Budgets are the place where the rubber hits the road in terms of setting priorities. So what are the priorities in the proposed 2018 Chelan PUD budget?
That’s easy in one sense. The priorities follow our strategic plan that calls for creating the best value for the most people for the longest period of time through investing in assets and people, reducing debt and initiating a public power benefit program. But the plan was also built to adapt if circumstances change, and in fact they have. So our priorities are adapting.
The strategic plan was built at a time when we were experiencing and forecasting a long-term healthy wholesale energy market - that is, sales outside Chelan County and our primary source of revenue. Since the strategic plan was adopted we have, in fact, had very good revenue years and 2017 will be another such year. But prices are declining in the wholesale market and are not forecasted to improve. We expect to feel this impact in the 2020’s. This has led us to set priorities within our three major strategic priorities to position the utility for more challenging years ahead.
Among our three priorities, investing in long term value is our highest. We are in the midst of uncovering a greater need than we knew when the strategic plan was adopted.
Here’s an example. If you have visited Rocky Reach you may have noticed the very large cranes inside the powerhouse necessary for repair or maintenance. The cranes, able to lift 500,000 pounds and original from the dam’s completion in 1961, have been taken apart for refurbishment. Seeing it in a new light, we are finding cracks and other signs of wear that were not previously visible.
This kind of investigative evaluation is taking place across our system. The goal is to put your valuable assets that produce low rates and high reliability in shape to provide superior performance for decades to come. We are now in the midst of accomplishing roughly double the amount of major refurbishment work at our hydro projects than would occur in a normal five-year period.
Another factor increasing forecasted investments is growth in the County. Despite our aggressive energy conservation programs, we are experiencing electrical use growing at a rate that exceeds the national average. This leads to a greater need for substations and other infrastructure in order to maintain high reliability.
These are the main factors leading toward 2018 being projected as one of our largest ever capital budgets.
But investment is not our only priority. Since the strategic plan was adopted, we have continued to reduce debt. Since 2010 our debt has been reduced from more than $1 billion to $540 million. A recent Wall Street rating agency report gave a favorable review to large U.S. public power utilities for having debt/equity ratios that average 55 percent. We intend to further reduce our debt in 2018 and 2019 to achieve our goal of having a favorable debt/equity ratio of less than 35 percent. Your PUD is well positioned from a debt perspective to deal with unanticipated circumstances.
Last year, through our budgeting, we made the Public Power Benefit program the lowest of the three priorities. Public power benefits (PPB) were designed at a time when our revenues were expected to exceed costs for an extended period of time. Our strategic plan anticipated getting the program started and then expanding with additional funding.
In 2017 and proposed for next year, the PPB budgeted level was frozen at $4 million annually and we stopped seeking new projects. We are, however, continuing to use PPB dollars to expand coverage of broadband services to more County residents. We have heard clearly from our customer-owners the value they place on getting broadband access to as many people as is financially feasible.
The proposed budget assumes no increase in retail electric rates for the sixth straight year. Since 2000, Chelan PUD electric rates have only gone up nine percent while the consumer price index has risen by 39 percent. In the coming years, however, we will be evaluating how long this can be maintained without creating risk of large rate increases in the future.
As owners of this system, you have been blessed with some very good revenue years. Those revenues have been put to good use with a balance of benefits today (e.g. low, stable rates and hi-speed broadband to much of the County) and investments for the future in the form of debt reduction and extending the useful life of PUD assets like the hydro projects.
It’s all about pursuing the best for the most for the longest to enhance the quality of life in Chelan County.