Lean energy: Clark Public Utilities controls costs
Rates under control in face of economy, weather, I-937
Monday, February 27, 2012
Editor's note: This story originally ran on Sunday, Feb. 26
Clark Public Utilities is a regional government you usually don’t notice, as long as it keeps your lights on and the water running.
However, this month, residential customers of the utility have seen their monthly water bills jump by about 14 percent. By 2014, customers who pay for power from the utility will see their electric bills rise by roughly 3.9 percent.
So, people have noticed. Some have peppered the utility with barbs. Clark County resident Al Witthauer, in a post to The Columbian’s website, called on the utility to “cut back on (maintenance) staff, meter readers, billing agents, (management), and turn a few lights off and heaters down, just like we all do.”
But does Clark Public Utilities have fat to trim?
How well does it serve the public that owns it?
And what led it to hike power and water rates?
An examination by The Columbian reveals an agency running lean, maintaining a nearly spotless record of performance, and raising rates to deal with a complex set of issues involving debt, new energy requirements and fluctuating weather patterns.
‘More with fewer people’
Data show Clark Public Utilities is operating efficiently.
The utility spends just less than $250 per customer to operate and maintain its services, according to the 2011 Washington Public Utilities SourceBook and the 2010 annual reports of Clark Public Utilities and other utilities across the state. That’s the lowest operations and maintenance cost per customer of any public or private utility in Washington state.
There are roughly 587 customers per utility employee, according to the 2011 Washington Public Utilities SourceBook. That’s the highest number of customers per employee of any public utility in Washington state.
“Despite doing more with fewer people, we continue to have very high customer satisfaction,” Erica Erland, chief of communications at Clark Public Utilities, said in an email to The Columbian. “And we work really hard to keep it that way.”
To streamline the utility’s operations, officials said, they’ve eliminated entry-level positions and invested in technology. Wayne Nelson, general manager and CEO of Clark Public Utilities, said there’s no connection between the level of compensation the utility’s workers receive and the rate increases.
“The amount that we’ve increased people’s salaries and benefits here have not impacted the amount that we’ve had to raise rates one iota,” Nelson said.
A clean record
A review of reports by the Washington Auditor’s Office the official watchdog of state and local governments reveals the utility is complying with its own policies and procedures, and state laws.
The utility’s “internal controls were adequate to safeguard public assets” and the utility also “complied with state laws and regulations and its own policies and procedures in the areas we examined,” according to the auditor’s accountability and compliance report issued Feb. 6.
The areas the auditor’s office examined included utility billing and adjustments, debt covenants, open public meetings laws, bidding and prevailing wage rules, ethics laws, payroll and personnel benefits, and environmental program compliance.
The state auditor’s past five reports on Clark Public Utilities have discovered just one problem. A 2007 report found the utility had a “significant deficiency” in lacking proper documentation of federal grants it received.
“Historically, (Clark Public Utilities) has not received many federal grants,” according to the report. “As a result, it has not designed sufficient controls to address grant reporting, including training for staff.”
The reason it’s important to have such controls is that stakeholders, including the state Legislature, state and federal agencies, and potential bondholders “rely on the information included in the financial statements and reports to make decisions,” according to the report.
Clark Public Utilities fixed that problem, according to the auditor’s office, which found no issues at Clark Public Utilities in its 2006, 2008, 2009 and 2010 reports.
Last year, the utility received high marks from another watchdog: the North American Electric Reliability Corp., certified by the Federal Energy Regulatory Commission to set and enforce reliability standards for the bulk-power system.
North American Electric Reliability’s audit reviewed Clark Public Utilities’ compliance with 140 reliability standards, including dispatch, engineering, power supply and cybersecurity.
It found zero violations and no areas of concern.
‘Ups and downs’
Clark Public Utilities the second-largest public utility in Washington state is a voter-owned utility as opposed to an investor-owned, private utility such as Portland General Electric. It provides electricity to more than 183,000 residential and business customers in Clark County. The utility, governed by three elected commissioners, also has 29,000 residential water customers in the Hazel Dell, Salmon Creek, Lake Shore, Hockinson, Brush Prairie, La Center, Meadow Glade, Amboy and Yacolt areas.
In October, commissioners Nancy Barnes, Carol Curtis and Byron Hanke voted unanimously to raise electric rates, adding $2 to the base monthly residential customer charge raising it to $12 and boosting the energy cost which was 7.98 cents per kilowatt-hour to 8.16 cents per kilowatt-hour.
Before the rate increase, a household that burned 1,200 kilowatt-hours a month received a bill of $105.76.
That household’s bill actually fell to $103.07 after the rate increase, however, because customers are receiving a temporary credit of 0.5 of a cent per kilowatt-hour on their bills each month for the next two years.
That credit is tied to a complicated legal settlement forged between regional power providers and the Bonneville Power Administration.
Utility officials anticipate that after 2013, when the refund expires, residential customers will pay the new, higher rate, which would raise the same household’s monthly bill to roughly $110.
Even then, residential customers’ rates will remain competitive. Residential customers of Portland General Electric, for example, pay about $129 a month to consume 1,200 kilowatt-hours per month.
Bridging a shortfall
Clark Public Utilities’ electric rate hike aims to bridge a $9.7 million revenue shortfall on an anticipated $376.42 million electric system budget for this year.
The Bonneville Power Administration’s decision to increase wholesale power rates and Initiative 937 the statewide voter-approved push into renewable energy drove the projected budget gap and the subsequent need to raise power rates, according to utility officials.
Nelson, CEO of Clark Public Utilities, said that under contractual changes made by BPA, the difficulty in ensuring an adequate supply of power to customers has increased significantly.
Before, if the utility needed more power because of an especially cold winter, BPA would come through. Now, the utility receives a certain block of power from the BPA, and a chunk from its gas-fired River Road Generating Plant, but must cover the cost of any extra power demands on its own, Nelson said.
“We have to follow our load, all of the ups and downs,” he said.
Then there’s Initiative 937, which requires utilities to obtain a certain percentage of their power from renewables.
Complying with I-937, including purchasing the entire output of a 63-turbine wind farm near Milton-Freewater, Ore., is projected to increase Clark Public Utilities’ expenses this year by $14.9 million.
About 72 percent of Clark Public Utilities’ electric system budget goes to purchase power and to deliver it to customers. That’s up nine percentage points from 63 percent in 2011. About 12 percent of the utility’s electric system budget is set aside for operations and maintenance. That’s unchanged from 2011.
Water sales go down
In December, utility commissioners unanimously adopted water-rate increases, adding $1 to the flat monthly rate raising it to $9 and boosting the cost per cubic foot of water which had been $1.60 per 1,000 cubic feet of water to $1.85 per 1,000 cubic feet of water.
A customer using an average of 900 cubic feet of water per month was paying a $22.40 bill. Under the rate increase, which took effect Feb. 1, that customer’s bill went up by $3.25, to $25.65 per month.
The rate hike aims to bridge a projected $1.34 million revenue shortfall for an anticipated $14.19 million water system budget for 2012.
The utility faced a water revenue shortfall primarily because a cold spell that lasted well into the summer months in 2011, lowering demand for water for such things as lawn irrigation.
Additionally, a sluggish economy left consumers looking for ways to save, including on how much water they use.
As a result, the utility’s water sales are down, and are not bringing in enough to cover the mostly fixed costs of maintaining the system.
Those fixed costs include paying off debt the utility incurred years ago when it borrowed the capital it needed to expand its water system for a growing population.
“We are now experiencing the pains of paying that back as the debt service kicks in,” said Nelson, the utility’s CEO.
In 2005, for example, about 35 percent of the utility’s water system budget was apportioned for debt payments. This year, the utility’s debt service is anticipated to consume 53 percent of its water system budget.
By contrast, in 2005 about 45 percent of the utility’s water system budget was set aside for operations and maintenance. This year, it’s anticipated to be 36 percent.
The utility’s obligations to pay off its debt reflect “the largest portion of where the (water) rate increase comes from,” Nelson said.
While water conservation helps ease demands on the system, utility officials said, it can only do so much.
“When you have the economic downturn or the extreme weather swings that we’ve had over the last three or four years, that is a catastrophic depletion of demand,” Nelson said. “We don’t get to decrease our costs, they stay the same,” he added. “But now the consumption has dropped so low that now we can’t recover our costs based on the rates we had.”
Regardless of what the water rate is, Nelson said, it still pays for customers to conserve. “If you use less you will pay less.”
Rick Dyer, director of finance for Clark Public Utilities, said the utility takes seriously the impact on customers of any rate increase.
“We live and breathe on that thing,” he said, “and we put in place programs to help people that are struggling.”
“We don’t just raise rates,” he added, “and walk away.”