Three years into his career as general manager of the Cowlitz PUD, Steve Kern continues to receive rave reviews from within the utility for saving about $7 million over the last three years. That performance, according to PUD commissioners, more than justifies the controversial $32,000 raise they gave him late last year.
But now Kern is engaged in his most challenging money-saving effort yet, and the stakes are high for the utility’s customers, amounting to as much as $10 million.
Social media lit up with criticism after the PUD announced Kern’s 15 percent raise late last year. His $246,000 salary makes him the county’s highest-paid public official.
Commissioner Dave Quinn this month called Kern’s work at the PUD “exceptional.”
“You don’t come in and have this kind of performance and expect to be paid at an inferior level. In my mind, that’s not equity, and that’s not fair,” Quinn said. “If our wages are inferior, people are going to go elsewhere.”
The pay hike put Kern just above average in a “reasonable range” of salaries recommended by a PUD consultant. It found, based on his skills and the PUD’s size, that a reasonable salary range for Kern is between $195,200 and $292,800. That survey also found his pre-raise salary to be about 12 percent below the regional industry average for general managers and similar positions.
Kern took over the reins of the utility when it was in something of a leadership crisis. Commissioners were at odds with one another, and political intrigue poisoned relations among the utility’s commissioners and top managers. The atmosphere deflated employee morale.
In addition, the utility had been through a succession of sharp power rate increases this decade (10 percent in 2011, 18 percent in 2012; 7.5 percent in 2015 and 2.5 percent in 2017). Some of these were a result of its construction of Central Washington wind farms, changes in the power markets and the need to pass through the cost of wholesale power increases.
Kern described the PUD as being in “a pretty challenging way” when he started.
“(But) when you look at today versus three years ago, we have a new discipline. We run it like a business,” he said. “The old school, just ‘blame Bonneville for raising your rates’ — that doesn’t work for me.”
Among his accomplishments, the PUD reports that Kern has helped save the utility $7 million over the last three years through measures such as increasing investment income, modifying contracts, jettisoning PUD industry memberships, combining positions and identifying operating inefficiencies.
In addition to budget tightening, the utility has paid off about $55 million in debt in the last three years, bringing it down to $160 million, a 25 percent reduction, according to PUD officials. (Much of this relates to construction of the wind farms.)
And the PUD announced no residential rate increase for 2017-2018 or 2018-2019.
Kern says he’d like to keep it that way, and one key is talking the Bonneville Power Administration out of a planned 2.9 percent rate hike that would be in effect for two years starting Oct. 1.
BPA markets power from Columbia River hydroelectric dams and historically has been the cheapest cost of wholesale power in the region. It supplies the PUD with about 90 percent of its power. But it has raised its rates nearly 32 percent during the last eight years. The inflation rate is about 16 percent for that period.
And those rate increases have had to be passed on to PUD customers.
On its own, the Cowlitz PUD doesn’t have much leverage over Bonneville, Kern said in a recent interview. But between talking to other utilities, general managers, fish and wildlife representatives and other industry figures, he said the PUD is trying to champion a push to lower BPA’s overhead and reduce pressure for a rate hike.
BPA’s 2.9 percent rate hike proposal would translate to about $5 million more in costs per year for the PUD, or about a 1.5 percent rate hike for its customers if not absorbed through the PUD’s cash on hand, Kern said. That’s about $1.80 a month for the average PUD customer (the average bill is now about $128 monthly), but Kern sees the potential increase in other terms.
“Over a two-year rate period, that’s $10 million dollars. That’s a chunk of change the community has to come up with.”
Bonneville officials say the agency has been tightening its belt, but they say it’s unrealistic to expect it to forgo a rate increase this year, according to spokeswoman Sarah Burczak.
“We’ve taken a lot of action ... (and) really reduced our program costs.”
BPA reported in December that it has found $66 million in budget cuts for the 2020-2021 fiscal year, which starts Oct. 1. That’s about a 4 percent reduction in spending over what it had projected for next fiscal year. For the first time in at least a decade, the agency’s budget next year will increase by less than the rate of inflation. That’s a marked contrast to budget increases of 13 percent in 2010 and 26 percent in 2008.
Nevertheless, the agency said it needs to modernize its grid and ensure its long-term financial health, and for that reason a rate increase is necessary, Burczack said.
“The feasibility of getting to 0 percent is probably not realistic this rate period,” Burczak said. “But we’ve done a lot of work ... getting to the lowest rate possible.”
BPA’s proposed 2.9 percent hike is the lowest in recent memory, contrasting to a 5.4 percent hike in 2017, a 7.1 percent increase in 2015, and 9 percent boost in 2013.
Kern said he has the connections and motivation to push BPA to make it there, though he does not want to discuss his strategy. He described BPA as still being on a “financial cliff” and said the power supplier has an interest in keeping its rates low because it could end up losing customers if its rates remain on an upward trajectory. The PUD itself will be wrestling over the next nine years with whether to stick with BPA or shift to another power supplier.
“Bonneville does run the risk that it will lose customers,” Kern said. “We are truly trying to make Bonneville competitive. I think Bonneville understands that too, that … if they don’t reduce costs now, a year or two goes by, and they want us to step up and sign new power contracts, they themselves are going to be in a tough position.”
BPA will open its rate hike up for comment from utilities and other companies affected by rate changes in June, Burczak said. Public comment on the rate proposal is open through March 1, and the final decision will come in July.
Kern acknowledged that BPA is “in a tough spot,” with many costs out of its control.
“But I truly believe for them to be able to hold their rates flat for at least a couple years is doable, or I wouldn’t be asking for it.”
This article has been updated to clarify when public comment on BPA rate proposals is open through.