Here’s what we’re doing to protect PUD finances

By Rich Riazzi, General Manager

12/2/2008

We continue to take steps to safeguard our financial position as conditions change rapidly around us. Let me talk about a few things this PUD has done recently.

In October, the Board of Commissioners approved a new rate design that accomplishes several things:

1. It moves us closer to having our various classes of customers paying the full cost of the services they receive.
2. It provides financial incentives to conserve energy at homes and businesses (high energy users pay more per kilowatt-hour than low energy users). We hope this will save energy consumption in the long run.
3. It moves toward more uniform rates for customers of PUD water and sewer systems (postage stamp rates) so geographical differences are minimized and rates are more consistent.

We will continue to look at our cost of service in the next few years and try to move even closer to having each customer class carry its share of the costs.

PUD commissioners also decided in October to increase the level of financial reserves. Having a higher level of cash in what might be called a rainy day fund means the PUD can be better prepared to withstand unexpected changes in basic operations (having a generator break down, for example) or in the external regulatory or financial arenas. Instead of having a written policy that requires $50 million in reserves, the board raised that to $130 million. The PUD has more than $200 million on hand right now, and we see a low probability that we would drop near the $130 million floor unless unusual conditions emerge in the next two or three years. But it is possible, and financial institutions have responded favorably to seeing that we have a higher threshold that we watch carefully.

We have also diversified our investment portfolio in light of recent financial shake-ups with various financial institutions. Our investments are spread out over a wider range of options to maintain diversification and protect us better against any unexpected change in one particular sector.

Our bond ratings from the various rating agencies have been solid. In fact we received an upgrade from Fitch from AA to AA+. That helped us market about $55 million in financial notes the last week of October that improves our financial position further. We have power sales contracts in place for the next 20 years or so that will cover 50 percent of the costs of running our hydroelectric plants, and that offers another significant level of protection on the cost side.

While we have sizable projects ahead with relicensing requirements and keeping our aging equipment renewed, I am optimistic about our ability to keep on solid financial footing. As we prepare for 2009, we are looking closely at basic operations and maintenance spending and minimizing any increase. We also are evaluating which capital spending can be postponed.

If I can answer questions at any time, please e-mail me at rich.riazzi@chelanpud.org or leave a phone message at 509-661-4541.