Cost-of-service study under review by council

Published 5:51 am Wednesday, February 13, 2008

By Staff
Detailed look calls
for minor changes
to city’s power rates
Contributing Editor
Washington’s City Council will review a cost-of-service study of its electric department, a study that likely will be used as the council prepares to begin work on the city’s 2008-2009 budget.
The study, prepared by Booth and Associates, was presented to the council during its meeting Monday.
In October 2006, the city increased its electric rates to avoid a projected $1.6 million shortfall between wholesale power purchased by Washington and revenue from retail power sales in the remainder of that fiscal year. The 5.25-percent increase was made in the wholesale power cost adjustment part of the city’s electric rates. The council did not have to vote to impose the 5.25-percent increase, because the wholesale power cost adjustment segment is a part of the existing rate structure.
Along with the increase, a pledge was made to perform a comprehensive cost-of-service study by the end of 2007. The study was to accomplish the following goals:
Dwight Davis, representing Booth and Associates, told the council the three goals can be met with a minor adjustment to the electric rates.
The study determined that under a true cost-of-services basis some classes of power customers have been slightly overcharged while others have been slightly undercharged. A summary of the study shows the three goals can be met with a 1.1-percent system-wide rate increase and that no single class of power customers will see its rates increase by more than 3 percent.
The cost-of-service study determined a 3-percent rate increase for residential customers would help the city meet the three goals. The study also determined a 2-percent rate decrease for small general-service customers, a 1.4-percent rate increase for medium general-service customers, a 1.5-percent rate decrease for large general-service customers, a 2.1-percent rate decrease for industrial-service customers and a 14.9 percent rate increase for outdoor lighting would help the city meet the three goals.
The study determined that those increases or decreases in those customer categories would help the city meet the three goals.
The council has the final say on increasing or decreasing electric rates.
Mayor Pro Tempore Doug Mercer and Councilman Archie Jennings indicated they are not inclined to consider increasing the rate for residential customers if it can be avoided and still meet the three goals.
Jennings said that keeping existing rates in place instead of decreasing them for customer categories other than residential customers could result in generating enough revenue for the electric fund so that a rate increase for residential customers would not be needed to help the city meet the three goals. Jennings said he understands that most of the city’s general-service and industrial-service power customers are “happy” with their existing rates. If they are happy paying those rates, it doesn’t make sense to decrease them, he said.
Mercer had a similar viewpoint. Because most of the revenue for the electric fund is generated by residential customers, the city should shift some of the revenue-generating burden to the other categories of power customers. Doing that could reduce or eliminate the need to increase the rate for residential customers, Mercer said.
Davis told the council those strategies could work.
In his memorandum to the mayor and council, City Manager James C. Smith wrote that the rate structure included in the study “is the minimum adjustment adequate to establish the goals which were set out in October of 2006.” The study’s “rates are anticipated to establish a revenue structure adequate for the next five years,” the memorandum reads.
The study also assumes the city will maintain its existing electric dividend to reduce property taxes in the city, the memorandum notes. That dividend comes to $4.05 a month on the average residential power bill, but it reduces the city’s property-tax rate by 18 cents per $100 valuation, or 30 percent. The city’s property-tax rate is 60 cents per $100 valuation.
The council begins its budget-preparation Feb. 20, when it conducts its annual planning session.
For additional coverage of the council’s meeting, see future editions of the Daily News.