Some Tacoma City Council members are signaling they’re not yet convinced that Tacoma Power rate hikes proposed for the next two years are justified.
But Tacoma Public Utilities officials, who repeatedly have said such rate increases are needed to balance the coming budget, are sticking to their guns.
“The drivers for these rate increases are pretty clear and easy to understand,” Bob Casey, president of the TPU board, said Friday. “I’m pretty comfortable that the City Council will ultimately come to that conclusion, as well.”
As part of a $1.1 billion budget plan covering Tacoma Power, Water and Rail for 2011-12, TPU has proposed that city policy makers choose to either impose a one-time system-wide average rate increase in 2011 of 9.8 percent for power, and 8.4 percent for water; or opt to spread two smaller rate hikes – ranging from 5.0 to 5.7 percent annually – over the next two years for each utility.
Either way, TPU officials say revenues garnered from the prospective rate hikes are necessary for the utility to balance a coming budget that’s about $109 million less than the current one. TPU officials also have proposed cutting 84 full-time positions, including 20 by layoffs, across all departments.
The City Council has yet to hold a formal discussion or take any action about where it collectively stands on the prospective rate hikes. Even so, several members have separately raised concerns during recent meetings and interviews.
“What I’m hearing from the community and my colleagues is that (Tacoma Water) has made a compelling case for its rate increase,” Councilman Ryan Mello said last week. “No one likes it and no one wants to do it, but there are good reasons why we probably have to.”
Mello and others have pointed to the water utility facing big capital expenses in the coming years, including a new water filtration system that could cost as much as $217 million to construct.
“But I don’t think (Tacoma Power) has made as compelling a case,” Mello added. “I’m not convinced yet that two straight years of power rate increases are really necessary.”
Such concerns create the prospect that the council might send the utilities budget back to the TPU board for more work. Councilman Jake Fey suggested as much at the council’s meeting last week, in remarks preparing his colleagues for rapidly approaching budget deadlines.
“If we were to decide that we thought … those rate increases were too high, it probably would be appropriate to send that budget back to the utility board for consideration,” he said. “…We probably need to have some conversations … about the size of the requests from water and power and reach some kind of consensus of what we’re comfortable with.”
As the city’s policy makers, the council has final authority over TPU’s budget and any related utility rate increases. But the council cannot directly amend such proposals; any changes must come from the utility board and be brought back to the council.
“The question we’re really grappling with is, `Is this the best time for this,” Mayor Marilyn Strickland said of the proposed rate hikes. “It’s never a good time. But do we have some flexibility that we can maybe increase rates at a slower pace or for a lower amount than what they’re proposing? That’s what we’re going to be looking at.”
Because Tacoma Power’s revenue projections are largely based on predicting a volatile market, Mello wonders if the utility can accurately forecast even two years into the future.
“If we agree to anything for power, maybe it should be to only an initial rate increase for the first year, then come back and visit the issue again the next year to see if it’s even necessary,” he said. “Let’s not just assume we need a double-year increase.”
In a phone interview Friday, Casey said he hasn’t heard such concerns.
“I have not heard any objections,” Casey said. “Instead, I’ve heard they’re pleased with the very sharp pencil that the TPU board and staff have taken to the budget this year.”
Casey and other TPU officials have said that costly federal re-licensing fees for power generation and required security improvements are among a host of factors that warrant the unpopular but needed power hikes.
Should the council ultimately send the utility budget back, Casey warned: “There’s just little flexibility to reduce things more and not impact services.”
On a separate budget topic, TPU officials are set to meet with the council on Thursday to discuss discrepancies between the city’s general fund and TPU budget proposals over the utility’s “assessment fees” projected in the coming two years. The city regularly charges TPU fees for legal, clerking and other services it provides to the utility. The city’ coming budget proposal assesses such fees for the utility at more than $2 million higher than its last budget.
The issue is at least the second budget discrepancy to become a point of contention between TPU Director Bill Gaines and City Manager Eric Anderson this budget season. Last week, TPU officials told the council a city projection on gross earnings utility taxes that calculates power revenues $6.6 million higher than TPU’s estimate was overly aggressive. City officials have countered that TPU’s projections are too conservative.