Jul 22 2009
As we begin to examine the City of Seattle’s budget, including Seattle City Light’s budget, it has become clear that City Light believes some form of an increase in your electric rates is necessary to sustain its operations. You may recall the Council reduced expenses from City Light last year and the Energy and Technology Committee closely monitors its revenues and expenses. For 2009, we have reduced its O & M costs by $20 million and capital spending by $40 million. Even with these efforts, the recession and the plummeting cost of natural gas have caused revenue from City Light’s wholesale activity; revenue it receives from selling its surplus energy, to significantly drop. For example, City Light received $161.2 million and $169.9 million in 2007 and 2008, respectively. For 2009, we project wholesale revenues to be less than $73 million. This has a significant effect on the cost and rate structure of the Utility. As we examine rates, the process will be thoughtful and thorough. I recently proposed legislation that modified the older version of the Rate Advisory Committee (RAC) which now consists of nine members made up of ratepayers; four Council appointees and five mayoral appointees. We are currently in the process of identifying the appointees.
City Light conducted a news story on March 25, 2009, revealing its revenue shortfall which has caused them to cut operating costs, such as streetlight repair.
On June 16, 2009, I sent a strong policy letter to the Superintendent making my position clear that I expect a thorough process that builds its conclusions on the basis of sound analysis. Below is a copy of that letter. Let me know your thoughts.
Seattle City Light
Superintendent Jorge Carrasco
700 5th Avenue, Suite 3200
PO Box 34023
Seattle, WA 98124-4023
In numerous exchanges over the past several weeks, you have argued to fast-track City Light’s rate review process to allow a potential rate adjustment to be in effect April 1, 2010. In the interest of continued open, transparent and candid communication between us regarding this issue, I must caution that I do not believe the date or accelerated process is prudent or desirable. I fully appreciate the Utility’s urgency and understand your concern that City Light will need to issue debt early next year. You are rightly concerned that given the tenuous state of today’s capital markets, City Light might be unfairly penalized for the shortfall in wholesale revenue this year and the resulting poor financial performance relative to established policy. I assure you that the Council understands your concern and will work with you to protect the financial integrity of the Utility.
I know that you, like me, recognize the importance of complete transparency when it comes to a vital public institution like City Light. Anytime the Utility requests an adjustment in rates, the Council is required by its fiduciary responsibility to the rate payers to ensure that the costs upon which that adjustment is based are reasonable and adequate to the Utility’s needs. As you are well aware, when investor-owned utilities petition their regulators for rate adjustments, the process takes eight to ten months and involves a detailed review by regulatory staff of the utility’s cost structure. As former legal counsel for a regulated telecommunications company, I can attest to the rigor of such reviews. As City Light’s regulators, the City Council has an even greater responsibility to be thorough. City Light is owned by the ratepayers, not by distant investors. I take that responsibility very seriously and therefore cannot commit to a fast-track process. The review process must take whatever time is needed to satisfy the Council and the public that City Light is asking for no more than is prudent. This statement, while always true, carries special weight for the Council in these times of economic hardship for our community.
But your advocacy for an expedited process brings me to an observation. When I developed the work program for the Energy and Technology Committee at the start of this year, I was aware that City Light would likely be seeking a rate adjustment either this year or next. It was with that in mind that I proposed to begin a thorough review of City Light’s operating costs, capital costs, revenues, and financial policy to lay the foundation early for a rate review. However, after extensive discussion with Michael Jerrett of my personal staff, and with Tony Kilduff and Dan Eder of central staff, I understand that the Committee’s work program is seriously behind schedule. My staff is of the opinion that even with a concerted effort now, there is little hope of completing the work program before the start of budget deliberations.
I find this disappointing for a number of reasons. The work plan was developed expressly to provide City Light with an opportunity to engage the Council in a timely manner on the fundamental aspects of its business and how they affect the need for revenue from its customers. With the work program so badly behind schedule, talk of an expedited process is unsupportable.
On a related topic that came up during our discussions, I urge you not to assume any future rate adjustment, however prudent you believe it to be, when you develop your budget for 2010. The Council has already endorsed a budget and you should view that as the budget the Council will adopt this fall–unless you can make a compelling argument that it is insufficient. Assuming a rate adjustment not approved by the Council would be wholly inappropriate. Should the Council approve a rate adjustment in 2010, it can, through supplemental legislation, amend the 2010 budget.
I hope this letter clarifies the approach we believe appropriate in this matter and I look forward to working with you in the future consistent with the parameters of this letter.
Bruce A. Harrell
Chair, Energy and Technology Committee