State of the Utility
Patrick Lanning, EWEB President
Waking up to a half-foot of snow on New Year's Day was
a thrill for most of us in the southern Willamette Valley who'd been deprived
of a true winter snowstorm for too long. We broke out the sleds, skis
and warm gloves, enjoying the day. But the reality of the storm soon hit
us in the form of snapping limbs, skidding cars, toppled trees, and for
thousands of Eugene Water & Electric Board customers, one to three
days without electricity.
While Mother Nature was to blame for the power outages,
the damage caused by the storm sent a warning signal to our customers:
EWEB's 1,200-mile network of wires, poles, substations and other assets
is getting older and in need of some major upgrades.
Sixty percent of the 23,000 power poles we own or maintain
are at least 30 years old; 25 percent are at least 40 years old. Too many
are old and weak from dry rot and need to be replaced. Unfortunately,
we are only replacing about 150 a year when we should be replacing 400
to 500. Similarly, wires, circuit breakers, substations and other equipment
all over town are nearing or have reached the end of their useful life
and are in need of replacement or upgrading.
Electric service reliability remains strong, but if we
don't start taking care of these needs now, a $360 million community asset
will further deteriorate. Reliability will slip below acceptable levels.
Our customers have told us through our annual satisfaction survey that
having reliable and steady power is their top priority.
EWEB managers and commissioners have known for several
years that we have under-funded capital spending, but the 2000-2001 West
Coast energy crisis put the utility's plans to address these needs on
hold as electricity prices rose sharply.
In scaling back overall utility spending, by $10 million
in 2002 and another $9 million in 2003 to avoid further rate increases,
many capital projects were put on hold. Critical projects that just couldn't
be delayed were funded with borrowed money or by drawing down cash reserves.
This can be done for a year or two but is not a financially sustainable
strategy.
EWEB is now at a point in which something must be done
to ensure the electric system is properly maintained. Although it pains
us to raise rates again, the Board must consider an electric rate increase
this spring to devote more revenues from rates to capital needs. All of
the revenue generated by the increase will be dedicated to funding capital
projects.
Fortunately, the impact on electric bills will be offset by slightly lower
BPA costs this spring and, later in the year, elimination of the Power
Cost Recovery Surcharge. When Commissioners enacted the surcharge in April
2002, we promised to eliminate it when our power cost debt was paid off
and the power cash reserve reached $10 million. We will eliminate this
surcharge as promised, most likely earlier than the original three-year
estimate.
However, Commissioners will be considering additional
rate actions in the years to come. BPA may raise its rates again this
fall and next year. Commissioners this summer will discuss a potential
rate increase to continue building cash reserves to acceptable levels.
And a general rate action to pay for normal operational cost increases
is expected sometime in the next five years.
Annualized over the five-year period, customers can expect
electricity costs to rise between 2 and 3 percent a year, barring another
energy crisis that sends power prices higher. This is in line with, or
lower than, increases you are seeing for many other goods and services.
College tuition, medical premiums, gasoline and many other products are
rising much more than this.
EWEB faces several other challenges in 2004. Without dwelling
on the details, I'd like to mention just a few:
· We will continue work associated with relicensing
of our Leaburg and Walterville hydroelectric project and engage the community
to ensure they understand the work we are required to do as part of our
federal license.
· We will update our Integrated Electric Resource
Plan, using the advice from a citizen committee to determine where EWEB
will get its future power resources.
· The Board will continue to bargain a first-ever
labor contract for EWEB, with a goal of obtaining an acceptable first
contract that both the Board and IBEW feel good about.
· We will continue our governance work to make
the Board a better-functioning unit.
· We will continue to make EWEB a high-quality
workplace and employer.
EWEB's finances have improved since the energy crisis,
and barring another major drought or emergency, they should continue to
get better. Although electric rates rose significantly in 2001, the good
news is that EWEB's overall power rates remain lower than half of the
comparable utilities in the Northwest, are lower than four of the five
other electric utilities in central Lane County, and are below the national
average. With the energy crisis now behind us, it is time for EWEB to
turn its attention to critical needs for the electric-distribution system.
We must ensure a larger and steady source of funding to maintain the high
level of reliability our customers have come to expect from their community-owned
utility.
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