Over the last few months as I have observed REU management issues, the relationship between the regressive REU rate structure and precarious financial condition has emerged. Going over The Redding Record Searchlight's reporting of the Rate increase issue last year, I found numerous factually incorrect statements by REU regarding the REU/PG&E rate comparison. I think both PG&E and REU customers should have the facts.
REU has a policy of charging excessive rates to low-use customers, relative to PG&E and most other public and private utilities. After the December 2009 rate hike begins, a large percentage, and maybe even a majority, of REU ratepayers, will actually be paying 10%-35% more than PG&E customers, and some of the highest electricity KWH rates in the entire state.
Many REU customers are low-use out of economic necessity, but have to pay more per KWH than those customers who choose to consume very high amounts. The relative overcharging of low-use customers by REU is compounded by a more restrictive low-income discount program than PG&E, and a policy of excessive charges for late payments. I find it ironic that a "public" utility treats its most vulnerable customers so badly.
The Attached PDF file is my best effort to accurately show what REU and PG&E bills actually are for customers. The rates calculated are for individually metered customers, who are not participating in either utilities low income discount programs. Any REU or local area PG&E customer can compare their bills, and inform me if I have made any errors.
What I find reprehensible in the actions of REU staff, is repeating the claim that PG&E rates are higher than REU for all ratepayers, which they must know to be false. Yes, REU rates are lower for high-use customers. And this may be a contributing factor to deteriorating REU finances. High-use customers use much of their power (for air conditioning) at peak demand periods, when REU may have to purchase or generate high-cost electricity. It looks like REU might have a retail rate strategy for high-use customers of "losing money on each sale, but making it up on volume".
The REU rate information and public presentation below, on which the City Council voted to raise rates last December, is disturbingly inaccurate, for a number of reasons. First among them is REU's practice of omitting their "service fee" from comparisons. Look for yourself. Was the city Council aware of this when they voted the increases?
http://www.reupower.com/energysvc/rates.asp
The "Fact Sheet" below, is even more misleading. See the charts below, that misrepresent both REU and PG&E total rates.
http://www.reupower.com/facts/facts09.asp
The connection between TANC and higher REU rates is complicated, and requires further investigation.
REU has repeatedly claimed that the first TANC power line has been profitable to Redding to the tune of $80 million dollars. But, if this is true, where did the "$80 million" go, and why is the TANC power line, which REU still apparently owes $40-50 million on, losing millions of dollars now?
Based on the very limited information available- See "Gas Hedge", "summary of Impacts",and "Option 2 Cash Reserves" slides in the " Important Rate Increase Presentation <http://www.reupower.com/1208pres/index.html> ", It appears REU is hemorrhaging cash, and in very poor financial condition. At least in part, this is due to REU's participation in unsuccessful speculative ventures, such as gas hedging and power line construction. As can be seen, REU states it is losing many millions of dollars a year on these programs.
REU should be extremely profitable right now, as PG&E is, due to current very low gas and electricity purchase prices. But it also looks like REU may have made a series of unfortunate decisions, leading to the projected $26+ million dollar reduction in cash reserves by 2012, as shown. This will be a risky position for REU to be in, very close to the point where REU/TANC bondholders will be legally entitled to seek even greater rate increases by Court Order.
And this financial projection appears overly-optimistic, bordering on the absurd, based on projected electricity sale increases of 8%-10% a year, and concurrent rate increases of 7.84% a year, six years forward . See "7.84% annual increases" slide. How can REU expect customers to so rapidly increase their electricity consumption at such dramatically higher rates?
Private utilities have shareholder equity to cushion ratepayers from losses on speculative investments. Public Utilities, Like REU, do not. Once cash reserves are depleted, rates must be increased. It looks like REU may have made some bad bets, and is now doubling down, with ever more complicated gas hedging and power line (TANC) schemes.
For more information on the fundamental risks to REU customers that will be caused by participation in the new TANC power line, see:
http://www.stoptanc.com/html/edmarek.html
Ed Marek