Managers Message April – May 2015

Skamania PUD’s mission is to “Provide the best possible utility service at the lowest cost consistent with sound business principles.”   Our mission success requires that we seek and retain the lowest cost reliable sources of water and power, maintain a healthy and reliable utility infrastructure and work continuously to improve our internal processes and customer service.  High quality, low cost and sound business principles are often competing ideals requiring constant balancing.  Sometimes the balancing requires difficult decisions – utility rate increases being at the top of that list.  The PUD has just completed a rate making process and will implement rate increases in May.  Here is a brief overview.

The Rate-Making Process:  The PUD works through a defined process in order to set rates.  The Board of Commissioners first sets prudent fiscal policies to ensure the utility remains on sound financial footing.  Long-term capital planning is done to identify large infrastructure projects that will require debt financing.  A third party is engaged to do a cost of service analysis (COSA); the COSA analyzes current and forecast utility costs to determine the rate revenue required to meet those costs and stay within the

established financial policy guidelines.  PUD management works with the PUD Commissioners to develop rate adjustment scenarios that will meet the forecast revenue requirements.  Public rate hearings are held to inform you, our customers, and to gather your feedback.  The Board then decides how rates will be adjusted and when the adjustments will be implemented.

What is driving this rate increase?  The factors contributing to the PUD rate increase are rising wholesale power rates from BPA, a bond issue to finance large infrastructure projects, and general inflation leading to higher PUD operational costs.  In the most recent 3 years, 2012-2014, the PUD has experienced an 8.9% average annual rate increase in wholesale power costs.  The cost of power is about 45% of PUD electricsystem expenses.  Next, the PUD is working toward a bond issue in the fall of this year to finance a number of key infrastructure projects identified in our strategic plan.  The bond issue will finance rebuilding of two of our five electric substations, construction of a new reservoir in the Carson water system and in the Underwood water system the Shepherd pump station will be rebuilt and some key waterline replaced.  The PUD last sought bond financing over 10 years ago and current market conditions present a good  opportunity to finance new infrastructure and refund our existing debt.  Rates are set so that revenue from each system supports the costs of that system.

Summary of the Rate Increase:  In order to minimize the rate impact in any one year, the Board decided to spread the rate increases over a 4 year period.  The table at the top of page 2 shows the forecast increases for the 3 systems.  For all 3 systems, a rate structure adjustment was also made shifting a larger portion of the rates from the usage fee to the basic or minimum fee.  You can find more details in the rate hearing documents on our website www.skamaniapud.com.

Brent Bischoff
General Manager