A year ago, the Hermiston City Council voted to raise the rates of Hermiston Energy Services (HES) customers by 11 percent with another 9.5 percent rate increase starting in May of this year.
The 11 percent rate hike took place, but the next rate hike is expected to be less than half of last year’s proposed rate hike of 9.5 percent.
That’s because HES, with the city’s approval, will look to refinance the bond that formed the utility in 2001 and which currently has 17 years left on it. HES Superintendent Nate Rivera recommended the bond be refinanced for 20 years, thereby saving money with lower interest rates.
Those savings mean HES will not require a 9.5 percent rate hike in 2016 that was anticipated a year ago. But with the Bonneville Power Administration (BPA) forecast to raise its wholesale rates again next year, HES customers could face somewhere in the neighborhood of a 9 to 10 percent rate hike.
Rather than hit customers with a large rate hike next year, the council will likely vote next month to split the rate hike over two years, with a rate increase of under 5 percent this year and perhaps a similar rate hike next year.
Prior to last year, HES customers had not seen a rate increase since 2003, despite the BPA having raised its wholesale rates several times during that period. BPA sells its wholesale power to HES. Instead of passing on the increases to customers, HES choose during those years to spend from its savings to pay for the BPA increases.
That, however, is not a sustainable business model, thus the recent rates increases for HES customers.
Another byproduct of HES not raising rates is the fact that its revenue stream has not kept up with the cost of doing business. As a result, upgrades to equipment and infrastructure have not taken place, meaning HES is dealing with equipment 30 years old or more. That has meant more outages for HES customers.
“Reliability is trending down,” said Rivera during Monday’s Hermiston City Council meeting.
To address those issues, HES is teaming with Umatilla Electric Cooperative this year to build a new substation on the east end of town.
The $985,000 substation would feature a new transformer and new feeders, which Rivera said would reduce outages as well as response times when outages do occur.
HES also plans to implement Automated Metering Infrastructure that would indicate when outages occur. As of now, HES only knows when an outage occurs when a customer calls. The AMI system will cost between $1.5 and $1.8 million.
Even with the proposed rate hikes this year and next, Rivera said HES is still one of the most affordable energy services in the region. If the rate hikes take place, HES customers would pay an average monthly cost of $116, compared to $118 for UEC customers, $131 for Oregon Trail Electric customers, $145 for Columbia Basin customers and $227 for Pacific Power customers. The average residential electric bill in the state of Oregon is $156.
“We continue to be competitive,” Rivera said.
The council will vote next month to implement a smaller rate increase for this year and will likely implement a similar rate increase next year, but Rivera said he anticipates next year’s rate increase to be smaller than 4.5 percent unless BPA’s rate increase next year is larger than anticipated.
Hermiston Mayor Dave Drotzmann said HES cannot continue to rely on its savings to subsidize BPA rate increases.
“You can’t do any capital improvements if you’re constantly digging into your savings,” he said.
