By Vernon Robison
Moapa Valley Progress
The Overton Power District (OPD) Board of Directors voted unanimously to approve a general rate increase at a meeting held on Wednesday, September 21 in Overton. The increase, which will take affect on October 1, will raise the base residential rate from $20 to $25 per month. No change will be made to the current power usage rates.
The rate increase is expected to bring in an additional $800,000 in annual revenues; revenues that the district needs to meet its obligatory bond agreements, district officials said.
“We have tried to keep this rate increase just at the minimum needed to meet the legal obligations of our bond covenants,” OPD General Manager Delmar Leatham told the board.
Leatham explained that the district’s bond covenants require the OPD to meet certain debt reserve levels.
“If we fall below that level, our lenders can legally come in and force a raise in rates so that we will meet our requirements,” Leatham said in an interview with the Progress. “We didn’t feel like we wanted to get to the point where some finance guys from New York come in and tell us what our rates should be.”
Leatham explained that a recent Cost of Service study performed by the district showed that the OPD needed $2.2 million in additional cash to meet its debt obligations. Much of that amount has already been reached through cost cutting measures, Leatham said.
“In this situation, rather than just raise rates, our first look was to make cuts in the operating budget and reduce our expenses,” Leatham said.
In recent years, as the regional economic slowdown has reduced the demand for power, Leatham said that the district has reduced its expenses by $3.5 million. This includes a gradual reduction in staff, deferred wage increases, restructuring health care benefits, delaying the purchase of vehicles and equipment and allowing unneeded power contracts to expire. These cuts also included squeezing savings from smaller cost centers like postage, insurance and banking fees.
In addition, the district has not proposed any funds to be budgeted for capital improvements to the system. “We have deferred out most of those expenses,” Leatham said. “We don’t have any capital improvement projects built into our rates.”
The district has also entered into a recent agreement with the Colorado River Commission (CRC) to sell its surplus power. This resource was purchased under a long term contract in 2007 at a time of rapid growth and higher demand. The power was purchased at a price of $65 per megawatt hour (Mwh). That purchase price is locked in until 2013 when it drops to $61 and stays there through the end of the contract in 2017.
“That contract is a firm resource,” Leatham told board members. “We are obligated to purchase it. But when we made that contract in 2007 we didn’t know where we’d be today. We have lost the Oasis (Casino in Mesquite), about 10% of our homes are standing empty, we’ve seen a lot of businesses close up shop. These things have affected our sales and have brought us to where we are today with what needs to be done.”
But the agreement with CRC allows an option for OPD to recover some revenue from this surplus energy. The surplus OPD power can currently be sold through the new CRC exchange at only around $40/Mwh, which is a significant loss. Still, before the CRC agreement, the district had few options to recover dollars in situations like this, Leatham said.
Leatham claims that the district’s operating expenses are running very lean at this point. Out of the roughly 9-1/2 cents per kilowatt hour (Kwh) of energy paid by OPD customers, about 3 cents goes to pay for district operations including wages, materials, equipment, maintenance and debt service requirements, Leatham said.
When asked what other cuts might be made to make up the $800,000 without instituting a rate increase, Leatham said that any further cuts to staff and budget would deeply affect the customer and the OPD infrastructure.
Leatham noted one possible cut might be reducing OPD office hours to a four day work week. “Eliminating those service levels is possible but it would be felt by our customers,” he said.
Other additional personnel cuts might end up being detrimental to the OPD system, Leatham said.
“I don’t know that we could cut personnel on our outside crews and still maintain reliability and safety of our electrical system,” Leatham said.
