PUD studies another rate cut

By Jennifer Langston

Herald Writer

Snohomish County PUD commissioners and staff are studying ways to wring another 10 percent rate cut this fall out of the utility’s budget. But at least one commissioner thinks many of the options — which include making more optimistic assumptions about rainfall and depleting financial reserves — could be too risky.

PUD Commissioner Kathy Vaughn said some of the options to ease rates now might simply delay the pain and put the district in a financial hole later.

"I call it buying groceries on your credit card," she said. "I’m extremely concerned that we not put the utility in financial jeopardy just to squeeze a small rate decrease out of the budget."

The board directed staff to study the issue and scheduled meetings July 23 and Aug. 27 to get public input. That’s partly to allow Ed Hansen, Everett’s mayor who was hired by the utility this week as its new manager, time to review the rate-cutting options.

There has been intense pressure on the PUD to lower electricity rates, which are the highest in the state. The rates soared by more than 50 percent last year, in part because of the Northwest’s drought and energy shortages in California. New documents have shown that Enron and possibly other energy traders manipulated that volatile market and drove prices even higher.

The PUD cut its rates by 5 percent in March, concluding that a steeper decrease might put the utility in a financially risky position. The majority of customers who attended focus groups and public meetings felt, at that time, a middle-of-the-road approach was wisest.

But the elected commissioners also asked staff to look for additional savings that might allow the utility to cut rates Oct. 1 by up to 10 percent. That would save the average customer $89 a year.

"We looked at everything," said PUD assistant general manager Glenn McPherson. "I think the term ‘leave no stone unturned’ was part of our guiding principle."

Also, there’s some uncertainty about how much the Bonneville Power Administration, the federal agency that supplies three-quarters of the PUD’s power, will raise its rates in October. And the PUD faces increasing costs for employee medical benefits, property insurance and wage increases.

Options presented this week to cut rates included using money that had been set aside to pay off bonds, which would create new pressure to raise rates in 2007 and might hurt the utility’s credit rating.

They also include depleting a reserve fundto purchase power in years when water levels are low and hydropower dams aren’t producing as much energy. The PUD also could make less conservative assumptions about rainfall and river levels when preparing its budget.

That increases the risk that in low water years the utility might be caught short of money to purchase that energy elsewhere.

The PUD could also spend money it had been setting aside in the event that the bankrupt Enron Corp. or its creditors try to force the utility to honor a contract signed last year.

The utility maintains it shouldn’t be liable for the expensive contract, worth about $100 million, since the company imploded shortly after it was signed. But last month Enron indicated it intends to pursue a settlement from the PUD.

The PUD could also save money by cutting back on conservation programs and renewable energy, which would run contrary to the board’s past policies.

Finally, the utility is looking at ways to lower its internal, non-power costs. But that could lead to cuts in service that customers wouldn’t find acceptable, McPherson said.

PUD Commissioner Cynthia First agreed that there are uncertainties about future costs, but she said that’s no reason to stop looking for ways to give customers a bigger rate cut.

"Let’s keep studying it intensely so we can plug in different variables as we get more information," she said. "I don’t think we should stop our analysis."

You can call Herald Writer Jennifer Langston at 425-339-3452 or send e-mail to langston@heraldnet.com.