Components of an electrical rate increase

If you think there is something fishy about Cheney's upcoming 6 percent power rate increase, you'd be correct.

The City Council recently approved the increase, the first in 14 years, in order to replenish Light Department coffers that have been steadily dwindling due not only to infrastructure requirements but increases in wholesale power costs from the city's supplier, the Bonneville Power Administration. One of the factors behind BPA's increases stems from a 2008 settlement between BPA and four of five Northwest tribes that would leave Columbia Basin hydroelectric facilities intact while improving conditions for endangered salmon species.

Under the terms of the 10-year agreement, the tribes ended lawsuits they filed against federal agencies over management of the regional power-producing infrastructure, which includes 24 dams managed by BPA on the Columbia and Snake Rivers. In exchange, BPA agreed to spend $900 million for hatchery improvements, stream restoration and additional measures around dams protecting fish from destruction.

The cost for those measures is being passed along to BPA customers, Cheney Light Director Joe Noland said. But fish aren't the only reason customers may feel like they're swimming upstream against a current of rate increases.

BPA also has concerns regarding its ability to pay its debt to the federal government, and is looking at a lot of needed work repairing and upgrading its 40 – 60 year old regional infrastructure.

"It's a combination of a lot of things that's driving the rates (increase)," Noland said.

That same logic flows downstream to power purchasers like Cheney, and subsequently its power users. After its last electrical rate increase in 2001, the city used its Light Department reserves to hold rates steady, especially during the recession of 2008 and subsequent recovery.

For the most part, the city's power revenues were enough to cover the department's expenses, with the exception of 2010 when the purchase of $1,473,301 in electrical equipment - which included a large substation transformer - created a $171,554 deficit.

But in 2010, Noland said BPA raised wholesale rates 11 percent, and has followed with 8 percent increases in 2011 and 2012. In 2012, Cheney's power expenses topped revenues for the first time, and the gap has widened since, reaching a deficit of $539,998 in 2014.

BPA increases and capital project needs haven't been the only factors driving increasing expenses. Salaries and benefits have played a role, less so the former and more so the latter.

"In my 30 years here (in the Light Department) there's only been two years that medical premiums didn't go up," Noland said, adding last year was one of those years.

Even with the growing expenses, the city has managed to maintain healthy cash reserves for the Light Department. Most of those reserves, however, are pretty much spoken for in terms of being able to pay BPA power bills when they arrive. At the end of 2014, the department had a reserve of $2,858,049 and it is projecting year-end cash for 2015 at $2,208,868.

But without a rate increase, that drops off drastically. The department would realize a revenue-to-expense deficit of $831,664 in 2018, rising to over $3.7 million by 2020.

The rate increase, which takes effect in May on the April bill, would reverse that trend, eliminating the revenue-to-expense deficit by 2018 and keeping year-end cash close to $2 million through 2020 at least. That amount would be over $2 million each year if it weren't for the fact that Noland has plans to do over $3.2 million in infrastructure work over the next five years.

"A lot of system stuff needs replacing," Noland said. "Just a lot of old things that, to make the system reliable, will take some attention. It's deferred maintenance that needs to be done in a way that doesn't induce rate shock to our customers."

There's also the potential for making the Light Department's financial spreadsheet healthier than projected through growth. Noland and Finance Director Cindy Niemeier projected annual revenue growth at a conservative 1 percent, but Noland said it's historically been averaging about 1.6 percent per year.

"We can't hang our hat on it covering all our expenses," Noland said.

John McCallum can be reached at [email protected].