SMUD Plans Rate Increase in Response to Recession

By Published On: April 10, 2009

The Sacramento Municipal Utility District, feeling the effects of the current economic recession, could enact a general rate increase this fall and another in early 2011. The muni says increases are needed due to several factors--a primary one is the turmoil in credit markets. “The proposed rate increase is intended to cover increased costs not offset by SMUD’s budget cutting,” SMUD board member Rob Kerth said. That includes “impacts from the recession and increased costs for renewable energy contracts.” Costs are also rising due to the drought, SMUD stated in a report outlining the case for a rate increase. The report said the muni has enjoyed less low-cost hydropower and had to buy more expensive replacement power. The rate increases would “help maintain SMUD’s bond rating to allow for the lowest cost of borrowing for future funding and necessary capital projects,” Kerth said. “The cost to borrow for SMUD has increased greatly since the economic crisis,” added rate administrator Rob Landon. “SMUD was affected by the credit freeze; we’re wrestling with the credit markets.” The three major credit rating agencies all gave the district a steady credit rating during their last complete reviews. However, the last review was completed in May 2008, before the economic meltdown, which occurred in September. The current housing crisis in Sacramento also has played a role in SMUD’s need to raise rates, Landon said. With the economic plight, there’s been a significant decline in power usage: some homes have gone into foreclosure and businesses into bankruptcy in Sacramento and have had to discontinue their utilities as a result. The number of customers behind on their bills also rose last year to 34, 827, up from 18,620. Discussion of a possible rate increase dates back to late 2008, Landon said. It was at the board’s April 2 meeting that the muni’s directors unanimously approved holding a public hearing to gather input on the planned increases. The hearing is scheduled for June 4 at SMUD headquarters. But prior to that, workshops will be held April 23 and May 13 at the same location. “In addition to the public hearing and two required public workshops, staff is set to present information on the rate proposal and seek public input at more than 70 scheduled meetings with community groups,” Kerth said. Under the proposed scenario, a 9.5 percent rate increase would take effect September 1, after the summer peak-use period. Then in January 2011, a 3.5 percent increase would be put into effect. If the board adopts the proposed rate increase, a residential household using 750 kWh in a month would see its bill increase by about $8 starting in September to a total of $86.22, according to SMUD. Even with the increase, SMUD customers would still pay among the lowest rates in the state. Residential Pacific Gas & Electric customers currently pay about $113 a month for 750 kWh of usage and Southern California Edison customers pay about $112 a month. Also during it’s April 2 meeting, the board unanimously ratified a 15-year contract with Shell Energy North America to buy an average of 6,000 MMBtu/day of landfill gas beginning April 4. The contract calls for graduated pricing on the renewable natural gas: $8.85/MMbtu in 2009, $9.85/MMBtu in 2010, and $11.90/MMBtu for the remainder of the contract, which translates into about $90 per MWh.

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