PUD state association counters PSE’s Whidbey study
By MICHAELA MARX WHEATLEY
South Whidbey Record Island Life
August 27, 2008 · Updated 2:45 PM
What a difference a little plus or minus sign makes.
The Washington Public Utility District Association released a report Monday saying that a Whidbey-based public utilities district could lead to a 20-percent rate cut on islanders’ electric bills.
The study followed on the heels of a report released by Puget Sound Energy earlier this month that said a local takeover would not only cost $130 million, but would also cause a 20-percent rate increase for customers.
“People For Yes on Whidbey PUD,” the local group leading the effort to take over PSE’s territory on the island, has not released any dollar figures as to what the takeover is expected to cost.
Dean Boyer, a spokesman for WPUDA, said PSE’s report contains misleading information, starting with the purchase price. The state association hopes its report will shed light on that assumption.
“PSE’s study is based on a new PUD acquiring PSE facilities at a greatly exaggerated price. Compare what PSE is claiming its Whidbey Island facilities are worth to the county’s assessed valuation,” he said.
“A new PUD would not have to pay PSE’s inflated price, which would greatly reduce PSE’s projected costs for a new PUD. This is probably the greatest single discrepancy between the PSE study and ours — taking into account a reasonable cost of acquisition,” Boyer added.
The source and cost of power is also disputed by the parties. The Olympia-based state association claims that with access to low- cost power from the Bonneville Power Administration, a new electric-service public utility district would be able to charge rates up to 20 percent lower than rates projected for Puget Sound Energy, according to the study.
The report stated that PSE faces potentially significant added costs at its coal-fired Colstrip Power Project in eastern Montana, the utility’s single largest generating resource, because of concerns over greenhouse gas emissions and new state and federal regulations.
In contrast, the report notes that the Bonneville Power Administration has set aside 200 megawatts of low-cost power from the federal Columbia River hydroelectric system for new public utilities; enough power to meet the needs of more than 250,000 residential customers.
With access to low-cost BPA power, the study concluded that a new public utility would be able to charge rates up to 20 percent less than the rates projected for PSE.
The association also took issue with PSE’s time estimates.
PSE claims that it will likely take four to seven years after the PUD is fully operational for a new Whidbey PUD to receive its full allotment of BPA power.
“As our study notes, once it is operational, a new PUD would be eligible for the lowest-cost BPA power in three years. This is according to BPA’s own published ‘standards of service,’” Boyer said.
Boyer said during that three-year waiting period, a new PUD would still be eligible to purchase power from BPA at what are known as Tier 2 rates. Under federal law, BPA is required to provide PUDs with power.
“This is the same market-based power that PSE must purchase, only PSE had a poor credit rating that will drive up what it must pay, and then it will tack on a return-on-equity, which will add further to its rates,” he added.
Boyer said PSE’s scenario that there won’t be enough power to go around is a scare tactic.
“BPA has already reserved 40 aMW of that 250 aMW for tribal utilities until 2021, leaving 210 aMW for any and all new PUDs in those four states,” Boyer said.
Boyer said 200 aMW that BPA has reserved for new public power utilities is sufficient to serve a population of up to 300,000 people.
“In addition, that power is available first-come, first-serve, which means the sooner Whidbey approves a new PUD, the sooner that PUD can qualify for low-cost BPA power,” he said.
PSE spokeswoman Gretchen Aliabadi said the WPUDA study is not relevant to Whidbey.
“The hypothetical that PUDA comes up with is just that: hypothetical. It doesn’t exist,” she said.
“At first glance, we don’t understand why PUDA has issued a report on a hypothetical PUD that has nothing to do with a Whidbey Island PUD,” she said.
“The hypothetical PUD would only serve 350,000 to 400,000 residential customers and doesn’t take into account commercial or industrial customers. We know of no community that has only a residential load. Who will provide the jobs?” she asked.
“It’s just not comparable. It’s not even apples and oranges,” Aliabadi added.
Aliabadi said the association assumes that the low-cost Tier I power will be available immediately.
“We know that is not the case. It will take five to 10 years,” she said. “There are only 200 aMW available for four states. No one community is going to get it all. They will have to go out and get other power, all of which are expensive alternatives.”
“That pie isn’t getting any bigger,” Aliabadi added.
The WPUDA study concludes that public power utilities have other advantages that will help keep rates lower, including lower costs for capital improvements because of its tax-exempt status.
Boyer said while PSE is paying an average of 10 to 11 percent on its current debt, the study claims that public utilities are borrowing money today at rates between 4 and 5 percent, a difference that can translate into big savings.
Cost of electricity
It also found that PSE rates have gone up sharply over the past several years — nearly 25 percent since 2002 — or almost twice the national average.
PSE now has the highest rates of any electric utility in Washington, with the exception of a small utility serving San Juan County, and is asking the Utilities and Transportation Commission for permission to raise residential rates 8.25 percent.
Aliabadi said while it is true that PSE rates are high at the moment, they fluctuate over time.
“Sometimes PSE is more expensive, sometimes less than others. Rates are really a snapshot in time,” she said.
The study also said that PSE will face added cost in the future for new infrastructure and has a poor credit rating to borrow money for needed improvements.
“The report attacks our capital programs, but doesn’t acknowledge that a new PUD would face the same challenges,” Aliabadi said. “If they acquire us, they will need to upgrade and invest to serve new customers.”
She said the group also failed to take the cost of PSE’s assets into account.
“This is a massive, material-heavy business,” she said.
While PSE is an old pro, a new PUD would be essentially led by amateurs, she added.
“We know what it takes to serve the island’s needs of an
80 average megawatts and a peak of 152 aMW,” Aliabadi said.
Boyer stressed that as nonprofit entities, public power utilities provide electricity at cost, while investor-owned utilities like PSE must charge rates that provide for a profit for the shareholders.
PSE rates currently include a 10.4 percent rate of return for its shareholders and the utility is asking the UTC for permission to increase that to 10.8 percent.
“The biggest thing is that if I were a resident of Whidbey,
I wouldn’t want to invest based on assumptions,” Aliabadi added.
The report is based on information regarding PSE’s costs and future capital plans, including rate filings with the Utilities and Transportation Commission.
For a study copy, call 360-741-2676 or go to www.wpuda.org.Contact South Whidbey Record Island Life Michaela Marx Wheatley at firstname.lastname@example.org or (360) 221-5300.