OPD Manager Hears Rate Hike Concerns From Mesquite Residents

By Vernon Robison

Moapa Valley Progress

Overton Power District (OPD) General Manager Delmar Leatham appeared before a large crowd gathered at the Mesquite City Council Chambers on Wednesday, September 12 to address concerns from that community about a 4.5 percent increase in power rates being proposed to residential and large commercial customers in the district. If approved at the OPD board meeting this week, the increase would go into effect on October 1.

Leatham began the meeting with an explanation of the various elements that had brought the district to the point of the proposed rate increase.

In 2005, rapid growth had caused the load on the OPD system to approach its limits, Leatham explained.

“It started to become clear that our ability to deliver power would be compromised,” he said. “Lead times (on construction of infrastructure) were such that we needed to begin a process and determine what facilities were needed.”

OPD hired a contractor to conduct a series of studies, Leatham said. These studies were to project growth in the area and determine what resources and infrastructure would be needed. The studies also looked into specifically what types of infrastructure was needed and where it should be located.

As a result of the study, the OPD developed a plan to accomplish the recommendations of the study, Leatham said. The plan included borrowing $25 million to complete infrastructure.

This money went to fund five new substations and a new transmission line to Mesquite, Leatham said. He added that, except for one of the substations, all of the new infrastructure was built to serve, what was at that time, booming growth in Mesquite.

“That is where the major portion of the monies were spent,” Leatham said. “Only the Payne substation was in the Moapa Valley. Everything else was built to service this (Mesquite) community. (Mesquite) makes up about 65% of the overall load. The remainder is in the other community.”

The trouble began when the regional economy started to collapse, Leatham said. Growth stopped. Businesses closed. Foreclosed homes stood empty. All of this had an effect on the OPD revenues, and its ability to service its debt, Leatham said.

But by the time the full extent of the economic downturn was realized, much of the infrastructure projects were already in the process, Leatham explained.

“The planning cycle for system improvements like this is fairly long-range,” Leatham said. “There is some of it that we could delay, but for most of it we didn’t have that option. It was already in the pipeline. The good news is that we will be ahead of the curve on it when growth returns.”

Leatham stated that, as the economy declined, the OPD had employed a cost-cutting plan in its operations. This included elimination of four temporary positions and one full-time position. The district also plans to downsize its workforce through several planned retirements in the next year, including Leatham himself. These positions will not be replaced, their workloads passed on to existing employees. This will effectively reducing the total OPD payroll, Leatham said.

In addition, OPD management and employees have not received cost of living increases since 2008 and have taken a reduction in health insurance benefits over the past couple of years, Leatham said.

Other cost cutting measures include delay of vehicle and equipment purchases, allowing supplemental power contracts to expire, a change in primary banking relationships and other efforts, Leatham said.

But all of these measures still did not solve the ongoing revenue problem, Leatham said. There was still about $2 million in additional revenues needed to bring the OPD in line with its obligations. So the OPD Board looked at ways of increasing revenues through rate hikes, Leatham said.

Not wanting to drop the whole burden on customers at once, the board approved the first phase of the proposed increase last year. Thus, the proposal being considered will be the second phase of the increase, Leatham said.

The proposal, if approved in this afternoon’s OPD Board meeting, will raise residential rates by about $4-$5 per month. It will also bring a 4.5 percent increase to the large commercial segment. Small businesses and irrigation customers will not be affected by the increase.

After his presentation, Leatham opened the floor to those in attendance to ask questions and make comments. Much of the public response was critical, and at times caustic, towards the OPD board and management.

Mesquite resident Barbara Ellestad asked Leatham if he had received a significant increase in his own compensation over the past two years.

Leatham affirmed that in the summer of 2010, the OPD board had approved a salary increase for him in order to delay his retirement until 2013.

“I had approached the board with information on average nationwide utility manager salaries,” Leatham said. “I asked that they take me to that level. The board negotiated to take me there if I would give up my benefits which would go into effect at my retirement.”

In the agreement, Leatham agreed to give up 300 hours of vacation and 360 hours of sick leave accumulated over the years. In return he received a salary increase of around $40,000 per year.

Mesquite resident John Williams felt that the overall salary structure at the OPD was generally too extravagant.

“As I reviewed the OPD salary structure, the lowest paid employees have a salary and benefit package of around $54,000 per year,” Williams said. “I don’t think that there is another business in the entire area that has its lowest employees making that much. I think that it is outrageous.”

“Our city has cut 31 full time employees,” added Mesquite resident Doug Wolford. “They have taken a 10 percent across the board reduction in every department and that has not affected their service. Our Virgin Valley Water District has frozen its salaries from 2008 until now. They have done $8 million in reductions and they are still reliable and efficient. I’d like to ask you and the board members: Would you consider reducing your salaries in line with similar services in the community?”

“I’m sure that this will all be discussed at the board level on reducing costs,” Leatham responded. “But if you bring in an outside individual comparable to myself, that person is going to want to be compensated similarly to other managers. Ultimately you are going to have to face the fact that this is what utility managers make.”

In reference to the OPD general employee salary structure, Leatham emphasized that the highly specialized, and often hazardous, positions at OPD required a higher salary in the market. In addition these salaries might also be viewed as a benefit to the community.

“The dollar that is paid to an employee is spent in the community,” he said. “The benefit comes to the community. If we were an outside company coming to Mesquite, we would be looked at with open arms bringing highly trained and well compensated positions to the community.”

Another concern of many in attendance was the issue of transparency at the OPD. Some residents complained that the district doesn’t hold enough of its monthly board meetings in Mesquite. Currently most board meetings are held in Overton with two meetings per year held in Mesquite.

“You have 75 percent of your income coming from this area,” said Mesquite City Council member Karl Gustaveson. “That should be reflected in the involvement from the community. But when you have to go sit and look at a TV to see the board meeting going on in Overton, you are not going to get much participation here. You owe it to ratepayers in this area. It is time to be fair with this community and have every other meeting up here.”

Other residents complained about the difficulty of obtaining financial and other public information from the OPD. They claimed that not enough of the vital documents were available on the OPD website and that the public was being required to come into the office to request the information in writing.

Leatham said that the district staff is working on improving that.

“I think that is one of the things that has come out of this process,” Leatham said. “We are making more of those documents available online.”

He said that the much of the background information on the rate increase proposal is now posted on the OPD website (www.opd5.com). More documents will be made available as time goes forward, Leatham said.

On another topic, Leatham was asked to elaborate on an older debt load to the district which was caused by a $50 million loss that the OPD was forced to take to get out of an overpriced power agreement.

Leatham explained that this situation had taken place in 2001, before he was in the position of general manager. At that time, the OPD had an agreement with Nevada Power to obtain supplemental power as needed during times that the district’s hydro resources didn’t meet spiking demand, Leatham said.

But in March of 2001, Nevada Power notified OPD officials that it would no longer be able to provide the supplemental power, Leatham said.

The district quickly sought for supplemental resources on the market and the only company that would provide it was Idaho Power, Leatham said. It was around that time that the Enron scandal hit the market, he observed. So the power contract was locked in at a very high price.

“When that event (Enron) took place, the government stepped in and reset the (power) costs,” Leatham said. “We notified (Idaho Power) that they needed to adjust their price and they brought a lawsuit against us.”

After the matter had been taken into arbitration for a time, the contract was finally resolved at a cost of $52 million to the district.

“That is a debt still carried by the district today,” Leatham said.

“It was not a good thing,” Leatham added. “But at the time, they were just scrambling to keep the lights on. The result is we are stuck with that albatross around our necks until 2028.”

Other public concerns centered around legal term limits for some of the OPD board members. Some Mesquite residents commenting at the meeting felt that a couple of the board members had overstepped the term limit laws in the state.

Leatham explained that the previously five member OPD board had been reconstituted into a seven member board by the state legislature. This took place in 2009. At that time, another seat representing Mesquite was added as well as another at-large seat. The at-large seat was filled by long time Bunkerville board member Craig Anderson, who would have termed out this year. Long-time Mesquite representative, David Anderson would have also been subject to term limits.

The question that arose was whether these two existing board members should be termed out or whether the reconstitution of the board had caused the clock to reset on their term limits, Leatham explained.

“Dave Anderson has signed up to run for his seat again this year,” Leatham said. “No one has chosen to run against him in the election. But he has asked the Attorney General for an opinion on whether the term limit applies in his case. So the answer lies outside of the board or staff to answer right now. Craig Anderson ran for a whole new seat on the board so I don’t believe that he will be subject to those term limits.”

In his conclusion, Leatham stated that the recent feedback from the community concerning the proposed increase had yielded some valid suggestions and ideas. One of these was a concern about what Leatham called “pancaking of rates”. This, he explained, is when a power rate increase affects the operational cost of other public entities; such as the water district or the city government; and then causes additional increases to be passed on to the same customers.

“We think that we have a realistic and workable plan to hold their rates and not cause that problem to the city and the water district,” Leatham said. “We have a proposal to the board. Hopefully that will avoid any cost increases to you through water or city programs.”