Market Woes May Force SMUD to Increase Rates

By Published On: October 24, 2008

The national economic crisis has taken its toll on the Sacramento Municipal Utility District, noted municipal utility officials. SMUD faces a projected gap of $82 million in its 2009 target spending levels. The decline is driven by lower sales and turmoil in the credit-driven markets, SMUD finance committee chair Genevieve Shiroma and Jim Tracy, chief financial officer, said during an October 16 meeting. Shiroma said the market impacts “our ability to fund capital projects.” During the muni’s board meeting last week, she added that staff is looking at ways to close the gap in the upcoming budget, adding an expected second challenge is funding operations through 2009 with the credit markets non-accessible due to the high borrowing costs. “Some capital projects, therefore, may need to be deferred while the credit situation is resolved,” Shiroma said. During an earlier finance committee meeting, Tracy recommended that the board consider several actions: get into the market as soon as possible and with a smaller bond issuance; try to secure an additional line of credit of up to $50 million; and defer several major projects. The projects that would be put on the back burner include an advanced metering infrastructure project; an expansion of its Solano County wind farm, and a proposed new 50-acre corporate yard for its 700-vehicle fleet. Tracy and Shiroma said they should all be on hold until the cost of funds come back into line with historic levels, then financed before construction begins. Meanwhile, the staff is exploring all avenues to increase the utility’s liquidity, she said. Tracy said the utility also should consider a small rate increase for the May 2009 timeframe, superceding a scheduled rate review planned for 2010-2011. A rate increase of nine to 13 percent would have been on the horizon in 2010 or 2011, but instead, a smaller increase could be coming next year, Shiroma said. A rate increase review for 2010-2011 would then be considered later in 2009, when more is clear about the economy and the utility’s financial health. Also during the meeting, the board approved a 12-year contract between the utility and Iberdrola Renewables to buy renewable energy from a 55 MW biomass plant in Tacoma, Washington. The procurement is meant to help SMUD meet its renewable procurement goals. The vote was 6-0, with board president Larry Carr absent.

Share this story

Not a member yet?

Subscribe Now