Customers of Hermiston Energy Services (HES) will see their rates go up next year.
That news came from Monday night’s Hermiston City Council work session as HES General Manager Nate Rivera outlined the utility’s 10-year construction work plan to replace aging infrastructure and options to pay for it.
Rivera offered the council three options for covering the costs of the 10-year construction plan. One is to have a single rate adjustment of 20.8 percent in June 2025. This would allow HES to not have to use additional reserves to cover revenue deficiencies.
In fiscal year 2024-25, HES is using $1.2 million from its cash reserves to offset revenue deficiencies. HES currently has $4.46 million in reserves that it has built up over the past four years.
“We do have a revenue deficiency in this current budget cycle,” he said. “It gets to the question, ‘Do you want incremental rate increases when you don’t need it so you have less impact when you do? Or do you want to have customers hold onto their money until we actually need and then implement it?’ ”
The second option is to have two rate adjustments – a 9.93 percent increase in March 2025 and a 9.96 percent rate increase in March 2026. That option would require HES to use $985,000 in reserves for FY 2025-26, leaving it with $2.28 million in remaining reserves.
The third option is to break up the increases into three phases of 6-plus percent over 18 months from March 2025 to October 2026. Under that option, HES would use $1,295,008 in reserves in FY 2025-26 and $300,473 in FY 2026-27. That would leave HES with $1.67 million remaining in reserves.
The last time the Hermiston City Council approved an HES rate increase was in 2021 and it was implemented in two phases – a 6.98 percent increase in January 2021 and a 6.9 percent increase in October 2021.
Rivera said HES currently has the lowest rate in the region. Residential customers today pay an average of $124 compared to $129 for Benton PUD, $138 for UEC and $218 for Pacific Power customers. The Oregon average is $235.
Under the full rate adjustment, Rivera said HES customers would pay $150 on average per month. If the increase is split into two phases, HES customers would pay an average of $137 in the first phase, but eventually residential customers will pay $150 on average once the full rate adjustments have taken effect.
“It’s still a competitive rate,” he said.
Councilor Jackie Myers said that HES won’t be alone in raising rates as other utilities face the same cost pressures.
Mayor Dave Drotzmann said one of the things the city does not do well is “tell our story.” He said he doesn’t think the average person in Hermiston knows that HES rates are among the lowest in the state. He said even with a 20-percent rate hike, HES rates will still be considerably lower than other utilities in the state and region. He said other utilities have raised their rates as much as 50 percent in recent years.
“We need to do a better job” of showing how HES rates compare to other utilities, Drotzmann said.
Councilor Nancy Peterson said it would be helpful to ratepayers if they knew when rates were going to increase and by how much so they can plan for it.
Among items in the 10-year plan include replacing all remaining overhead copper lines and URD conductors throughout its electric system. Rivera said the copper lines are over 50 years old – already beyond their expected lifespan – and most likely to cause outages.
“This is a priority in our system for reliability,” he said.
Rivera said the estimated cost of replacing 101,054 feet of overhead and underground lines – approximately half of the HES system – in the 10-year plan is $15,876,557. HES has already started Phase 1 of replacing 10,358 feet of lines.
Rivera said inflation has had a big impact on material costs.
“Everything that goes into an electric utility has increased significantly,” Rivera said.
Transformer costs have doubled due to increased demand, supply chain issues and the need for grid modernization to support renewable energy, Rivera said. Aging units and growing electrification needs are also causing replacement costs to go up. Rivera said demand is expected to grow through 2050.
Cables have seen a 194-percent price increase in recent years, mainly driven by material scarcity and the need for materials with wildfire resilience. Pole prices have also doubled in the last four years.
“Pretty much everything we’re doing has seen a huge price increase,” Rivera said.
Rivera pointed to outside issues that could also impact rates over the coming years including the possibility of removing the Snake River dams.
“That is a wild card,” he said.
Another factor is the rise in popularity of electric vehicles and the infrastructure demands that will be placed on HES and other utilities.
Drotzmann said his concern was spending a lot of money to replace something that is currently working. He talked about the city’s efforts to replace water lines because cameras showed the lines were failing. That’s not the case with the electrical lines.
“These lines are still transmitting,” he said. “Do we wait until it fails? Does that make more sense? So, I have questions about that.”
Drotzmann also said technology is changing at a rapid rate. Ten years from now, he said, there could be new, less expensive fiber technology that the city wants to invest in. “So, maybe 10 years is too long of a plan,” he said. “I’d feel more comfortable with a five-year plan.”
As for rate adjustments, Drotzmann said spreading them out over time “makes a lot of sense to the consumer.”
He also said the reliability of the HES system “is pretty impressive. We’re not seeing a lot of outages.”
The council’s consensus for moving forward was to ask Rivera to eliminate the one-time increase of 20 percent and instead come back with more details on the other two options – increasing rates over two phases or three phases.
Hermiston Energy Services was formed in October 2001 after acquiring PacifiCorp’s Hermiston distribution facilities. It serves 5,556 customers with annual sale of 108 kilowatt hours. HES facilities consist of more than 36.3 miles of overhead and 19.6 miles of underground primary distribution lines.
Rivera said HES serves about 63 percent of Hermiston area with 51.5 percent of sales to residential customers and 47.9 percent to commercial customers.
HES contracts with Umatilla Electric Cooperative for a variety of services including technical operation services, line work, tree trimming, outage response, customer service and billing.
“They do the majority of work on behalf of HES customers,” Rivera said.
Rivera said HES can save some money in material purchases by having UEC purchase materials for them when the cooperative is also purchasing materials. Rivera said UEC, which is about 10 times the size of HES, has greater purchasing power than HES would have on its own.
HES is a nonprofit utility. Rivera said rates are set at actual cost and not for profit or driven by shareholders.
Rivera said HES aims to have rates that are stable and predictable as well as equitable among customer classes.
“One rate class will not subsidize another,” he said.
The council will decide which rate adjustment option to choose before the year ends.
