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Study: Purchase of Puget Sound system comes with a cost, but also savings

The city of Bainbridge Island, Wash., would need an estimated $57.7 million to buy Puget Sound Energy Inc.'s electric facilities and create a municipal utility, a draft study of the idea said.

Businesses and residents on the island west of Seattle in Puget Sound now get service from PSE. The city is exploring whether to purchase electric infrastructure owned by PSE and create its own utility. According to a draft feasibility study of the idea, the city would need tens of millions of dollars in initial financing to put the plan into action. But customers could pay a bit less for electric service over the first decade with a municipal utility.

The study does not contain an appraisal of the value of any electric facilities the city might acquire, but estimates that cost to be between $22.7 million and $48.7 million. The study also assumes that the acquisition cost of the new utility would be financed with revenue bonds. According to the study, the plan comes with an estimated initial financing requirement of $57.7 million.

That figure includes an assumption that the cost to acquire PSE's electric facilities is two times the original cost less the depreciation value of the facilities, estimated to be $22.7 million. It also includes the costs of installing equipment to meter wholesale power purchases at substations, and the purchase of things like vehicles and equipment, materials and supplies and other facilities.

Electric facilities on the island include transmission lines, substations, overhead and underground distribution lines, poles and streetlights. There are three substations, and PSE's transmission system on Bainbridge Island consists of roughly 14 miles of 115-kV overhead transmission lines that connect to the utility's transmission system on the Kitsap Peninsula side of Agate Pass. The island also has 307 miles of distribution lines, 165 miles of which are underground.

The study said it is expected that substations, distribution lines, transformers, services and meters would be needed for the city to own the distribution system. However, the city does not necessarily have to buy all of PSE's transmission lines. Rather, PSE could own some or all of them and the Bonneville Power Administration would make arrangements with PSE to deliver power over the lines to Bainbridge Island's substations.

The study assumes that PSE would continue to own transmission lines north of the Port Madison substation and the municipal utility own the substations, radial transmission lines between the substations, all overhead and underground distribution lines, distribution transformers, customer services and meters.

According to the study, PSE has indicated that around 12,300 electric customers are served on Bainbridge Island, a figure that increased by about 0.7% on average per year between 2010 and 2016. The system's total annual energy requirement is estimated at 206,000 MWh, or 23.5 average MW, and an estimated peak demand of 39 MW.

The study finds that the estimated cost of electric service with a city electric system to be slightly lower than service from PSE. According to the study, in 2020, the estimated average cost of electric service from the city system would be about 0.3 cent per kWh, or 2.7% less than would be charged by PSE in that year. By 2029, annual savings are estimated to be about 7%.

Over the first 10 years of operation, electric consumers in the city are estimated to pay about $13.1 million less in total for electric service with a city-owned system than they would with continued service from PSE.

The draft study, by consulting firm D. Hittle & Associates Inc., notes that moving forward with a municipal utility will take a number of steps, including approval from the public via a referendum. A task force on the municipalization effort is scheduled for Feb. 3, according to the city's website.

In 2011, Washington state utilities regulators approved the sale of PSE's transmission and distribution assets in Jefferson County, Wash., to Public Utility District No. 1 of Jefferson County, which before the transaction provided water and sewer services. The utility district absorbed about 18,000 electric customers. PSE eventually gave about half the proceeds of the asset sale to its remaining 1.1 million customers.