Let me start with this….I’m not great at math. I’m not horrible at it, but I’m not a whiz either. I’m very thankful for patient, brilliant people who are great at math and take the time to explain stuff so that it makes sense. Like my husband, and some of my colleagues, and also some of my neighbors.
If you are a PSE customer (ratepayer) I have some numbers for you to consider. Below, find a copy of a letter that a neighbor (Steve Storms) sent to the Washington Utilities and Transportation Commission. (WUTC). It’s worth reading, even if you aren’t that great at math. It helped me to understand that there are very real financial issues on the table that Washington State citizens ought to know about, as rate-payers. PSE, in case you haven’t heard, is not a publicly owned utility. It is a private corporation providing key services to the public, for profit. The regulation regarding their pricing structures is, at best, cursory. Please take a few minutes to read and consider this calculation. It’s long, but really important. I’ll leave it to you to decide what actions to take next.
I am writing you as a concerned citizen. I am a retired Chemical Engineer and PE that spend 40 years in the environmental and energy arena. I am also on the Board of Northeast Tacoma’s Neighborhood Council.
After viewing the proposed LNG plant, I have many concerns, but want to point out the economics are totally unjustified for the project. I will demonstrate this with some of the information provide from Public Disclosure Requests, but it should be self evident without the information.
PSE did an assessment of possibilities. Initially the LNG plant was scheduled to cost $275 million. PSE calculated that the Net Present Value (NPV) of the project would be $37 million. While I know this Return on Investment is not quite correct, a simple ROI would be $37/$275 or 13.45 %. This would appropriate for a utility company.
The cost estimate then escalated to $310 million. That is an increase of $35 million ($310-$275). This would drop the NPV to $2 million ($37-$35). The new ROI would now be $2/$310 or 0.6 %. This would not be sufficient to justify the project.
This is when PSE came to the WUTC in order to request the public pay for 43% of the project due to the benefits from the peak-shaving capabilities. This was permitted even though the public was only scheduled to use 6 or 7% of the capacity. This 43% capital relief amounted to a $133 million public contribution towards the capital. This also changed the return on investment to a ridiculously high number. A very simplistic way to look at the benefit to PSE is to add the $133 million to the $2 million NPV that was existing. ($133 million+$2 million =$135 million NPV) The capital that PSE requires is also reduced ($310 million – $133 million = $177 million) So the current ROI would be (($133+$2)/($310-$133) or $135/$177 = 76.3% ROI. While a utility company is nearly guaranteed a reasonable profit, a 76.3% ROI is clearly not justified. This is especially true when the capital contribution cost of the $133 million will come by increasing the public ratepayer’s gas rates.
If PSE gets approval for the project, it should stand on its own financial merit. This project is predicated on filling a need for the TOTE ships which makes it clearly a “for profit” addition to the public utility role that PSE plays. Without a major public contribution to the capital cost, this project is not viable and would not be done. Why should the public finance PSE’s foray into the “for profit” arena?
I urge you to review the project and prevent PSE from gouging the public to make an unprecedented return. While my calculations will be changed by very small percentages, the message will not change. Please request that PSE supply their correct numbers. It will also include the approximate $1 million they have spent on advertising trying to win public support. This large PR campaign is trying to protect their large profit from the public sector.
I know that following a written description is difficult so I attached a chart that might be easier to follow.
Thanks for your consideration.
Original Escalated Public
Charge – $MM $MM $MM
Capital Cost for PSE $275 $310 $177
Capital Cost for Public $0 $0 $133
Total NPV for PSE $37 $2 $135
Simple Return – ROI 13.45% 0.65% 76.27%