Article

Higher electricity bills in Redding's future

The nearly 8 percent rate increase Redding Electric Utility will seek Tuesday for next year and 2010 could be just the beginning of a long, steady and rather steep cost climb for customers. Rate forecasts through 2014 show REU imposing identical 7.84 percent increases each year while still chewing through wads of cash. ...Redding has made up for the lost hydropower, in part, by commissioning a pair of large gas-fired turbines at its plant on Clear Creek Road. The utility has also entered long-term contracts for wind and biomass power. The wind and biomass have allowed REU to meet state renewable energy mandates. But all three power sources cost more than twice as much as hydropower, adding $10.5 million each year on average to REU's fuel tab, Hauser said.

The nearly 8 percent rate increase Redding Electric Utility will seek Tuesday for next year and 2010 could be just the beginning of a long, steady and rather steep cost climb for customers.

Rate forecasts through 2014 show REU imposing identical 7.84 percent increases each year while still chewing through wads of cash.

The average monthly REU residential bill would go from $90.43 today to $142.2 in 2014, should these later rate increases - now penciled in to revenue forecasts - actually take effect. Extended drought would send bills even higher.

REU Director Paul Hauser notes other California utilities are also seeking large rate increases. Pacific Gas and Electric Co. has requested an 11 percent increase to start in March.

Redding's rates will remain well below those of arch-rival PG&E, which serves Anderson and unincorporated Shasta County, Hauser said, though he acknowledged direct comparisons between the two utilities are difficult. REU charges a flat rate no matter how much a customer uses, while PG&E charges a tiered rate that rewards conservation.

Redding summers are perhaps the hottest in Northern California and REU's peak demand is extreme, Hauser... more [truncated due to possible copyright]  

The nearly 8 percent rate increase Redding Electric Utility will seek Tuesday for next year and 2010 could be just the beginning of a long, steady and rather steep cost climb for customers.

Rate forecasts through 2014 show REU imposing identical 7.84 percent increases each year while still chewing through wads of cash.

The average monthly REU residential bill would go from $90.43 today to $142.2 in 2014, should these later rate increases - now penciled in to revenue forecasts - actually take effect. Extended drought would send bills even higher.

REU Director Paul Hauser notes other California utilities are also seeking large rate increases. Pacific Gas and Electric Co. has requested an 11 percent increase to start in March.

Redding's rates will remain well below those of arch-rival PG&E, which serves Anderson and unincorporated Shasta County, Hauser said, though he acknowledged direct comparisons between the two utilities are difficult. REU charges a flat rate no matter how much a customer uses, while PG&E charges a tiered rate that rewards conservation.

Redding summers are perhaps the hottest in Northern California and REU's peak demand is extreme, Hauser said.

"That load is the most expensive and the most difficult to meet," Hauser said. "By right, we ought to have the highest rates in the state. But our rates are among the lowest."

REU has cut costs to minimize the proposed rate increases. The utility has left five vacant positions open, suspended its utility undergrounding program, cut back on system improvements and extended its maintenance schedule. All told, these measure will save $11.5 million over the next five years, according to a City Council report.

Yet even with these budget cuts and potential revenue boosts, the utility would see its cash reserves dip below the 20 percent margin it strives to keep as a cushion against fuel cost spikes. Reserves would not recover until 2014, revenue forecasts show.

Simply put, REU customers will pay more for electricity in coming years because fuel costs keep heading higher, Hauser said. These costs make up roughly 55 percent of the utility's $141 million budget, while salaries and benefits account for 14 percent.

Reasons for the rate increase proposed for next year and 2010 start with low water levels behind Shasta Dam and other federal dams in California's Central Valley Project after back-to-back, sub-par rainfall seasons. Less water spinning turbines at these dams means sharply curtailed supplies of inexpensive hydropower for utilities like REU, which must replace that electricity at much higher cost.

Redding pays roughly $36 a megawatt hour for hydropower. Replacement power for the lost hydropower costs the utility roughly $60 per megawatt hour, Hauser said. REU expects to pay $8 million more for power this year than originally budgeted, thanks to the dry weather.

The pressures driving REU rates higher won't end when the rains return. Expiring energy contracts, shifting markets and the mortgage mess are also major cost contributors.

Perhaps the most decisive change came in 2005, when REU's contract with the Western Area Power Administration cut the utility's hydropower supplies by more than half.

Hydropower met about 80 percent of the city's annual energy needs up through 2004, according to a report. Now hydropower provides about 21 percent of the city's energy needs - and only 16 percent in a dry year like this one.

Redding has made up for the lost hydropower, in part, by commissioning a pair of large gas-fired turbines at its plant on Clear Creek Road. The utility has also entered long-term contracts for wind and biomass power.

The wind and biomass have allowed REU to meet state renewable energy mandates. But all three power sources cost more than twice as much as hydropower, adding $10.5 million each year on average to REU's fuel tab, Hauser said.

The utility financed the turbines while also relying on financial markets to furnish long-term contracts for the natural gas to run them. But REU had to abandon lower-interest auction rate securities earlier this year during the credit crisis and refinance its debt at significantly higher fixed rates.

Financial industry turmoil also cost the utility a 30-year natural gas discount contract officials had figured into the budget before the documents were executed.

REU in 2003 nailed down five-year natural gas contracts that allowed the utility to weather skyrocketing prices in 2006 and earlier this year.

But those contracts expired this year, along with hopes the utility could consummate a discount agreement through Citigroup, the now-troubled firm that was to handle the 30-year gas deal.

"Had we executed with Citigroup, we'd be hanging on, but very worried right now," Hauser said. "We have to find a partner that will be around for 20 years."

With the five-year contract expired and no long-term deal in place, REU's natural gas costs will more than double starting next year, adding another $4 million in annual expense.

The financial crisis has cost REU in other ways. The utility participates in the Transmission Agency of Northern California for power line access and the Modesto-Santa Clara-Redding Public Power Agency for electricity from a New Mexico coal-fired power plant. Both these agencies have taken interest rate hits because the market for their variable-rate bonds collapsed. Both pass on their interest rate costs to member utilities like REU.

That means Redding will rack up another $2 million each year in higher membership payments to these agencies to help them cover their own financing costs, Hauser said.


Source: http://www.redding.com/news...

DEC 14 2008
https://www.windaction.org/posts/18263-higher-electricity-bills-in-redding-s-future
back to top