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Posted on Nov 19, 2015

PUD commissioners expected to set customer rates next week

One big question seemed to come out of public hearings held last week to discuss potential electrical rate increases coming next year: Just who should the Grant PUD favor when it comes to establishing its rate policy?
The utility last week held two rate hearings. An afternoon hearing in Ephrata drew about 50 people and another later that evening in Moses Lake drew about 20.
A crowd of mostly Grant County farmers attended the Ephrata hearing. Most who spoke at that hearing do not want to see an increase in rates for irrigators next year.
“If anyone should be favored, it should be us,” said Bob Murphy, a Royal City farmer.
However, Tim Ray, a retired farmer from Soap Lake who suggested one rate increase for all users, argued that when asking the question of who deserves the better deal, the utility will go down a “slippery slope.”
“It’s a divide-and-concur strategy that pits neighbor versus neighbor,” Ray said.
At their regular meeting at 1 p.m. on Tuesday, Grant PUD commissioners will discuss, and potentially act on, 2016 rate increases suggested by staff.
Commissioners already have passed the 2016 budget. At their regular meeting last week, they passed a $257.5 million budget for the coming year. The budget is $7.5 million lower than the 2015 budget.
The new budget calls for a 2 percent retail revenue increase for next year.
Overall, retail revenue is forecasted to grow by $13.1 million from 2015 to 2016, according to the PUD. Most of those additional revenues are coming from load growth. About $3.66 million will come from rate increases, according to PUD numbers.
The proposed rate increases for next year include:
— 1.6 percent for residential customers
— 3.5 percent for commercial businesses
— 3.3 percent for irrigators
— 4.9 percent for Class 14 industrial customers
— 4.3 percent for Class 16 ag processor customers
— 0.5 percent for Class 15 industrial customers (includes Quincy data centers)
The rate increases are projected to increase a residential customer’s bill by an average of $1.53 a month, a commercial business’ bill by $9.64 a month and an irrigator customer’s bill by $22.35 a month, according to figures from the PUD.
The 2016 proposed rates represent year two in a 10-year trajectory. Commissioners have adopted a cost-of-service model that ties rates more closely to the actual cost of providing services to its various customers. Under the adopted policy, commissioners set a target date of 2023 to achieve more equality between the rate classes.
The policy stipulates customer classes must pay at least 80 percent of the cost of providing their electricity and can’t pay more than 15 percent over the cost of service. The policy also calls for “small and predictable” rate increases to avoid “rate shock.”
The policy allows for only residential and irrigation users to be allowed to pay 80 percent of their costs. All other users groups will pay at least the full cost of providing service to them or from 13 percent to 16 percent over that cost.
Under the proposed retail rate schedule, large industrial customers (includes Quincy data centers) would pay 16 percent over their cost of service.
The two user groups currently most out of line with their cost of service are irrigators and large industrial users. Irrigators pay more than 40 percent below the cost of providing their electricity while large industrial users pay about 35 percent above their actual cost.
To get to these numbers and generate the money the utility needs, residential rates would have to be raised an average of 1.6 percent a year until 2024, resulting in a deficit of about $114 million below the cost to serve the residential rate class from 2015 to 2024.
Irrigation would be raised 3.3 percent a year, resulting in an $82 million deficit in those nine years.
Industrial users would see a rate increase of 0.5 percent annually through 2023, generating an additional $182 million above their cost of service.
Ag processors would see an annual rate increase of 4.3 percent, generating an additional $15 million above their cost of service.
At the rate hearings last week, some speakers questioned why the utility needs to raise rates when it has such a large reserve. The utility is projected to have $87.8 million in its 2016 reserve.
The reserve is tied to the utility’s bond rating, or credit rating. Maintaining a strong credit rating allows the district to borrow large amounts of money at low interest rates, saving thousands of dollars and, in turn, keeping rates low, explained Kevin Nordt, Grant PUD CFO.
And this comes at an important time when the utility is completing a variety of projects, from making upgrades to its recreational and fish facilities to replacing turbines and generators at Priest Rapids and Wanapum dams, Commissioner Larry Schaapman said this week.
Some hearing speakers also suggested that the utility does not need to raise rates next year.
“I don’t think we need a rate increase this year,” Commissioner Dale Walker agreed during the hearing.
However, delaying the rate increase means the next increase would only be larger, Commissioner Bob Berndt cautioned.
Users did not see rate increases in the early 1970s and then residential rates jumped 17 percent in 1975 and 12 percent in 1976, Commissioner Terry Brewer said.
Twenty to 25 years down the road, when the utility has completed its capital improvement projects, the utility may be able to take a realistic look at no rate increases, Schaapman said.
In an interview this week, Schaapman warned that the makeup of the district has changed. And this benefits Grant PUD customers, he said.
A recent report to the Grant PUD shows that growth in the last 10 years in ag-related food processors and data centers in Grant County has resulted in an additional $150 million for the utility over the last 10 years.
“Why should only one class benefit from any excess revenue that might come in?” Schaapman asked.


— By Jill FitzSimmons,