PERSPECTIVE: Are we headed for electric sticker shock?

By Tom Thiersch of Port Townsend
Posted 9/22/15

In August, the Jefferson County Public Utility District (JPUD) was able to point out that our electric rates were no longer the highest in the state, but only because Puget Sound Energy (PSE) had …

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PERSPECTIVE: Are we headed for electric sticker shock?

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In August, the Jefferson County Public Utility District (JPUD) was able to point out that our electric rates were no longer the highest in the state, but only because Puget Sound Energy (PSE) had just raised its rates for the first time since before 2013.

That's not really much to be proud of, because JPUD likely will have to raise our rates very soon, and we, once again, will be paying more than everyone else in Washington.

I believe that some major rate increases are inevitable, because JPUD's costs are increasing and revenues are not.

There are two ways for a PUD to deal with that: cut spending or raise rates. JPUD's draft budget for 2016 (on its website) doesn't show much in the way of spending cuts, and JPUD actually intends to add as many as six more staff members.

For the first two years of the $103 million, 30-year loan that JPUD took out to buy PSE's business in 2013, the loan payment was $3 million a year, interest only. Now, and for the rest of the loan term, an additional $3 million per year for principal must also be paid. The total loan payment, which is included in JPUD's 2016 budget, will be more than 19 percent of JPUD's $31 million projected annual electric business revenue next year.

That huge debt is the main reason that JPUD's rates are so much higher than those of any other PUD in Washington, and will be that way for the next three decades.

JPUD buys essentially all of its power from the Bonneville Power Administration (BPA), which just raised its rates substantially, and JPUD's 2016 budget also reflects that increase.

In fact, the only way that JPUD's budget looks like it "balances" is that it simply omits $4.8 million of recommended capital expenditures and ignores $4.9 million in depreciation expense.

The system that JPUD bought was old and not in very good condition, because PSE hadn't done much in the way of maintenance or upgrades, and PSE certainly didn't have any incentive to do much more after the 2008 vote that authorized JPUD to explore a takeover of the business.

Without ongoing capital investments, the electric utility will continue to deteriorate, and the system will end up being less reliable and more costly.

No business can ignore depreciation expense and remain viable. Capital assets (for example, large and expensive transformers) must eventually be replaced, and depreciation simply takes into account the large, infrequent cash outflows needed to pay for replacement of those assets. JPUD will have to adequately fund cash reserves or end up taking on even more public debt.

These $4.8 million and $4.9 million expenses add up to more than 30 percent of revenues, but there's no budget to pay for them.

Another item not yet in the budget is the expense of increased support for low-income customers. PSE formerly contributed some $500,000 per year. JPUD would have to raise rates by about 3 percent to fund a low-income assistance program at that same level, even after taking into account the current voluntary Power Boost program.

Finally, there are the recommendations of EES, the rate consultants hired by JPUD. Their recommendation was to double or even triple the minimum monthly fixed "customer charge" and to institute an across-the-board 10 percent rate hike. There's no word yet on whether or not JPUD will adopt any of those recommended rate increases.

It looks like JPUD's 18,000 ratepayers may be in for some "sticker shock."

(Tom Thiersch is a ratepayer, resident of unincorporated Jefferson County and member of the JPUD Citizen Advisory Board (CAB). He notes that the views above are his and not the position or opinion of the CAB.)

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