Consultant study: Bainbridge takeover of PSE could cost more than $57 million

Purchasing much of Puget Sound Energy’s power system on Bainbridge Island and creating a city-run electric utility could cost more than $57.6 million, according to a draft feasibility study released this week by city officials.

The city of Bainbridge Island hired the consultant firm of D. Hittle & Associates in July to write a feasibility study on a takeover of Puget Sound Energy’s operations on Bainbridge.

The draft report was presented to the city early this week.

In the 63-page study, D. Hittle estimated the cost of acquiring PSE’s assets on the island could range between $27.6 million (the original cost less depreciation of the facilities) and $48.7 million (the reproduction cost new less depreciation).

Total initial costs, plus financing requirements, was pegged at $57.6 million (that estimate is based on twice the original cost less depreciation of the facilities).

The total takeover estimate of $57.6 million, however, does not include all of PSE’s infrastructure on the island.

Instead, the city’s consultants based the total costs of the acquisition on the idea that the city-owned electrical system would only go as far north as the Port Madison substation near Day Road and Highway 305.

The cost of those facilities, at approximately $22.7 million (the original cost less depreciation of the facilities), does not include the transmission lines north of the Port Madison substation, or the crossing over Agate Pass.

The consultants said the city’s electric utility could pay to have PSE provide power over transmission lines the Bellevue-based private utility would continue to own.

The consultant report estimates that the Bainbridge utility would acquire just a little more than half of PSE’s 14 miles of 115-kilovolt transmission lines on the island.

That would limit the city utility’s transmission lines to approximately 7.5 miles.

“For the purpose of this analysis, we have assumed that the new city electric utility would not acquire the transmission lines north of the Port Madison substation,” the report states.

“A metering system would be installed at the Port Madison substation and this is where the new utility would take delivery of power from [the Bonneville Power Administration]. From this point the new electric utility would own the substations, the radial transmission lines between the substations, all overhead and underground distribution lines, distribution transformers, customer services and meters.”

PSE also operates three power substations on the island, and has approximately 307 miles of distribution lines.

The actual value of PSE’s infrastructure on Bainbridge Island has not been included in the feasibility study.

The consultant report said such information may have to come from a court case if PSE refuses to sell its power system on Bainbridge, and the city initiates a condemnation proceeding to acquire the electric company’s assets on the island.

“An appraisal of the value of electric facilities to be acquired by the city for its electric system has not been conducted,” the report notes. “Such an appraisal would rely upon a detailed description of the facilities to be acquired and will potentially be needed if the city proceeds towards acquisition of the PSE system on Bainbridge Island. Such information could be provided by PSE or it could be developed independently by the city as part of a condemnation legal proceeding.”

The study suggests that legal fees from a court battle with PSE could top $1 million.

“The estimated cost for the city or a [public utility district] to condemn the PSE electric facilities in Bainbridge Island is difficult to predict. But if litigation is pursued, the city should assume that the cumulative attorneys’ fees and expert costs can be expected to be in the seven figure range,” the report said.

The cost of power for Bainbridge residents may drop slightly with a city-run system, according to the feasibility study.

In 2020, the first year of city-supplied power, the consultants estimated that electric bills would be 2.7 percent lower than PSE’s rates. [The consultant report included an estimate of a 2.3 percent increase in PSE rates in 2020].

The savings with a city-run system were estimated at 0.32 cents per kilowatt hour.

By the year 2029, the report estimates annual savings of 7.12 percent over PSE’s rates. [The consultant report estimate included a 2.3 percent annual increase in PSE rates over that timeframe.]

“Over the first 10 years of operation, electric consumers in the city are estimated to pay approximately $13.1 million less in total with city electric service than they would with continued service from PSE,” the report notes.

Even so, the study also says that the savings would be lower if the city established higher rates to raise revenues for putting power lines underground, or adding renewable power generation resources or energy efficiency programs.

The consultants said the estimates of savings could be much different due to key variables, which include the estimated cost of the acquisition of PSE’s assets on Bainbridge, the estimated cost of financing, and the amount of customers on the island and the future demand for power.

City council members are expected to talk about the proposed creation of a city-run electric utility as one of their topics at the council retreat planned for Thursday, Feb. 26.

City spokeswoman Kellie Stickney said the draft report will also be taken up at the next meeting of the Electric Utility Municipalization Task Force, planned for 3 p.m. Friday, Feb. 3.

The push for an island-based public power company started in 2015, and Island Power, the group promoting the idea of a city-run electric company, has said the new utility could be run as a non-profit and provide most of its power from sources other than coal or fossil fuel power plants.

Critics of the PSE takeover have said a public takeover of PSE’s electric system on the island would be a costly gamble, and have pointed to the city’s past problems with managing its water, sewer and stormwater utilities.

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