Utility subsidies merit full discussion, disclosure

When I wrote last year to advocate the formation of a Boulder City Utilities Commission, I tossed out a grab bag of issues to work on but never hinted at what should be the top priority. We know that outrage over rate rises has driven most of the controversy. But those increases are a done deal. So what should be the focus of the commission?

Should it be all about rates?

Hint: Doubtful, but we need to recognize that the utility rate controversy reflects a deeper issue: that of subsidy. Should the city revenues subsidize the utilities to make them cheaper, or should utility revenues be higher in order to subsidize other city activities? Should there be any flow of funds at all between the utility fund and others?

No idle question this, as it gets to the heart of the conspiracy-driven angst over rate-hike concerns.

For instance, did excess utility revenues pay for the last golf course? Did the diversion of those revenues cause the maintenance neglect that has made our electricity service almost Third World unreliable? By extension are new utility rate increases intended to pay for new utility build-outs, rather than system maintenance and upgrades? Will they enable utility extension to new developments outside the city core?

I’m not going to pretend to know the answer to those questions, nor am I going to try to figure them out at this time. Instead I want to make sure we know the answer going forward in all future budgets. We should know because we plan the system specifically to behave a certain way, and because transparency has dictated that we tell everyone about it. Let me elaborate.

Boulder City has no utility department per se, which is a critical missing piece from our city’s management. Now suppose we have a utility department and its budget is walled off from the remainder of the city budget, so that it encapsulates all utility-related revenues, expenses and capital expenditures. Would it result in an excess or deficit of funds? In other words, does it suggest the city is subsidizing the utilities, or the utilities are subsidizing the city?

Here is a key statistic, taken straight from the latest city budget: For the past five years the utility fund has received “transfers in” to the tune of, on average, 13 percent of the utility budget or $4.74 million/15.7 percent in the current budget. This means the city is subsidizing the utilities, not vice versa. Without the subsidy, rates would be even higher.

Are the rate increases going to make up the difference, or will rates continue to be subsidized by other city revenues? And if there is subsidization going on, is that what the residents of Boulder City want? Hint: Quite possibly.

All city utility functions should be restricted to a budget for a single city utility department, even if the department is more virtual than actual. Some people, like former Arizona utility commissioner Britt Johns, go farther and say our utilities should be completely separated from city management. There is merit in that approach, but it provides no guarantees of future equity. For that, dutiful management is still required, and that is guaranteed by no particular structure. It requires competent and enduring oversight.

The issue of utility subsidies must be established up front, with full transparency, as a matter of city policy. Do we wish the city to subsidize the utilities? Do we wish the utilities to subsidize nonutility projects? Hint: Doubtful. Would it be best if the utility functions were separated into a semi-autonomous unit whose finances are legally protected from outside intrusion? Hint: Probably.

Future city policy should address these issues up front, with public debate invited.

Dale Napier is a small-business consultant focusing on accountancy and information system issues, with experience in electricity billing systems and trading platforms.