Skyrocketing utility prices burden budget

Unpredictable utility prices have cause Portland State to overspend its utility budget for the past three years by millions of dollars, campus administrators said, and the university will likely go over budget again this year.

In space used only for instructional purposes, which accounts for roughly half the square footage on campus, the $3.45 million allotted for utilities is projected to be overspent by $320,000 this year. Utility spending for the same space was over budget by $500,000 in 2003-04 and $1 million in 2004-05.

Natural gas costs have increased by over 50 percent since July 1, 2005, and electricity is up 23 percent. This year’s spending for all utilities has risen 19.5 percent.

“We budgeted for a 20 percent increase over last year’s costs, and we thought that would be more than enough,” said John MacLean, PSU financial services manager.

For 10 years prior to October of 2005, PSU purchased its natural gas directly from IGI, which is essentially British Petroleum. The cost to ship the gas thousands of miles down the main pipeline from Canada was considerably smaller than what NW Natural charged to ship it a few miles through Portland to PSU.

Prompted by Hurricane Katrina last fall, a decision was made to purchase all natural gas from NW Natural, hoping that a better rate could be secured. The price is only adjusted annually, and won’t be re-visited again until this fall, when bids from all other companies will be considered.

“We were assured that they [NW Natural] had bought their gas a year in advance, and we would not face a significant increase this year, which about a month later they reneged on all those agreements, with all the large industrial users,” said Robyn Pierce, interim director for facilities and planning.

Residential users too, are feeling the impact of price increases, but not as acutely as large utility consumers.

“The phenomena that PSU is experiencing is exactly what’s going on in the marketplace. Natural Gas is a deregulated commodity,” said Paula Pyron, executive director of the NW Industrial Gas Users Association. “A combination of tight supply-demand and two hurricanes in the fall with record damage to the gulf will naturally make the price rise. In the storm-affected areas its taken much longer than expected to fully recover the supply sources,”

Since October of last year, Northwest Natural has supplied the university with its natural gas. The company partially attributes their price increases to a demand that is very close to supply.

“The biggest reason, when we look at the long-term trends, is that since the mid-’90s, the demand for natural gas to fire electric turbines has dramatically increased, and this has really impacted the price,” said John Cantor, vice president of communications at Northwest Natural Gas.

“In the short-term, the shipping system is very interconnected, which affects prices across the country. The hurricane damaged infrastructure impacted prices here significantly ?” they nearly doubled. But as bad as they have been here, they’ve been even worse in other states across the country,” Cantor added.

Shipping fees make up a large portion of each bill, something that is entirely within Northwest Natural’s control. “That’s got nothing to do with the cost of gas. That’s just what they say it costs them to maintain the gas pipeline,” MacLean said.

“Typically you buy gas as a futures contract, meaning that you take your best shot and guess what a good rate is going to be for a one year period, and then you’re locked in at that rate. With things like hurricanes, campuses have locked in prices at $12-13/mmbtu [million British Thermal Units], which was a good price when they locked it in. But now gas is selling at $6-7/mmbtu,” said Bob Simonton, director of capital construction, planning and budgeting for the Oregon University System.

Simonton has been asked to look at the utility needs of all of Oregon’s Universities and find ways to improve the scenario for the next fiscal year. Simonton will begin by evaluating each campus’ current sources and try to find ways of reducing the risk of price volatility by banding together and using a single supplier. He has been successful in the past with such ventures, most recently in Pennsylvania, where he united 30 universities and large institutions to leverage utility prices down.

Possible solutions include building PSU’s own pipes off the central pipeline. According to Simonton, engineering studies have shown that the total costs are usually quite less than paying to use an outside infrastructure.

Measures are also being taken to increase efficiency and think more sustainably, which will help to recover some of the lost funds, although most of those paybacks come in the long-term.

The Energy Trust has granted funds for modifying existing structures to perform more efficiently. Low interest loans from the State Department of Energy Program or SLEP, finance projects that will yield a high return on investment, such as a $1.8 million loan to replace the chillers in Ondine as part of a seismic update. Another loan changed all the light bulbs in the campus’ 4.5 million square feet of space to low-energy consuming bulbs.

The Facilities and Planning Department hopes people on campus will be more mindful of how their actions can have a positive impact on the financial outlook.

“We would like to see people think about the energy they consume, think about how long they run the water in their lab, how long they leave the lights on in the classroom or the clothes they wear to school on a cold day. What can they do to help Portland State reduce energy costs?” Pierce said.