Tacoma Power takes Air Force to federal court
By Jason Hagey, The News Tribune, Tacoma, Wash. Knight Ridder/Tribune Business News
Fed up with rising electricity rates?
Fine. Just don't expect the lights to stay on for long.
Unless you're the U.S. Air Force.
For two years now, McChord Air Force Base has refused to pay a small portion
of its electric bill from Tacoma Power, arguing that a March 2003 rate increase
violated its contract with the utility to supply electricity to the air base and
to base housing.
Tacoma Power estimates it has lost approximately $184,000 so far because of
the decision, and expects to lose $135,000 per year going forward unless it's
reversed. Utility officials cited the rate dispute with McChord as one of many
factors that contributed to a 5.2 percent rate increase to fill an estimated $45
million shortfall in the 2005-06 budget.
Officials also worry the utility could lose a much greater amount if Fort
Lewis, which is paying attention to the dispute, decides to follow suit and hold
back part of its bill.
So, after months of negotiations with an Air Force contracting officer,
Tacoma Power took its case to a federal claims court in February, arguing for
the right of local policy makers to set rates for the base.
A U.S. Department of Justice attorney assigned to handle the federal
government's case has until May 3 to respond to the utility's complaint. A
federal ruling isn't expected for months.
It's the third time since 1990 that Tacoma Power has sued the federal
government over issues related to its agreement with McChord, and it underscores
what Tacoma Power calls a lopsided contract from which it can't escape.
Part of the problem for Tacoma Power is contract language that talks about
"negotiating" electric rates.
At some point, the Air Force began interpreting that clause to mean it could
take action when it disagreed with a rate hike, said Tacoma Power Superintendent
Steve Klein.
Even more troublesome, the contract -- which dates to 1972 -- has no end
date.
Tacoma Power tried in the 1990s to get a court to terminate the contract, but
lost the case.
"All of the authority is in their hands," Klein said. McChord
spokesman 1st Lt. Greg Hignite said base officials couldn't comment because of a
policy not to discuss ongoing litigation.
The base continues to pay the vast majority of its bill, which totaled more
than $3 million for 12 months ending in February 2004.
In the latest dispute, court papers show the Air Force argues that Tacoma
Power violated its contractual right to negotiate rates at McChord when it
raised rates in 2003.
The utility said it needed the extra revenue to cover a $24.9 million
shortfall.
McChord agreed to a portion of the rate increase, but objected to another
part.
Specifically, the Air Force disagreed with a decision by the Tacoma Public
Utilities board of directors and the Tacoma City Council making everyone in the
system -- including residential customers -- share in the cost of allowing some
of Tacoma Power's biggest electric customers to come back into the fold after
leaving in 1997 in search of cheaper rates on the open market.
The decision required the utility to buy more electricity, which accounted
for approximately $8 million of the total shortfall.
Rather than impose the cost only on the returning customers, the utility
board and the City Council decided it was in the best interest of the community
to spread out the cost to all Tacoma Power customers, Klein said.
Policy makers considered several factors before making the decision, Klein
said, including the long history the companies had with Tacoma Power before they
left in 1997, as well as the jobs and tax revenue the large companies contribute
to the region's economy.
Klein said he could understand if the Air Force found a mistake in the
complicated mathematical formula that's used to set rates.
But he doesn't think they should be allowed to simply disagree with a policy
decision by the TPU board and the City Council.
But a report prepared for the Air Force by a consulting company said the
decision to raise rates was a done deal by the time it reached McChord, leaving
no meaningful opportunity to negotiate the rates.
The report also questioned the economic benefit to the community of allowing
the big customers back into the Tacoma Power portfolio.
It points to the lack of a cost-benefit analysis and notes that ratepayers
would have had an additional $8 million to contribute in other ways to the local
economy if the rate hike wasn't passed on to them.
Furthermore, the Air Force said it wasn't fair to pass along the cost of the
returning customers to everyone in the system because the customers that left
for the open market did so with the knowledge that they were incurring all of
the risks associated with market volatility.
By subsidizing their return, utility board members and the City Council
created a "heads-I-win-tails-you-lose" scenario for the companies that
left, the report states.
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