Misconceptions and Straight Answers

Note: Throughout the following text, we refer to a potential not-for-profit public electric utility that our community might vote this year to establish as a “Bainbridge Electric Board” or “BEB”. That same term is also used to refer to the governing board of such a local publicly-accountable electric utility.

MISCONCEPTION – Electric Power Rates

“A small public power utility like Bainbridge Electric Board (BEB) couldn’t produce electric rates comparable to PSE’s because PSE is large and has the corporate resources to run efficiently.”

ANSWER:

Compare PSE rates to 2 publicsWhen compared to the rates actually charged by most of the 62 not-for-profit public power utilities throughout Washington, including those comparable to Bainbridge Island, and including those for some cities smaller than Bainbridge Island, PSE’s rates are actually among the highest. Click here to see the Rate Comparison page of this website.

MISCONCEPTION – Borrowing Funds – Comparing Cost of Capital for PSE and Publics:

“False Charge: To get a public utility like BEB going on Bainbridge Island, residents of the island will have to shoulder a large debt burden that they currently do not face.”

ANSWER:

As PSE customers, we pay rates that already include the cost of PSE’s existing debt load. The rates that PSE currently charges to Bainbridge residents include the total cost of capital (interest on debt, return on equity and income tax liability)  for their infrastructure on our island, and we also pay for our share of PSE’s total cost of capital for the infrastructure built for their other customers, too.

The total cost of capital PSE charges its customers for their infrastructure is higher than BEB would charge its Island customers.  PSE pays higher interest costs on its debt (PSE is no longer a publicly traded company since its sale to a foreign owner, Macquarie Capital of Sidney Australia in 2008. Both entities have relatively low credit ratings) than BEB would pay, due to BEB’s superior bond rating. Further, as a for-profit business, PSE includes in its cost of capital a return on equity and its income tax costs.  In contrast, BEB would pay a lower interest on its debt, and would not include any costs for return on equity or income tax liability in its rates.  Owning our own utility would cost us less, and BEB’s total cost of capital for the current electric infrastructure would be less than with PSE.

MISCONCEPTION – Experience of Neighboring Jefferson County and Port Townsend:

False Charge: “Predictions of lower rates and increased jobs (as in the Port Townsend and Jefferson PUD case) have not turned out to be true – far fewer jobs, rates about the same as PSE.”

ANSWER:

Wrong on both counts. As for rates, in the 3 years since the Jefferson public utility started operating, it has held its electric rates flat, while PSE’s rates rose 11% in late 2015. Therefore, the customers of the Jefferson public utility are now paying lower rates than they would be paying if they’d stayed with PSE.  PSE sometimes claims that JPUD and other public power systems rates may be low but their customers “bills” are higher because of the “base charges” which vary. This is not true. See the Rate Comparisons page of this website.

As for local jobs, prior to forming the public utility, PSE had 2 employees in all of Jefferson County. The formation of the Jefferson public utility has created about 30 family-wage local jobs for the utility in Jefferson County.  As a result, a substantial portion of the dollars Jefferson county customers spend annually for electrical power now remains in the local community. By contrast, dollars that Bainbridge residents spend on PSE electricity leave the island and go to the company’s headquarters in Bellevue, with profits going to the company’s owners, Macquarie Capital of Sydney Australia and their various foreign investors.

MISCONCEPTION – Learning from the Jefferson County Experience:

False Charge: “A Bainbridge public utility is destined to have management defects just as Jefferson PUD had some negative findings by the state auditor.”

ANSWER:

Bainbridge can learn from the Jefferson PUD teething experience and avoid troublesome issues they encountered. Jefferson initially had problems with its billing system. This generated some local discontent and some negative audit findings.  Jefferson public utility has upgraded the billing system and taken other actions to resolve these issues.

MISCONCEPTION – Local Control Compared to State Control:

False Charge: “Local control is not so good and leads to problems due to lack of state regulation.”

ANSWER:

In Washington, the State does not regulate municipal utilities like BEB because (1) there is very direct local control by customers who are also voters;(2) state law requires all of a public utility’s business information to be available to the public; and (3) state law requires that independent audits of the utility activities be conducted periodically.

By contrast, State law requires a State utility commission to regulate private corporate utilities like PSE because: (1) PSE’s customers have no control over PSE’s foreign owners, board, executives or other policy makers; (2) regulation is necessary to impose restraint on a for-profit enterprise PSE that has a natural monopoly selling electricity; and (3) much of PSE’s internal operating and financial information is private and cannot be obtained by the public. For example, PSE discloses certain county-by-county reliability or outage information to the state utility commission, but customers on Bainbridge cannot obtain PSE outage information specific to Bainbridge Island.

MISCONCEPTION – State-Level Regulation versus Local Control:

False Charge: “There are some advantages to PSE being subject to state-level regulation, such as uniformity of treatment among service areas, and the enforcement of performance standards.”

ANSWER:

The advantages that are enforced by a State regulator can also be enforced by citizen control of a local public electric board. Those advantages are therefore not lacking in locally controlled utilities. And there are additional advantages to customers of a public utility like BEB that are not available to a state-regulated utility like PSE, which are subject to state level, one size fits all regulation that does not necessarily address local issues or reflect local customer wishes.

For example, an unregulated local utility like BEB would have the ability to adopt policy goals that reflect the specific wishes of local community residents (such as undergrounding of power lines to achieve higher reliability of service). And BEB would have the ability to prioritize local objectives beyond the level dictated by state regulators (such as special goals for reliability, for rate assistance benefiting Seniors or low-income customers, for greater use of solar panels or energy efficiency, or for more public broadband internet services).

Furthermore, local control can react more swiftly to local conditions, and is not hobbled by the need to adopt policies that have statewide application.  A local public utility offers local residents the ability to directly and promptly access and influence utility decision makers. By contrast, the distant state regulatory board has failed to require PSE to perform certain activities — like undergrounding of power lines or trimming of tree branches near power lines — to the extent that those activities have at times been requested by local groups of Bainbridge customers (such as the group of local residents called RAISE).

MISCONCEPTION – Needs for Improvement in Electric Infrastructure on Bainbridge:

False Charge: “The power distribution system on the island is at its limit, with substations at maximum capacity. And this will require a significant investment in an additional substation soon. With PSE, that capital investment cost would be spread over a million PSE customers, so the capital cost of such a new substation would not be placed solely on island residents.”

ANSWER:

If PSE is charging Bellevue and other PSE customers for capital improvements on Bainbridge, that also means that Bainbridge customers are paying for capital improvements elsewhere in the PSE service area, such as in Bellevue. The result of this approach is that the fastest growing area gets the greatest cost benefit, which in the case of PSE is probably Bellevue. Bainbridge has grown in population by less than 1% per annum for most years since 2007 and has had comparatively little expansion of electrical power infrastructure. As a result, Islanders are currently paying both for the modest capital improvements PSE has made on Bainbridge since 2007, as well as a share of the more extensive capital improvements for faster growing areas such as Bellevue.  The so-called “benefit” of PSE cost sharing turns out to be more expensive for Bainbridge customers than for Bainbridge customers to simply pay for just our own capital improvements.

Further, a local public utility could find ways to avoid adding another substation by reducing the occasional spikes of peak demand. While PSE is pushing for an expensive new substation on the island, a local municipal utility like BEB could use innovative solutions to address this peak demand issue, such as using lower-rate incentives to customers using power at off-peak hours. By contrast, PSE does not offer an off-peak lower price for electricity during night-time hours.  A local BEB utility could provide off-peak pricing incentives (e.g. for overnight charging of electric cars) which would lessen the level of peak demands during peak hours of the day – and therefore lessen the need for an additional substation on Bainbridge Island.

Finally, if the Bainbridge municipal utility did elect to proceed with a new substation, or to loop the transmission lines to enhance service reliability, it will be able to use tax exempt debt to finance this new infrastructure, which carries a lower interest rate than the taxable debt that PSE must use. As a consequence, the local BEB utility will be able to implement those system improvements at a cost to the customers that is far less than that which PSE could achieve.

MISCONCEPTION – Customer Satisfaction:

False Charge: “A local government or local electric utility board cannot be trusted to run a technical utility like electricity.”

ANSWER:

Statewide statistics consistently show that small public utilities owned by counties or municipalities have much better levels of customer satisfaction than PSE. PSE customer satisfaction is rated the worst in the State when compared to the publics. And PSE electric rates are higher than virtually any of the 62 public utilities throughout the State. Public utilities achieve these favorable results by hiring professionals and experts, and because of direct financial and policy accountability to their customers. Electric utility boards, such as in Tacoma and Eugene, are effective in exercising technical oversight on behalf of electric ratepayers, leaving the city council to its responsibilities to taxpayers.

Using this public “electric board” model, our municipal utility could be managed for our community by a publicly-accountable “Bainbridge Electric Board” for our island city of 24,000 residents. Many small cities in Washington have successfully managed their electric utilities, including electric utilities in Port Angeles (city population: 19,000), Ellensburg (19,000), Milton (6,000), Steilacoom (6,000), Cheney (11,000), Eatonville (3,000) and Centralia (17,000) to name a few.  These municipal utilities in cities smaller than Bainbridge Island have lower rates, higher reliability and better credit ratings than PSE. These municipal utilities are accountable and their performance has earned the trust of their communities and rating organizations.

MISCONCEPTION – Outsourced Crews versus Local Crews:

False Charge: “When there is a system outage or other problem on the island, PSE can call on hundreds of linemen to fix it, and then send them away to work elsewhere when they are not needed on the island. A local public utility might have too many linemen for normal situations, and not enough for emergencies.”

ANSWER:

PSE outsourced most of its line crew activity many years ago (to a separate company called Potelco), so we should question whether PSE still possesses the integrated management and supervisory skills to resolve outages quickly.

Furthermore, we on Bainbridge Island are paying our share of PSE’s costs for these “hundreds” of line crews whether we need them or not. Having our own service crews on the island will improve response time in emergencies. Having local Bainbridge crews would give us line crews with a more intimate knowledge of the local system and local service area.  Furthermore, a strong tradition among public utilities is committing to “mutual aid agreements” that allow line crews from neighboring public utilities to support one another where localized outages occur.  A Bainbridge Electric Board could draw on the crews and resources of neighboring public utility partners (from among the 62 public utilities in the State) in times of need without having to pay for massive PSE-Potelco contract costs at times when they are not needed.

MISCONCEPTION – Getting Electricity to the Island:

False Charge: “A Bainbridge Electric Board (BEB) would have trouble getting electric power from the regional (Bonneville) transmission grid to the island. For example, PSE owns the transmission lines across the bridge to the Island.”

ANSWER:
Bonneville Power Administration (BPA), a regional source of clean renewable power

Bonneville Power Administration (BPA), a regional source of clean renewable power

PSE is obligated by the Federal Energy Regulatory Commission (FERC) and Washington state law to transmit power for others. For example, PSE would be required to relay the power coming from the Federal regional power distributor, Bonneville Power Administration (BPA), that BEB would be relying on for the power needs on Bainbridge.  PSE cannot refuse to transmit BPA power to a public utility like BEB. BPA provides delivery of power to municipal utilities via non-federal systems such as PSE at no additional charge to its normal transmission rate. The costs of using the PSE transmission system are spread to all BPA power customers. Delivery to Bainbridge by transfer agreement is not difficult to arrange, is not costly to a municipal utility like BEB, and is relied upon by nearly 80 BPA customers currently.

MISCONCEPTION – Impact of Cleaner Renewable Fuel on Climate Change:

False Charge: “If a local utility succeed in replacing PSE’s coal-fired power with “clean” Bonneville carbon-free power, that will just shift clean Bonneville power around, making it available for Bainbridge instead of some other community.”

ANSWER:

A Bainbridge public utility would replace PSE’s fossil-fuel power from Colstrip Montana and elsewhere with clean renewable power from Bonneville Power Administration (BPA). This is a replacement of one power source for another, not just a shuffling around.

PSE has no statutory right to purchase substantial additional amounts of BPA’s clean renewable power and PSE therefore depends on long-term contracts for fossil-fuel power from the dirty coal-fired units in Colstrip Montana that it bought and half-owns.

In contrast, the local BEB utility would have a statutory right to purchase clean renewable power from BPA’s special set-aside of its lowest-priced power (Tier 1 power) for newly-formed public utilities like BEB. Furthermore, BPA has committed that any new resources that it adds in the future, for example to serve future increases in the loads of public utilities like BEB, will come from wind generation and other carbon free resources.

Using Bonneville power on Bainbridge from clean renewable sources would not be a reshuffle, but rather a demonstrable decrease in the demand for, and use of, PSE electricity from energy sources like coal and other fossil fuels that make up nearly 60% of the energy PSE currently supplies to Bainbridge customers.

PSE is currently proposing keeping the two dirtiest coal-fired units in Colstrip Montana online until 2023, and keeping the other two coal-fired units online until about 2040. By showing the leadership to switch away from climate-impacting coal and fossil-fuel power, Bainbridge will hasten the demise of that dirty coal-fired generating plant (one of the 10 worst polluters in the country).  It will do so by reducing the demand for PSE’s dirty coal-fired electricity at a time when spare capacity from coal is too expensive to sell profitably on the market for base-load power demands elsewhere.

MISCONCEPTION – PSE Seeking Public Money to Help It Shut Coal Units in 2023:

False Charge: “As PSE lobbyists told the state legislature this year, PSE expects to shutdown two of its four Colstrip coal units around 2023, so Bainbridge shouldn’t take on the task of purchasing PSE’s facilities on the island because the coal-fired power problem is being addressed.”

ANSWER:
PSE made a business decision to become an owner of the Colstrip Montana coal power plant and anticipates future shutdown costs of scores of millions of dollars

PSE made a business decision to become an owner of the Colstrip Montana coal power plant and anticipates future shutdown costs of scores of millions of dollars

Shutting down Colstrip’s dirty coal units is still many years away. This year, PSE persuaded the Legislature to use millions of dollars of public funds to bail out PSE for its poor judgment in purchasing coal-fired plants that no longer make good business sense. Coal-fired power is now more costly to PSE than the clean power that Bainbridge can obtain from Bonneville.

The Legislature’s willingness to bail out PSE for some of the millions of dollars of Colstrip coal unit dismantling costs in 2023 is not a reason for Bainbridge to pass up the many advantages of a local public utility that we can achieve in the nearer future:

  • clean renewable power;
  • low-cost “Tier 1” power;
  • local economic benefits in rates that flow back to the community rather than to Bellevue or overseas to Australia;
  • local jobs and local crews to provide daily service and respond to emergencies;
  • and local control over how to achieve greater reliability and better service.

Furthermore, PSE dodging the costs of dismantling some of its coal-fired generation as a result of the Legislature providing a taxpayer funded bail-out only tells half the story. The action of the Legislature does nothing to protect PSE customers from the millions of dollars that PSE will have to spend on new power generation to replace the capacity that it will lose by shuttering the Colstrip plants.  Without new generation, PSE will not be able to serve its loads, including Bainbridge, and someone will have to pay those costs. And that someone is PSE’s customers.

MISCONCEPTION – Rebates for Bainbridge Users of Solar Panels:

False Charge: “Bainbridge residents who invested in solar panels for their home rooftops and currently receive solar-power rebates might be worse off if there is a local public utility rather than with PSE, which has a large pool of funds with which to pay annual rebates for owners of solar panels.”

ANSWER:
A home with solar panels

A home with solar panels

First, current state law provides solar rebates for customers of municipal utilities like BEB, not just customers of PSE. Island solar panel users were adversely affected last year by the fact that PSE reached its region-wide capacity to pay the full amount of solar rebates, so the rebates to our solar users were reduced by PSE proportionately.

Whether customers with solar panels would receive lower payments under the Bainbridge Electric Board than they are currently receiving from PSE is highly speculative at best.  The current Washington State solar rebate program has only been approved through June 2020.  With voter approval of a local municipal utility like BEB, this utility would probably not commence operations until 2019 or 2020.  Simply stated, this means that the solar panel rebates available from either BEB or PSE will be determined under whatever new legislation the Legislature passes for years after June 2020. The draft legislation on solar rebates which will effectively take the “cap” off the amounts paid did not pass the 2016 legislature, but is the version supported by solar advocates and the industry and likely to be re introduced in the 2017 legislature. Whether such yet-to-be-passed legislation creates a rebate difference between the two utilities remains to be seen. If that were to occur, local control would permit the Bainbridge Electric Board to offer additional rebates for solar panel usage if its customers deemed that to be an important policy objective for the Island.  Island Power urges the city to put into the November ballot language that guarantees current solar customers will have benefits no less than if the community had stayed with PSE.

MISCONCEPTION – City water utility issues in the past (pre-2011); BEB in the Future:

False Charge: “A local utility that is owned by the City (even if operated by an appointed utility board of experts) would be owned by an entity that made headlines in 2009 for its high cost of water in its Winslow water utility. Why should we have the City own an electric utility if its history with water made headlines?”

ANSWER:

The City’s problems with its water utility are past history, and the water utility is now one of the lowest-cost providers in the region. The history is that the water rates rose in the period from 2000 to 2008 in preparation for the anticipated costs of replacing and improving mains in Winslow Way. When the City Council fixed Winslow Way in 2009 and 2010 at lower than expected costs, the Council then reduced its Winslow water rates by 40%. Two years later, the Council further reduced water rates, producing some of the lowest water rates in this region. The old headlines about the City and the water utility are water over the dam.

Other cities have chosen to manage their electric utilities by establishing an appointed utility board of professional experts. There’s every reason to believe that a community like Bainbridge with such a high average education level and with such an abundance of successful professionals could constitute an excellent utility board – just as so many other cities have done and produced far higher customer satisfaction than PSE.

When our Island’s City Manager asked in early 2016 for citizen volunteers for a panel to review the electric utility opportunity, more than 20 citizens applied, and their professional resumes were outstanding.  We would expect an even greater citizen response to a call for participants to serve on a Bainbridge Electric Board.