PUD’s ‘day of reckoning’

By KATHY DAY

Herald Writer

EVERETT — While Snohomish County PUD officials say they don’t want to scare electricity customers, they are considering budget plans for 2001 that range from belt tightening to substantially increasing rates.

The reason: Power costs are escalating.

"Nonpower expenses are not contributing to rate pressure," said general manager Paul Elias. "It’s clearly the cost of power."

While many categories call for flat or even lower spending, the cost of power alone will account for an estimated $68 million more next year.

The proposed $466 million 2001 spending plan, which assistant general manager Glenn McPherson outlined in detail Tuesday, is about $65 million higher than the 2000 budget.

And that was before the Bonneville Power Administration announced Wednesday that because 135 wholesale customers want power, it must turn to the open market, and charge more, to supplement what it provides from Northwest dams. Currently, open-market prices are running about 21/2 times higher than a year ago, so BPA plans to tack a 15 percent surcharge onto new contracts that take effect Oct. 1, 2001.

John White, also a PUD assistant general manager, is responsible for contract negotiations with the federal agency. On Thursday, he called the size of the proposed charge "a surprise."

"I expected single digits," he added, noting that the impact on the proposed budget is unclear but "could be big."

Although PUD officials have to factor that into the equation, right now they’ll also have to figure out how to buy the high-priced market power for the first nine months of the coming year.

While commissioners expect to approve the spending plan in December, they do not foresee setting new rates until January or February, when they hope they’ll have more information on BPA’s prices.

Some of that information may not be clear until May.

Introducing the local options for increasing prices, the general manager said 2001 will be the third year in which nonpower costs are lower than the preceding year.

Elias said issuing bonds or using existing reserves set aside to stabilize rates "just puts off the day of reckoning."

Commissioners had previously forecast that 3 percent rate increases would be required in 2000, 2001 and 2002, but they decided to forgo the hike this year in the face of the possible effects of Initiative 695, and instead used part of the rate stabilization fund to balance the budget.

One of McPherson’s suggested options for the coming year is to stick with that limitation and hold any hike to 3 percent — about $1.88 per month for residential customers — in 2001, 2002 and 2003. That would require using $34 million of the $38 million stabilization fund.

Four other alternatives were suggested:

4 percent hikes ($2.50 per month) in 2001 and 2002 and 3 percent in 2003 while using $33 million of the reserves.

8 percent hike ($5 per month) in 2001 and $28 million of reserves.

11 percent ($6.88 per month) in 2001 and $25 million of reserves.

4 percent in 2001 and 2002, 3 percent in 2003 and an 11 percent surcharge in 2001 only, with $20 million of reserves. That would cost the average customer $9.38 a month the first year and $7.78 the following two years.

The final option elicited frowns from commissioners and a comment from commissioner Don Berkey, who said it will be a "challenge to balance the rates and build a reserve to soften the impact again someday."