VEA considers 7% hike

Valley Electric Association board members will consider increasing residential rates 7 percent for 2010, during a board meeting at 9 a.m. today.

That's down from the 10 percent rate hike suggested last month.

The VEA board will discuss the rates privately at 9 a.m. The public will be admitted into the board room, at the VEA headquarters at 800 E. Highway 372, about 10 a.m., VEA Chief Executive Officer Tom Husted said.

The VEA board avoided playing scrooge just before Christmas last year by deferring a proposed 7.47 percent rate increase.

That, said Husted, "was a short-term solution. From the long-term standpoint we just have no choice but to raise rates. We have to remain a strong, viable company. We have fiduciary responsibilities to meet certain financial benchmarks, obligations."

VEA had a meeting with bankers last week, Husted said. The cooperative has a covenant agreement to meet a certain modified debt service coverage two out of three years, he said.

When it comes to comparisons, Husted preferred to compare 2009 figures to 2006.

"The last time we raised rates was in 2006. So the rates were established to allow us to have a certain rate of return. Since then our costs have gone up $9.5 million and if we wouldn't have done anything it'd be closer to $12 million," Husted said.

This year, VEA offered retirement buyouts to 14 employees. Those employees who meet age requirements will receive one year of severance pay, five years added to their pension, a lump sum payment for sick pay and vacation time and medical insurance until they are 65 years old. Husted said the cost of that program would be $6 million over five years, but the cooperative will save $10.3 million from the reduced positions.

Almost a 1 percent drop in members due to the economy have reduced revenues 3.4 percent, from $39.8 million to $38.4 million, according to monthly VEA reports. The cooperative expects to make about $1.5 million in margins in 2009, Husted said, or what would be called profits in the private sector. That compares to margins of $4.5 million in 2006 and $4.1 million in 2007, he said.

Husted said the cooperative is going to backload some expenses that would be paid in 2010 to 2009 that will result in a net loss of $4.5 million this year. That's an accounting gimmick to prevent another mediocre year of profit margins.

The cooperative will pay $5.5 million next year on long-term debt instead of $2.3 million in 2006, Husted said. Among other categories making up the $9.5 million in additional costs since the last rate increase in January 2006: The cost of power went up $2.5 million annually, transmission expense $341,000, distribution expense $530,000, maintenance costs $550,000 consumer accounts expenses $400,000, customer service and information $582,000.

The only budget category that's down is sales expense, he said.

The proposal would hike residential customer rates from 10.27 cents per kilowatt hour to 10.98 cents. The average homeowner uses 1,325 kilowatt hours per month, meaning power usage payments alone would rise from an average of $136 per month to $145, plus the $15 service charge.

Irrigation rates would go up from 8.4 cents to 9.0 cents, another 7 percent hike. General service and small commercial rates would go up 6.5 percent from 10.07 cents per kilowatt hour to 10.73 cents. Medium and large commercial rates would go up 7 percent, from 8.6 cents per kilowatt hour to 9.2 cents.

Husted said the cooperative can't use patronage capital to prevent a rate increase.

No boom for VEA

The opening of the federal detention center and its 1,072 inmates next fall won't be that much of a boom to VEA, Husted said.

"The detention center will be similar to a big box store. So it'll be somewhere between Home Depot and a Walmart. While it will have the potential of having a big, economic boost to the community and employ quite a few people with good paying jobs, the actual electrical load isn't that significant," Husted said.

Concentrated solar power projects being considered in Amargosa Valley could allow VEA to generate revenue by "wheeling" their power, or sending it through VEA lines.

But Husted said those projects may not go on line for a few years.

The proposed cap and trade regulations being debated in Congress could affect VEA irrigation accounts, like the Ponderosa Dairy, but it would have some positive benefit in that renewable energy credits VEA would receive for the solar hot water heater program would be worth more, Husted said.

The co-op broke away from the Rural Nevada Electrical Cooperative and hired a lobbyist of its own to monitor legislation like cap and trade, as well as state legislation, he said.

One of the reasons for the increase last year was the proposed $50 million, 238-kilovolt northwest power line extension project that would connect the VEA system with NV Energy. That has been put on hold while NV Energy attempts to line up easements on the other end.

In a cost-cutting measure, VEA no longer paid medical insurance to employees who retired, saving the cooperative $1.5 million annually. Labor makes up 16 percent of the cooperative's budget.

Another measure that deferred the cost increase last year was the cost of purchasing wholesale natural gas. Power costs comprise just over half the budget. During the power rate discussions last year, there were projections the cooperative would pay almost 7 cents per kilowatt hour for wholesale for power costs this year, but VEA signed a blended power purchase contract last summer to buy power through 2016 at a rate of 6.4 cents per kilowatt hour.