Power up: Rate increase planned for Tacoma utility

Tacoma Power customers can expect a rate increase of 5% to 7% this spring in order to offset substantial increased...

Tacoma Power customers can expect a rate increase of 5% to 7% this spring in order to offset substantial increased obligations imposed on Tacoma Power and support risk management and healthy rating metrics, according to Tacoma Power officials at a joint City Council and Tacoma Public Utility (TPU) board study session yesterday.

Tacoma Power Superintendent Steve Klein reports the utility company faces a revenue shortfall of $45.3 million — the result of the lingering effect of the 2001 power crisis, rate hikes by the Bonneville Power Administration, and environmental requirements associated with dam relicensing projects. A rate increase combined with a $19 million appropriation from cash reserves would eliminate that deficit.

Klein presented two options for raising rates.

The first option calls for an average rate increase of 5.21% (7.16% increase for residential customers), which would generate $26.3 million. That money, combined with $19 million from cash reserves, would eliminate the $45.3 million deficit. For a typical residential customer who heats with electricity, this option would create an average increase of $128 per year.

The second option calls for an average rate increase of 3.52% (5.15% increase for residential customers), which would generate $7.3 million. That money, combined with $38 million from cash reserves, would also eliminate the shortfall. For a typical residential customer who heats with electricity, this option would create an average increase of $92 per year.

Since 1995, Tacoma Power has raised rates three times: 4.69% in 1995, 32.28% in 2001, and 5.06% 2003. Customers paid a temporary surcharge of 50% in 2000.

Even after a proposed rate increase, Klein argued, Tacoma Power rates would continue to be lower than most nearby regions. Under the first option, Puget Sound Energy customers would pay 5% to 41% more than Tacoma Power customers, Snohomish County Public Utility customers would pay 20% to 57% more, and Seattle City Light customers would pay 11% to 48% more (ranges vary depending upon customer class, which includes Residential 1, Residential 2, Small Commercial, Large Commercial, and High Voltage Industrial).

Under the second option, Puget Sound Energy customers would pay 7% to 61% more than Tacoma Power customers, Snohomish County Public Utility customers would pay 23% to 58% more, and Seattle City Light customers would pay 13% to 49% more.

The rate increase is also part of Tacoma Power’s plan to change its financial policy — namely, establish budgeted expenses for 60 days, instead of the current policy of 45 days. The change means Tacoma Power would be required to keep $60 million in cash reserves. Tacoma Power currently has $98 million in cash reserves, and plans to use some of that money to buy down a portion of the rate increase (resulting in a lower increase for customers), cover unanticipated expense increases and risks, and reduce its debt.

TPU is expected to recommend one of the two options to the City Council next month. The council would would then vote on a resolution for the recommended rate increase. If approved, the new rates would take effect Apr. 4.

Council support for the options was mixed.

Councilmember Kevin Phelps commented, “It seems more prudent to be at the 5.2% mark. But I’m personally more comfortable with the higher rate. I have a suspicion the market could do some crazy things on us.”

Councilmember Julie Anderson saw the higher increase as having a “smoothing effect” by minimizing future increases.

“I haven’t made up my mind totally,” said TPU board Chairman Jake Fey. “[The seven percent increase] is a concern of mine, making sure we’re not putting an unfair burden on residential customers in particular, but businesses as well.”

Tacoma Power provides electric service to the city of Tacoma, Fircrest, University Place, Fife, parts of Steilacoom, Lakewood and  unincorporated Pierce County in Washington state. The utility has been publicly owned since 1893, is a division of Tacoma Public Utilities, and is governed by the five-member TPU board. Tacoma Power also owns Click! Network, which provides telecommunications services such as cable television, broadband, and wholesale Internet services.

Tacoma residents will have an opportunity to voice their comments about this increase at a 7 p.m. public hearing tonight at the Tacoma Public Utilities auditorium, located at 3628 S. 35th St.

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