keeping operating and maintenance expenses for 2013 at the 2012 level, moving $2.9m in labor to be included with capital outlay, increases debt issuance by $30.5m, and rate increases of 7.5% in 2013, 6.5% in 2014, 2015 and 2016 and 5.5% increase in 2017.

·         Scenario 3 is a combination of Scenarios 1 and 2.  It includes $26.5 in debt issuance in 2016 and 2017, and rate increases of 7.5% in 2013, 6% in 2014 and 4.5% in 2015, 2016 and 2017.

The Okanogan County PUD Board of Commissioners met with SAIC, the EMP Panel members and PUD staff in a workshop on April 23rd to discuss these scenarios and get additional input.  The Board was reminded by SAIC that of all the non-generating PUDs in Washington, we have the lowest rates.  Each panel member who attended this meeting stood up at the end to give their opinion.  The consensus seemed to be that customers need to pay for the actual cost of service.  This referred to SAIC’s report stating it costs the PUD $78.27 in fixed costs to bring electricity to a residential customer whether they turn on a light or not.  Our current rate schedule requires residential customers to pay a $10 Basic Charge and a $25 Minimum Energy Charge (which includes 500 kWh of electricity).  Even with these charges combined, a residential customer is not even close to covering the $78.27 fixed cost.  Other rate classes have higher charges.

Other comments from the EMP community members were that they wanted something fair, simple and easy to understand.  The group seemed to understand the need for rate increases and preferred we took on increases now as opposed to leaving a ballooning payment to our kids to handle in years to come.

The main driver behind the necessary increases is a decline in wholesale sales, which is not helped by the current state of the economy and no retail load growth.

Our next steps are for SAIC and staff to finalize the equity management plan, refine the cost of service study and work on rate design.  In addition, a rate proposal will be developed and meetings will be held for staff and the public.  Eventually the Board will approve the new rates.  The goal was to have the new rates effective July 1, 2013, but October 1, 2013 maybe more realistic.  The longer we wait the larger the increase will need to be.

If you have comments or questions regarding this study, or want a copy of SAIC’s presentation, please contact the PUD.