A Municipal Electric Utility? Proceed with CAUTION!

After holding off writing about the possibility of establishing a Bainbridge Island municipal electric utility, the time has come for some electronic ink to flow on what I believe is perhaps the key decision point that is being ignored.

It has absolutely nothing to do with BPA or PSE’s electrical rates, the potential cost of acquiring the Bainbridge Island electrical grid system, or global warming or BPA’s Snake River dams and  Northwest fish  considerations.

It’s the “local control” issue and the City of Bainbridge Island’s failure to efficiently manage the financial aspects of the three existing City utilities for the benefit of the utilities ratepayers.  

City utility ratepayers have been financially gouged for years by excessive utility rates  … and still are for the Sewer and Stormwater utilities.

I wrote the following e-mail to the Electric Utility Municipalization Task Force, City Manager and City Council on February 27, 2017:

As you conclude your discussions on the D. Hittle draft report, two observations from a private citizen who has followed City of Bainbridge Island utility issues relatively closely for the past 10 years.

1. The City of Bainbridge Island has a fairly respectable reputation for operating the three current City utilities (Water, Sewer, Stormwater). It does not have a good record of cost effective management of those same utilities.

Examples:

• In 2009, City water rates were among the highest in Washington State. A ratepayer lawsuit resulted in an outsourcing study, and the number of City FTE employees paid by that relatively small utility was reduced from 9.6 FTE to 4.2 FTE. At the time, each FTE costs approximately $120,000 including salary and benefits, not including the City Hall space rent charged to the water utility FTE’s. Residential water rates were subsequently reduced by more than 60%. The water utility currently has approximately $6 million in excess cash above required reserves … that represents roughly 3 years of water utility operating and capital improvements.

• The Waste Water Treatment Plant improvement project was originally estimated to cost $4.3 million. After costs exceeded $9 million, a single City Council member noted the costs were climbing, and the then Public Works Director assured the City Council the final project would not exceed $11 million. It concluded at $15.8 million. Near total lack of cost oversight and control on the part of the City.

• City sewer utility rates are the highest of any comparable Western Washington State City as documented in the City’s 2015 Sewer Plan. That in part is because of the relatively small sewer district and the WWTP upgrade cost, but it’s also a cost allocation problems with the City charging 9.79 FTE (some 41 individual City employees) to the Sewer Utility fund. City Council will not take up the issue likely because the City’s cost allocation plan is too complicated to understand without multiple hours of research and they don’t have the necessary auditing skills, and any personnel changes would mean shifting costs over to the General Fund which both staff and City Council are loath to do because the needs of the general fund are perceived to be near endless.

• Annual City stormwater 2017 rates at $169 per ISU are “justified” by a program that funds multiple programs outside the City’s Municipal Stormwater System (program bloat), some of which have no proven benefit to Island residents. Stormwater is the City’s largest utility from an FTE standpoint … it’s been increased to 10.42 FTE for 2017. City staff and City Council refuses to reign in this utility to where it is cost effective.

The average FTE cost for salary and benefits exceeds $133,000 in 2017, and City also collects City Hall space rent for utility FTE’s along with other costs allocations, such as insurance. Additionally, they collect a City tax from the utility rates.

2. I don’t see sufficient discussion or cost data in the D. Hittle draft report on what a pole, transformer and service equipment yard and electrical grid control facility would cost. I toured the Jefferson County utility base site, and it’s quite an extensive operation. Acquiring land and getting NIMBY issues solved on Bainbridge Island are not insignificant issues if the City does not already have sufficient City owned property.

In the big picture, I think the City could acquire and properly operate a Municipal Electrical Utility. But a LOT would have to change in this City to give any confidence that an electrical utility could be cost effectively operated and managed based on this City’s past and current utility financial management. Cost of system acquisition and current/ future BPA rates vs. PSE rates per Kwh are not the most relevant issues … it’s the ability of the City to financially efficiently manage a municipal utility that looks out for the interests of City ratepayers and not so much the City’s General Fund that is so sorely lacking in the City of Bainbridge Island.

And that is (in my opinion) the single most important issue in this upcoming decision that the D.Hittle report does not, by contract scope, discuss.

Island Power claims Bainbridge Island residents will have future lower cost electrical power if the City owns and operates its own municipal electric utility.

Unless the City of Bainbridge Island  gets a new City and Deputy City Manager, a new City Council, a new Finance Director, a new Public Works Director, and a Utility Advisory Committee (or something similar) that actually looks out for ratepayers and doesn’t use  utility fees to augment the City’s General Fund, electrical rates will almost certainly be higher with a locally controlled electric utility because the City will almost certainly use the new utility to unduly augment the general fund with cost allocations, rents and utility taxes like it currently does with its existing three utilities.

No consultant report is going to show how this City has creatively found ways to siphon utility ratepayer money to support general City operations. 

Proceed with CAUTION.

Better yet, don’t proceed at all.

(Note – this posting is supported by facts, not alternative facts).