Op Ed - Moving Toward Greenhouse Gas Compliance and Ensuring Burbank’s Residents Continue to Have Reliable Electricity
Burbank, CA (May 4, 2022) – The City of Burbank and Burbank Water and Power (BWP) has prided itself on the utilities’ ability to provide low-cost, reliable electric service to our community. We remain committed to that goal. At the same time, there are cost pressures caused by short supplies, rising construction prices, current inflation, and required socially responsible environmental changes that will change the way we do business. These factors significantly affect our ability to provide Burbank residents and businesses with the quality electrical service they expect and deserve. Additionally, these factors will require BWP to raise our rates to legally comply with greenhouse gas directives and ensure that our infrastructure is in place to safeguard our reliability.
While proposed increases can be difficult for some community members, it is never our desire to charge more than we need to; however, to ensure that we meet the expectations of our community and avoid the potential for enormous fines, we have no choice. For these reasons, Burbank Water and Power (BWP) is proposing a 6% increase in electric rates for the 2022-23 fiscal year. This means that an average apartment occupant in Burbank would pay between $3.58 to $5.40 more per month, and an average homeowner would pay between $7.91 and $12.29 more per month.
Rising Costs of Electricity Generation
Frankly put, the cost of maintaining our electric infrastructure and securing renewable energy is increasing significantly. We are experiencing some of the most dramatic increases we have ever seen. For example, replacing a substation in 2017 was $15 million. During a recent public bid for the Willow Substation similar in size and scale, will cost $24 million, a more than 60% increase.
The Magnolia Power Plant uses natural gas to generate consistent electricity for Burbank and four other communities. Natural gas prices have increased 50% since 2020. No substitute can be used to produce energy at this plant; we must absorb this increase.
Additionally, Burbank relies on our part ownership at the Intermountain Power Plant for our electricity. This plant is required to convert from coal to natural gas and green hydrogen for its energy generation to meet the state renewable mandates. The price to complete just the conversion to natural gas is significantly above the forecast provided in 2019. In fact, it has already doubled. The original cost estimates in 2019 were less than $2 billion and have risen to nearly $4 billion. BWP’s share of generation is 3.33%. This means that we are contractually obligated to pay for our portion of the total costs.
Deferred Infrastructure Needs
While our reliability has been stellar, the deferred maintenance has impacted our reliability numbers during the last five years. In 2015, the average outage experienced per Burbank customer was one outage every five years, and now that number has risen to one outage every 2.5 years. Deferred maintenance items include vaults, manholes, transformers, and poles.
To fix this, BWP proposes issuing $60M in bond financing. Issuing bonds is similar to taking out a loan that uses the proceeds to improve and protect deteriorating infrastructure. The debt is paid over time, which makes the improvements affordable. The proposed bond issuance would finance projects such as converting existing lines to allow more electricity to flow through them, rebuilding the Golden State Substation, and providing for solar generation and solar electricity storage.
Compliance with Regulatory and Legislative Unfunded Mandates
BWP must procure 20% more renewable energy in less than eight years to meet the 60% 2030 renewable energy mandate set by the state of California. If we do not meet this target, the city faces $147 million in possible penalties, plus we would still be required to procure renewable energy to avoid additional fines in future mandated targets. This work will occur while the cost of renewable energy contracts have increased 35% to 60%, driven by supply chain issues and growing demand from more utilities moving towards clean energy.
Burbank must also be socially responsible and do our part to reduce greenhouse gases by using more solar energy, investing in new technology to store electricity, and developing and implementing plans that will lead us towards greener electricity generation.
To ensure that Burbank remains competitive and meets our mandates, additional staffing will be required. BWP is proposing hiring two new staff members. These positions will be responsible for negotiating contracts that could ultimately reduce the amount we are required to pay as well as implementing our regulatory compliance strategies to avoid future fines.
To help offset the increases, BWP staff has aggressively looked for opportunities to cut or reduce costs, which has saved approximately $27 million in the last 12 months. This includes $19 million in contract renegotiation, energy sales and loan prepayments, almost $6 million in process improvements, and $2.7 million in State funding offsets. To help the city, BWP hopes to bring in funding through grants from the recently passed bipartisan infrastructure bill and continue looking for additional opportunities to leverage our funds.
Deferring Rate Increases
BWP has deferred and reduced needed rate increases in the past. By not increasing our rates during three of the four years between 2017 to 2021, and a 1% increase in the other, BWP supported the community during a difficult time. Unfortunately, this also meant delaying our investment in renewable energy, and we now have to play catch up. For the past six years, the electric fund has not collected enough in rates to cover annual costs, which has resulted in BWP utilizing its reserve account.
These reserves are not intended to be a fund we can draw from to offset costs; these savings are meant to help cover natural disasters and emergency costs. The more we take from reserves, the less prepared we are for future emergencies.
In FY 2016/17, the electric fund was short $1.1 million; in 21/22, we expect to be short $7.1 million which will be covered by reserves. Without attaining bond funding and raising rates, our reserves will fall below minimum requirements. This would impact our bond rating and cause us to borrow money at a higher interest rate. Without a sufficient rate increase, this number will only grow, putting us at risk of more outages, not meeting our sustainability mandates, and not adequately responding in an emergency.
A rate increase is never desirable, but the time has come for our generation to invest in green sustainable energy and provide for the future, similar to our forefathers 100 years ago when they set up Burbank’s electrical company. As a city, we have a duty to ensure that we provide excellent services while being fiscally responsible.
To help those who cannot afford to pay their bill, BWP has financial assistance available and will be launching a new program in July with expanded income requirements to assist even more families and individuals struggling with the cost of living in Burbank.
Burbank residents and businesses are encouraged to attend the Public Hearing for the proposed rate increases on May 17, 2022, by: