Crunch prompts utility to examine payments to city.

Byline: SCOTT MABEN The Register-Guard

The Eugene Water & Electric Board's financial pinch has prompted several commissioners to question the utility's long-standing habit of paying millions of dollars a year to the city of Eugene.

This year alone, EWEB will give the city $9.3 million - a piece of both wholesale power sales and retail electric revenue.

The utility expects to pay about the same amount next year.

State law requires municipal utilities to pay cities at least 3 percent of gross operating revenues to reduce general property taxes within the city. EWEB has made the payments to Eugene for 59 years, and voters formalized the agreement 26 years ago when they approved a revised city charter.

By all accounts, the city has grown dependent on the money.

But last year's erratic energy market and drought left EWEB reeling, prompting commissioners to start asking if the utility may be overpaying the city.

The utility ate through $10 million in reserves and borrowed another $30 million to weather the storm and has raised rates three times in the past 12 months.

Even so, EWEB last year paid the city a record $14.2 million - nearly twice the usual amount - because of a substantially higher volume of wholesale sales as well as higher prices for that power.

After such a bruising year, several commissioners said it's time to take a closer look at the arrangement and explore ways to ease the utility's financial obligation.

"We need to get absolutely clear on what is this requirement that EWEB pay in lieu of taxes," Commissioner Sandra Bishop said. "We have always been happy to pay it."

But if the payments are excessive, Bishop said, they should be reduced and the savings should go toward lowering EWEB customers' bills.

Commissioner Patrick Lanning said he also wants EWEB to take a closer look at the payments, known as contributions in lieu of taxes, or CILTs. City leaders may not be receptive to a proposal from EWEB to lower the CILT rate after all these years, Lanning said, but city residents who are paying increasingly higher electric bills can put pressure on the city.

"They don't have a choice not to listen to the community," he said of city officials.

Through a series of mutual agreements beginning in 1955, EWEB pays the city 6 percent of retail revenue, which is what the utility collects from local residents and businesses. EWEB also pays the city 17 percent of its net revenues from selling surplus power to wholesale customers such as other utilities.

The payment levels are fair because both the city and EWEB agreed to it, Interim City Manager Jim Carlson said.

"It's a cost of doing business," Carlson said. "Our CILT rate doesn't cause any (EWEB) rate increase. We didn't raise the rate. There's nothing we have done that causes them to raise the rates. Those are factors beyond our control."

Carlson said EWEB would be in for a fight if it tried to change its agreement with the city, which is coping with budget headaches of its own.

In fact, the city is relying more than ever on the money from EWEB as it tries to fill other holes in its budget.

When it got an unexpectedly large wholesale CILT payment last year, the city put the extra money into a reserve fund for replacing downtown city offices. Then the city borrowed $2.2 million from that fund to settle a lawsuit with a developer over a piece of land in west Eugene.

At about $7 million a year, the retail CILT has been the city's second largest source of revenue to the general fund.

With EWEB's 33 percent rate increase last October, the retail CILT revenue this year will be about $2.5 million more.

The city is using some of that extra money to compensate for Qwest's decision last year to withhold its traditional franchise fee payments to Oregon cities. Qwest's refusal to pay is costing the city more than $1.5 million a year.

Viewing the increase in CILT payments as a windfall for the city, however, EWEB commissioners last fall asked the City Council to set aside $2.5 million of it for low-income energy assistance programs.

EWEB dedicated the same amount to help up to 8,000 of its customers cope with last fall's sizeable rate increase, and a match from the city would serve the balance of the estimated 16,000 low-income households in EWEB's service territory, commissioners reasoned.

City leaders decided to spend just $55,000 on such programs. The city faces its own budget shortfall and is making painful cuts as well, Carlson said.

"Essentially at this point, it's not extra money to the city," he said. "In the large barrel of money called the general fund, which has hundreds of sources, there's no extra money."

EWEB isn't likely to drop the issue.

"I think it's a festering issue, and I don't think it's going to go away from our point of view," EWEB spokesman Marty Douglass said. "I think there will continue to be unrest at EWEB both about the number, the percent we pay them and the whole concept of in lieu of tax payments as our budget difficulties persist."