Whidbey: To PUD or not to PUD?

As proponents of a Whidbey Island Public Utility District plan their end game in the revolt against Puget Sound Energy, some voters are left with a burning question: Could a PUD actually work?

“People for Yes on Whidbey PUD” and an anti-PUD group (namely, PSE) have debated this question in public forums for months, concocted television and newspaper ads and filled Whidbey lawns with yard signs.

The power fight began in May after news spread that Washington’s biggest private utility was about to be bought by foreigners. Macquarie Group of Australia offered to buy out PSE and public power advocates in Island County, as well as Skagit and Jefferson counties, decided to switch their portions of the grid to local control.

“People for Yes on Whidbey PUD” proposed a take over of PSE assets.

Island voters will decide Nov. 4 if they want to authorize a PUD and elect commissioners.

Over the years, Bellevue-based PSE has defeated local power grabs with aggressive public relations campaigns. Jerry Henry, senior vice-president of energy efficiency at PSE, made it clear that his company will not willingly sell to a PUD.

“We have been here for 80 years and we want to be here for the next 80 years,” Henry said.

PSE hired UtiliPoint International, Inc., to conduct a cost analysis of the company’s assets in August. Taking into account the transmission feeds, substations, offices and other hard assets, UtiliPoint CEO Bob Bellemare found that takeover costs would amount to $200 million, or an average cost share of roughly $4,000 per resident over time.

“People for Yes” sets the price tag much lower at $57.5 million. David Metheny, the group’s campaign director, argued that PSE’s numbers are exaggerated.

“The department of Revenue determined in 2007 that PSE’s assets were worth only $40 million,” Metheny said.

However, figures such as these live or die in court, during condemnation proceedings. Both sides would need to convince a judge that their price is reasonable. So far, PSE has claimed a PUD would lead to 20 percent higher electrical rates and “People for Yes” argued 20 percent lower.

PUD proponents admit their report, based on data from a recent Skagit County condemnation study, requires more research. If voters approve the ballot measure, a PUD would be “authorized,” meaning commissioners would begin work on a professional feasibility study. Metheny estimated it would take six months.

To pay for the study and any legal proceedings, the group would levy a property tax. “People for Yes” estimated the burden would be between $2.75 and $5.78 per year for a $300,000 home.

PSE spokesperson Gretchen Aliabadi warned that a yes vote would also allow commissioners to move forward with condemnation proceedings without any additional public vote.

Once a PUD is running, commissioners could sell taxable revenue bonds for buying the assets and general obligation bonds, whose dividends are exempt from federal income tax, to pay operating expenses not covered by revenue from power sales. The property tax would then be suspended.

And in order to deliver on their promise of cheaper power, PUD proponents are counting on the Bonneville Power Administration, commonly known as BPA.

BPA power

Sitting on the market is 250 average megawatts of low-cost electricity reserved for newly-formed PUDs, otherwise known as BPA’s cheaper Tier 1 power.

The electricity is part of the federal Columbia River hydroelectric system and has enough power to meet the needs of more than 250,000 residential customers.

This power is first-come, first-serve, and advocates want to stake out Whidbey’s share quickly.

PSE argues that accessing BPA’s power would take four to seven years, and even then, it’s not guaranteed.

The megawatts will be shared between Washington, Oregon, Idaho and Montana. BPA has already reserved 40 megawatts for tribal utilities until 2021, leaving 210 megawatts for any and all new PUD’s in those four states.

An August press release by PSE stated, “Before receiving any power from BPA, the Whidbey PUD would have to legally form a retail electric utility, condemn and purchase PSE’s electrical system and qualify for BPA service. Given the length of the process and likelihood of competing requests, it is uncertain that a Whidbey PUD could ever receive sufficient BPA service to cover its entire load.”

Metheny took issue with PSE’s estimates and argued that the amount of energy will be sufficient. Even after a three-year waiting period, a PUD would still be eligible to purchase power from BPA at costlier Tier 2 rates. By federal law, BPA is required to provide PUD’s with power.

During this time, “People for Yes” predicted PSE will have a series of rate increases.

“PSE has announced that it intends to increase its rates an average of 9.5 percent. After that, PSE rates are estimated to increase at 3.55 percent per year beginning in 2010,” their cost study reported.

Like all utilities in Washington state, PUDs will be required to meet a state requirement that 15 percent of their power come from renewable sources by 2015, not including hydropower. This could prove challenging for a fledgling PUD in its start-up years.

Kit Maret, an Island County energy planning manager for PSE, said the company is funding renewables, such as solar panels for the high schools.

“Because a PUD would be under huge pressure to lower rates, they wouldn’t be able to provide any extra bells or whistles,” Maret said. “You’d be paying more, but getting less.”

Local Economy

At an Oak Harbor Chamber of Commerce monthly board meeting, the chamber decided to make recommendation on the Whidbey PUD issue.

They publicly denounced it.

A release by Executive Director Jill Johnson called a PUD effort “risky.” There would not be enough protections in place for small business, the report stated. PUD commissioners would have the authority to set rates higher for the commercial users than for the residential user, leaving businesses vulnerable.

“The costs of creating the PUD remains unknown and the timeline before users see a return on their investment is unclear. The proposed PUD lacks specifics and the cost of those ‘unknowns’ will be passed onto taxpayers,” the release said.

Whidbey Island Naval Air Station was also addressed in the statement. The chamber said it is unclear how a PUD would affect this economic source.

Jerry Henry, of PSE, said NAS Whidbey is frustrated that they don’t have a voice in this.

“They are concerned about this new entity,” he said.

But Metheny said he had an informal meeting with NAS Whidbey officials and they wish to remain neutral as they are on all political issues. He claimed they would be comfortable with a PUD.

“People for Yes” proposed that by hiring local repair crews and employees, the economy will benefit. PSE currently calls for off-island crews to repair storm damage.

“From Coupeville down, there is a huge disadvantage for small businesses during storm season. Payrolls are suddenly halted when power is out for days at a time,” Bob Kuehn, treasurer for “People for Yes,” said. “With on-island crews, there will be shorter restoration time.”

Washington is one of the leading public power states in the country among the 23 that provide electricity. If a PUD is approved in November, it will be the first time in decades that a new PUD is established.

“We haven’t seen a new PUD in the last 50 years,” Jerry Henry of PSE said. “Most were created between 1930 and 1950, when people began building dams throughout Columbia. Entities were needed for remote locations. They made sense back then, but not today.”

Metheny said PUDs make just as much sense today as they did 80 years ago, when PUDs were first authorized in Washington.

“People back then wanted better service, and now, 80 years later, we are about to have the highest rates in this state. It is the same problem today. And no one off the island will look after us,” Metheny said.

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