Power crunch may mean cutting projects

Published on Thu, Mar 22, 2001 by Meg Olson

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Power crunch may mean cutting projects

By Meg Olson

Faced with a substantial jump in the cost of wholesale power as early as July, Blaine city council is considering its options to keep the city’s electric utility financially viable. All options include a rate increase for Blaine power customers.

“Blaine has always been able to brag we have the lowest power rates in the county,” said city manager Gary Tomsic at a March 19 work session. “Frankly, there’s a question whether we can maintain that competitive position.” Tomsic said the Bonneville Power Administration, which supplies 100 percent of the city’s electricity, was forecasting a 50 percent increase in the cost of power to the city in 2001/2002. Rates are predicted to jump as much as 300 percent in five years.

A combination of dry weather, high power demand in California’s deregulated market, insufficient production capacity and the rising price of natural gas were acting to almost guarantee the current power crunch was not likely to ease up soon.

Tomsic said while most of the ingredients in Blaine’s consumer power rate, such as the cost of raw power and transmission to Blaine’s system, were not in council’s control, others were. “In 1999 the city issued $4.6 million in power revenue bonds to be used for capital projects,” Tomsic said. The planned express feeder to west Blaine and the new Lincoln Road substation tripled the cost of debt to the utility from 1998 to 2004.

The express feeder was planned to loop the transmission system and provide an alternative path for power to get to west Blaine should the cable under the mouth of the harbor be damaged. “The growth we expected to serve has not materialized, so it’s sized large for current demand and should serve the city well into the future,” said public works director Grant Stewart.

A new substation at Lincoln Road would increase the city’s capacity to provide power to meet the demand generated from growth in the area. A regional transmission contract limits Blaine to a 15.3 megawatt maximum power draw. “We hit that limit once in 1997 but haven’t come close since,” Stewart said. “There are losses associated with having a substation sitting idle. Until we exceed that limit at the Blaine substation, the new substation doesn’t begin to pay for itself.” Tomsic pointed out that, with construction almost ready to begin, there could also be some loss associated with shelving the project. “You won’t be able to build it later as cheaply as today,” he said

“Decisions were based on scenarios which have changed, based on growth projections that have been less than forecast,” Tomsic said. He added that costs associated with the two projects have also increased. Finance manager Meredith Riley estimated an additional $2.3 million would be needed to complete both.

Stewart said conservation measures and metering changes could earn Blaine credits from the state and allow more equitable billing. One option was credits for residential customers that install power-saving bulbs. Another was to install meters for big power users that measure amount of power used in peak and off-peak hours. The city could charge more for peak consumption, when they are charged more for the power by BPA, saving other system users money and encouraging conservation. “If we put new meters on our 50 biggest customers it would monitor 45 percent of our load,” Stewart said.

“All of these factors are coming together and forcing you to make some tough decisions,” Tomsic told council members. “You have to balance political on competitive issues with financial realities.”

Options presented by staff ranged from completing both to neither of the capital projects, but all included a substantial rate increase in July and again the following year. Whether the city proceeds with planned capital projects or not, the rate hikes for the next two years would be the same, according to Riley: 34.8 percent in each year if the increase was levelized or 11 percent in July followed by 58 percent next year if not. The only difference would come in 2003 if the substation project were continued and additional money is be borrowed. Continuing with the substation would mean an additional 6.5 percent hike in 2003 above any increases associated with the cost of raw power. Riley said shutting down the express feeder project would have little impact. “Since we’ve already issued the debt we still need to pay it back,” she said. “We could possibly do an advance repayment and reduce costs, but that’s really not going to change the scenario too much.”

“I wouldn’t throw out the substation yet,” said Frank Bresnan Jr. “We’ve exceeded our capacity in the past and even though growth hasn’t happened yet, it will.” Bresnan also pointed out that, while the percentage increases look significant, it’s pennies difference in cost per kilowatt. Blaine now charges 4.9 cents per kilowatt and Puget Sound Energy charges from 6 to 7 cents. “The kind of increase we’re talking about would put us in the same ballpark as Puget Sound Energy.”

Dieter Schugt said he was concerned for community members who would be hurt by even a modest hike. “If we put in a big rate hike we need to think of what we’ll do for members of our community who can’t afford it,” he said.

Hobberlin said the council’s concern needed to be the viability of the utility. “Is the city responsible for the financial well-being of its citizens?” he asked. “Do you run a business based on what your customers can pay?”

John Liebert said the rate increase appeared inevitable, and would hit ratepayers hard no matter how council decided to structure it. “It’s like asking, do you want to be shot with a rifle or a shotgun,” he said. “The people need to be aware that they’ve been getting a break and now it’s over.”

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