Cost of service analysis explained at Grant County PUD workshop

EPHRATA - The cost of providing electricity to Grant County PUD customers, and how the PUD arrived at its conclusions, was the subject of a workshop with customers Thursday.

Jeremy Nolan, PUD analyst, presented the results and said the whole project was just about costs, and nothing else. "Today we're not talking about rates or rate design," Nolan said.

Any decisions about rates, where rates might be raised or lowered and by how much, is up to PUD management and the board of commissioners, Nolan said.

The study looked at the mechanics of getting power to customers, electrical generation, building and maintaining lines and substations, among other things. Along with that was an analysis of the revenue generated by each class of customers, Nolan said, and how that matched up against the cost of providing electrical service.

What emerged, Nolan said, was that some customer classes were paying more than the cost of their service while others were paying less. Large industrial customers and large general service customers were paying more than the cost of serving them, he said. Residential, irrigation and general service customers were paying less than the cost of service. That was consistent with information from earlier studies in 2007 and 2010 and an update of the 2010 study in 2013, he said.

Dennis Conley, representing agricultural irrigation customers, asked how the rates got out of balance. Nolan said that as a locally governed entity, the PUD typically hasn't tied its rates to the cost of service. The utility has opted for across the board rate increases instead, he said.

The PUD commissioners adopted a resolution in October 2013 that requires all rate classes to pay no more than 15 percent above the actual cost of providing their service. The resolution also requires that all rate classes pay at least 80 percent of the cost. All rates must meet those targets by 2023.

Getting rates closer to costs is separate from current revenue generation and costs, Nolan said. Part of the study was a look at projected expenses and revenue for 2015. The estimate showed the PUD spending about $169.3 million, and generating about $166 million. The PUD will need additional revenue to make up the difference, Nolan said, called the revenue requirement. That's where the consideration of rate increases comes in, he said.

Current PUD policy sets a limit on the amount rates can be increased in any given year. The maximum is 5 percent, said Jeff Shupe, the transmission and distribution engineering manager.

The commissioners have already said they don't want to raise rates in big increments, Shupe said. "Small and predictable increases" is the goal, he said.

Conley said irrigators have already paid for the construction of the system that provides power to them, and asked if any capital costs were included in the analysis. Nolan said the study considered maintenance and operation costs only.

Conley asked if the cost of expansion for new customers was considered in the analysis. Nolan said existing customers don't pay those costs. The analysis considered only the cost for each class of customers, he said.

The cost of service and cost allocations will be reviewed annually, Nolan said.