In the world of politics, the people we elect think in terms of short spans of time like election cycles, so if an unpopular decision like increasing electric fees needs to be made, rule No. 1 in their playbook is to kick the can down the road and let a future elected body worry about it.
This has happened more than once in Lompoc, but eventually the “chickens come home to roost” as they have for the last few years in the electrical utility. The city of Lompoc, unlike other jurisdictions in Santa Barbara County, provides electric service within the city limits. They charge fees for service, and those fees are set by the City Council.
Nine years ago, on July 17, 2012, the City Council “temporarily” suspended an approved 3 percent rate increase for the electric utility, and they also reduced the existing charges in effect in 2011-12 by 3 percent. So, the total reduction was 6 percent.
The staff report warned the council, “To keep cash reserves from falling below the policy level by June 30, 2019, additional rate increases of 3 percent annually would need to be instituted July 1, 2016. Additional rate increases greater than 3 percent would likely be needed to continue cash reserves in excess of the policy level after June 30, 2019.”
The staff was recommending that any rate increase deferral only be approved for a short period of time. Instead, the council, none of whom had any experience in operating a public utility, unanimously voted to suspend the increase, thus “kicking the can down the road” for a future council to worry about. This action made heroes out of those council members.
Ignoring the warning, subsequent councils re-authorized the original temporary suspension as part of the budget approvals for the 2013-15, 2015-17, 2017-19, and 2019-21 budgets without any further hearings or fee studies.
Why is this important; didn’t ratepayers save money? Utility users like my family have benefited somewhat from the pause in the rate increase, at my house it amounted to about $2.50 a month. That’s about enough to buy a week’s worth of coffee cream. Using my calculator, I figure we saved about $270; or about one month’s electric utility bill during those nine years.
The mission of the electric utility is to provide reliable power 24 hours a day, 365 days a year. It takes more than $25 million annually to operate and maintain the distribution system. The only way to acquire needed revenue is through the rates paid by the consumer. According to the newest budget documents, the utility fell short of projected income by $1.36 million for fiscal year 2019-20, and in FY 2021 it’s projected to lose $3.2 million. The 3 percent deferral cost the utility about $600,000 per year: so, that’s about $5.5 million since August 2012.
Following the deferral of the rate increase, two different electric utility managers have requested substantial ongoing capital replacement funds that had to be deferred in the hundreds of thousands of dollars each cycle (at least $300,000 to $800,000 each cycle). The managers deleted proposed capital projects each year to maintain a balanced budget.
Deferring these projects puts the electrical distribution system reliability at risk. The above- and below-ground system consists of metal cables and switch gears that deteriorate in the corrosive Lompoc climate and require replacement before they fail. If the system is operated until the equipment fails, then you can’t keep your beverages cool, charge your cellphone, play video games, or watch TV until the failed parts are replaced and power restored.
But Rule No. 1 in the political playbook doesn’t come into play when employee wage raises are discussed because it makes politicians feel good to raise city workers’ pay.
In the subsequent years, employees have received several cost-of-living wage/benefit increases, the city has grown, electrical usage has changed, the cost of the electrical supply has changed, and the materials needed to maintain the distribution system have most certainly increased. With recent improvements of electric line worker base pay, simply using capital replacement deferrals could not justify putting off the rate increase any longer.
When any rate or fee is changed, a rate study is performed to justify the action. The last study was conducted nine years ago; things have changed since then, and another hearing should have been scheduled to properly analyze current revenue needs.
The change implemented on July 1, 2021, was to simply eliminate a temporary rate reduction. Yes, the rates will be higher than they have been since August 2012 but will be the same as they would have been without the final 3 percent increase that was supposed to be implemented in July 2012. And the rates are still lower than justified in the 2009 fee study that was approved by the City Council and much lower than surrounding jurisdictions.
Kicking the can down the road may be rule No. 1 in the political playbook, but it can produce some serious issues for future city councils to resolve. This time the reliability of the entire electrical utility was placed in jeopardy to save a week’s worth of coffee creamer.
Ron Fink writes to the Sun from Lompoc. Write a response for publication, and email it to letters@santamariasun.com.
This article appears in Jul 15-22, 2021.