Commissioners Approve Chelan PUD Power Sales Plan, Extend Surcharge

To reduce financial risk and bring in more reliable revenues from year to year, Chelan County PUD commissioners have approved a plan to sell slices of surplus power farther into the future to the highest bidders.

Commissioners also agreed with a staff recommendation to continue for another year a temporary electric rate surcharge of 9 percent after hearing reports of record-low river flows the first three months of this year and forecasts for continued low market power prices. With the surcharge, average residential rates for Chelan PUD power will still be 3.4 cents per kilowatt hour, the second lowest rates in the nation. The Pacific Northwest average rate is 8.3 cents per kwh, and the national average is 11.8 cents per kwh.

Even with the continued surcharge, financial staff project the PUD will finish 2010 with a decline in Utility Services net assets of about $29 million. The decline in 2009 was about $15 million, covered with reserve funds. Staff cautioned commissioners that the surcharge might need to be increased if conditions worsen or if PUD strategies for long-term surplus power sales don’t work as expected.

By extending power sales out as long as five years, the PUD can stagger future sales of percentage slices of the output from its hydro projects and decrease the year-to-year revenue volatility that can be difficult to budget. The PUD also hopes to establish a short-term line of credit that would be available to the PUD if needed, said John Janney, the PUD’s chief finance officer and chief risk officer.

As part of strategic planning, the PUD is developing ways to stabilize revenues and make rate adjustments more predictable, matching community preferences. Janney said the first of the slice contracts for a share of the output from Rocky Reach and/or Rock Island dams should be up for auction this year. Surplus power will then be sold so that only a portion of the PUD’s surplus sales would expire in any one year.

“It’s a rolling strategy to smooth things out,” said Janney. The PUD would also keep available a share of surplus power to take advantage of any short-term spikes in power prices.

After listening to the latest revenue projections, commissioners decided to continue the electric surcharge another year. A separate rate redesign that was approved by commissioners in 2008 will be postponed again, not to take effect until the extended surcharge expires.

“We do not like surcharges, but it could have been so much worse,” said Commissioner Ann Congdon, referring to rate increases adopted by many other utilities in the region in recent months.

Return to May 2010 Western Energy News

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