Electric rates go up

According to Brian Skeahan, general manger of the PUD, the average rate increases for Northwest utilities this year exceeded 25 percent. And in the words of one industry analyst, if the PUD had not undertaken what he referred to as "innovative" moves, the increase would more likely have been more than twice as high.

The PUD's Board of Commissioners adopted the rate increase in a unanimous vote on Oct. 30.

At a press conference at the PUD's headquarters in Goldendale on Nov. 1, Skeahan said the Klickitat PUD's 10.5 percent increase is relatively low.

"Our rate increases were amongst the lowest in the Pacific Northwest, and our rates were competitive even before this," Skeahan said. "Our rates are lower than some utilities that have historically been seen as the lowest on a competitive basis. We've never been this competitive. So we're feeling pretty good about it."

To highlight his claim, Skeahan displayed a chart that listed rate increases of 40 Northwest utilities. The Klickitat PUD was fifth-lowest on the chart. Other utilities in the Columbia Gorge region came in much higher: Skamania Public Utility District had an increase of well over 20 percent, while Wasco Electric Co-op and Northern Wasco PUD both had raises of more than 25 percent. Clark PUD was on the extreme end, with a rate increase of over 50 percent.

Nevertheless, even with the positive comparisons, no one at the PUD expects customers to be happy about it.

"Most people are critical," acknowledged PUD Board Commissioner Harold Hill. "Anytime rates raise, people will be."

Skeahan explained that the Bonneville Power Administration raised its wholesale power rates by 46 percent effective Oct. 1. That could have translated into a 25 percent rate hike for PUD customers, but the PUD has been able to minimize the increase, largely due to its investment in the McNary Dam hydro project several years ago. The landfill gas project at Roosevelt also has played a big role in keeping the PUD in healthy financial shape.

Skeahan pointed out that most public utilities around the Northwest are what are called "full requirements customers" of BPA. That means all the power they provide comes via BPA. Hence, BPA rate increases have to be absorbed by the utility's ratepayers.

Skeahan noted that as recently as 1995, the PUD was a full requirements customer of BPA, and the PUD's only source of funds was ratepayer dollars.

"McNary provides 12 to 13 percent of the PUD's energy load, and that 12 to 13 percent is not subject to the BPA rate increase," explained Skeahan. "Had we not done these things, our rate increase would have been about 25 percent."

Skeahan noted that at the time the PUD invested in the McNary Dam project, it was taking a risk.

"When we went into the McNary project, we were told it was not the best thing to do," Skeahan said. "But it's turned out to be the right decision."

"Under Brian's leadership, the PUD has done some very good things," said Alan Dashen, owner of A-Dashen & Associates, a Bellevue firm that provides financial advice for Northwest PUDs. "The first was with McNary Dam. We showed it to several PUDs, but Klickitat was the one that jumped on it. In hindsight, that project was perfect for the PUD. The second project that was very forward-looking was the landfill gas project. Brian and his crew had to work hard to pull it together, and it's been very good economically and environmentally for Klickitat County."

Dashen added that he sees the Klickitat PUD as a progressive operation.

"Compared to other rural PUDs I work with, the Klickitat PUD is the most innovative and imaginative, and the low rate increase you see today is the result," Dashen explained.

"No one likes rate increases, but this is pretty darn good. We've worked hard and feel good about the way this has turned out," Skeahan said.

By way of contrast, Skeahan pointed to recent rate increases by Northwest Natural Gas, which has hiked its rates by 45 percent over the last two years.

PUD Commissioner Dan Gunkel praised Skeahan's efforts to keep the PUD's rate low.

"The Board has been more than willing to stack a lot of work on Brian, yet he and his staff have brought McNary and the landfill project in on time and on budget. This Board member is thankful our staff has performed so well," Gunkel said. "We set tough goals and those goals have been met -- and the Board appreciates that."

PUD officials were optimistic that the hike would not need to be repeated for several years.

"We think we'll be able to keep these rates in effect for a number of years," Skeahan said. "It's always hard and foolish to make firm predictions. We are assuming some slight reductions in BPA rate over several years. And if there are no other surprises or disasters, this ought to be a good rate into 2004-2005."

"If things happen as we think they will, we'll have at least three years at these rates," added PUD Board Commissioner Randy Knowles.

Knowles also pointed out that the PUD's rate jump is not much more than might be expected with inflation.

"Normally we would have a 5 percent to 7 percent increase just for inflation over this period of time," he said. "Not mentioning that understates the impact of the things we've been able to do."

Commissioner Hill noted that the drought has had a negative impact on power supply in the Northwest, but he is hoping that is in the past.

"If it keeps raining and the snow keeps falling, we'll all breathe a sigh of relief. That will fix BPA's position," said Hill. "This is the most extreme weather we've seen in many years."

At last week's news conference, Skeahan also revealed that the PUD had received good news from Standard & Poor's. In conjunction with its recent bond sales, the PUD was able to win an upgraded rating from Standard & Poor's, which moved the utility from a BBB+ rating to an A-.

The enhanced rating will serve to reduce borrowing costs for the PUD, thereby ultimately reducing costs to consumers.

The improved rating reflects several positive factors, including the PUD's diversification of power resources; an advantageous contract with BPA that does not include the landfill gas project in the district's resource base; and sufficient resources, which reduces the PUD's exposure to volatile Western power markets.