Electric utility recommends 2% rate increase to meet revenue and credit metrics

Daniel, an analyst with the electric utility, presented the utility's financial forecast for fiscal 2026–2030 and recommended a modest base rate increase to protect the utility's financial health and credit metrics.

Daniel said revenue growth for the utility will be driven by three load types: organic (residential and typical growth), known large loads (announced industrial or commercial customers) and potential unknown large loads. The forecast assumes conservative ramps for large customers and models purchase‑power costs, capital contributions, operating costs and debt service. He noted that capital contributions from developers have risen year‑to‑date and are helping offset system expansion costs.

Why it matters: the utility must show sufficient revenue to cover operations, fund capital, meet debt service and satisfy credit‑rating covenants. Daniel said, on a standalone basis, the electric utility would not meet key rating‑agency metrics (S&P and Fitch) over several years without an increase; a 1.5% increase would meet S&P metrics and a 2% increase would provide more margin to absorb downside risk if some forecasted large loads do not materialize.

Recommendation and board input: staff recommended, and the Electric Board endorsed, a 2% base rate increase. The presentation estimated the monthly bill effect on a typical residential customer (1,000 kWh): a 1.5% increase would raise the monthly bill by about $1.77; a 2% increase by about $2.40. Daniel and the board said the increase would help meet fixed‑cost coverage and days‑cash targets on a standalone basis and protect the utility against downside growth scenarios.

Questions from council: councilmembers asked why the utility recommended a base rate increase rather than recovering costs through the power‑cost adjustment (PCA). Staff replied that the PCA is intended to recover variable power costs and short‑term volatility while the proposed base increase improves fixed‑cost coverage, which credit rating agencies and bond markets evaluate.

Next steps: staff will complete a cost‑of‑service study with a rate consultant and return with the formal rate ordinance. The electric board's formal recommendation was recorded as supporting a 2% increase; staff said the rate study will provide allocation details by customer class.

Ending: councilmembers broadly supported the board and staff's recommendation to model a 2% increase as part of the FY26 budget development; staff will bring a detailed cost‑of‑service report and ordinance language in upcoming budget sessions.