PUD budget drops 7 percent from a year ago; Board hears revenue strategy

Chelan County PUD - Praising staff for reducing spending as times got tough, Chelan County PUD commissioners on Monday approved a 2010 final budget that is 7 percent lower than the budget approved last December.

The combined capital and maintenance/operations spending level of $307.5 million for next year is also slightly lower than the ultimate contingency budget the PUD was forced into this year as wholesale power revenues and interest income on investments fell sharply throughout the year with the global economic downturn.

"Budgets of this nature cannot sustain this utility for the long term," said Commissioner Randy Smith as he voted in favor of the budget with the rest of the commission.

"We understand how tight this puts everything," added Commissioner Norm Gutzwiler.

PUD staff levels in the final budget are at the lowest in five years. If stream flows and market prices turn out better than average, the PUD could see a positive change in net assets for Utility Services of $6 million by the end of next year, as opposed to a possible negative outcome of a $32 million decline under poor conditions.

General Manager Rich Riazzi reminded commissioners 2010 is shaping up as another difficult year financially and said the PUD would be continuing in preservation mode. He said the PUD will monitor snowpack conditions, market prices and financial conditions through the spring to determine whether a surcharge may again be needed or if other rate adjustments might be proposed.

In other actions, commissioners:

*         Authorized the general manager to sign an agreement with the city of Wenatchee that establishes mutually agreeable guiding principles for the city and the PUD as the city creates a local revitalization financing district for the riverfront area adjacent to PUD parks. The principles are designed to clarify expectations and obligations for both parties.

*         Listened to Chief Financial Officer/Chief Risk Officer John Janney, Managing Director of Energy Resources Gregg Carrington and Energy Planning and Trading Manager Janet Jaspers explain a structured surplus energy sales program that looks ahead three years. New guidelines set upper and lower volume targets for selling future delivery of surplus power, and sales will be managed within the targets to help stabilize revenues from surplus power sales. Carrington acknowledged the PUD might miss out on higher prices at times by selling up to three years in the future, but he said the program would also lower the financial impact when prices ultimately drop far below expectations. The overall result should be a more predictable, stable revenue stream. Janney emphasized that this phase-one effort only addresses part of the variability in revenues. He said the team would be back to discuss alternatives that would help mitigate some of the PUD's weather- related risks and may include a longer-term hedging proposal as part of PUD strategic planning.

The next regular commission meeting is at 1 p.m. on Monday, Dec. 14, 2009, in the PUD boardroom at 327 N. Wenatchee Ave. Most PUD commission meetings are recorded, and a link to the audio is available on the PUD's home page at www.chelanpud.org.