Klickitat PUD will be holding a 2023 budget and 2023 electric rate hearing next Tuesday, December 13 at 3:00 PM. Klickitat PUD staff will present a proposed 2023 budget and a proposal for electric rate increases, designed to increase rate revenues by 4.5% effective January 1, 2023. These increases will vary by rate class. For example, our residential and small general service rate revenues will increase by 2.5%. Information on participating in these hearings will be posted on our website at www.klickitatpud.com.
Klickitat PUD has not increased electric rates since 2019. There were no increases implemented in 2020, 2021 or 2022, partly due to excellent performance of our Renewable Natural Gas and White Creek Wind projects, and partly because the Board of Commissioners chose to defer increases during the COVID-19 pandemic.
In addition to deferred increases, KPUD customers are using more power than is available from our McNary hydro-electric project, and from BPA at BPA’s lowest preference rate. KPUD purchases the additional power needed at prices heavily influenced by the wholesale power market, and these market prices are increasing. PUD staff expect these trends to continue.
The Washington State Clean Energy Transformation Act (CETA) and other carbon reduction policies throughout the west have placed restrictions on new fossil fuel base load generation, and have forced the retirement of coal and gas-fired generation. At the same time, these policies have increased electric demands and future demand forecasts with electrification of buildings and motor vehicles. New wind and solar generation provide electric energy when the sun is shining and when the wind is blowing, but does not supply load when wind and solar generation is not producing.
These issues have led to a situation of reduced supply and increasing demand. This creates serious concerns about power being available at peak times and during extreme weather events. These concerns have led to wholesale power prices doubling over the past two years. The current forward pricing equates to an increase in KPUD wholesale power costs of almost $4 million since 2021. That is a rate impact of 11%. PUD staff are recommending the increase be spread over three years, which would result in a 3% rate revenue increase for 2023 (of the recommended 4.5%). Note: the Board of Commissioners will only take action on the 2023 rates at this time, and will consider future rate increases if things do not change, next year.
Energy markets aside, the cost of doing business continues to increase. This includes transportation, fuel, material, insurance and construction costs. Traditionally, Klickitat PUD had a power system that was built with excess capacity. As a result of load growth, well above the average of other utilities, the excess capacity is being depleted and KPUD needs to expand system capacity. The increase in customers, combined with the upward trend in per-customer usage, makes system improvements critical to ensure reliability. These costs contribute 1.5% of the recommended 4.5% rate revenue increase.
Staff will be recommending to the Board of Commissioners that the rate increases vary across rate classes. The proposal is for an increase of 1.5% across all rate classes and components, with the remaining 3% rate revenue increase placed on specific rate classes and rate components.
There are two objectives. First is to align rates to more accurately reflect the costs of the electric system, which are mostly fixed costs, and power supply costs, which are mostly variable costs. The second objective is to ensure each rate class is paying their fair share, and one rate class is not subsidizing other rate classes. KPUD completes Cost of Service studies to identify the costs per rate class. Staff will be recommending higher net rate increases for medium and large commercial services and irrigation services. Similarly, we will be recommending lower net rate increases for residential, farm and small general services. The demand portion of the rates will increase more than the usage portion of the rates.
In summary, customer rate impacts will vary, depending on their rate class usage and demand. The details are available on our website at www.klickitatpud.com.