Dampen rate shocks.

Byline: The Register-Guard

The Eugene Water & Electric Board plans to make its power rate increases smaller and more frequent, which is a good idea. EWEB's residential and business customers will have an easier time budgeting for modest but regular increases than for occasional but painfully steep increases. A steady schedule of yearly rate adjustments, however, depends on something no utility can guarantee: predictability.

The biggest increases in recent years came in 2001, when EWEB raised its electric rates by an aggregate 38.2 percent. A confluence of calamities produced those increases. California's power crisis, exacerbated by the market manipulation of Enron's energy traders and others, pushed the wholesale price of electricity into the stratosphere throughout the West. A drought reduced the capacity of EWEB's dams on the McKenzie River to generate electricity and revenue, while also contributing to a 46 percent increase in prices charged by EWEB's primary supplier, the Bonneville Power Administration.

These were unforeseen events. Utilities that depend on hydroelectricity should be prepared for weather-related fluctuations in power supplies, and utilities that engage in energy trading should hedge against swings in the market. Yet no one saw the blows of 2001 coming, and no one imagined they would land all at once.

Before a relatively modest increase in 2000, EWEB kept its electric rates flat for six years. A policy of small, regular rate increases during those years could have built up reserves to soften the shocks of 2001, and would have seemed farsighted in retrospect. But the utility's reserves seemed adequate at the time. Building huge reserves in the 1990s would have looked like an attempt to bank unnecessarily large amounts of ratepayers' money.

EWEB can expect regular increases in the cost of labor and materials, and rates should be adjusted accordingly. The price of power purchased from the BPA and other suppliers is less predictable, as is the amount of electricity available from EWEB's own resources. Some, but not all, of this volatility can be ironed out with a series of modest rate increases that are bigger than required in some years, and smaller in others.

A policy of modest yearly increases in water rates would also help dampen the risk of spikes in customers' bills. The costs of providing water are largely under EWEB's control, and therefore are relatively predictable. While there should be no subsidies between the water and electric sides of the utility, EWEB customers usually pay for both by writing a single check. A Goldilocks approach to setting water rates - not too big, not too small - would make EWEB bills more predictable overall.

But power prices are notoriously vulnerable to disruptions. Some are man-made, as when the costs of the Washington Public Power Supply System's uncompleted nuclear plants were added to the BPA's rates in the 1980s. Others come courtesy of nature, which brings destructive storms or reservoir-draining droughts at unexpected intervals. EWEB can and should try to soften the effects of these disruptions. But no one should imagine there will be no more surprises.