Mar 24 2010
Reserve fund established to protect rates
City Light sells its surplus power to receive wholesale revenue and uses this wholesale revenue to keep your rates low. Last year City Light encountered a $70 million wholesale revenue shortfall caused by low natural gas prices. This year the Utility is facing a similar shortfall caused by the 8th lowest snow pack in the last 50 years. My goal is to protect you, as ratepayers, from the volatility of wholesale revenue fluctuations, and still keep your rates as one of the lowest in the nation. We have been successful. The Full Council took the recommendation of the Energy, Technology and Civil Rights Committee and voted unanimously to create a $100 million Rate Stabilization Account (RSA) for City Light. This followed six weeks of discussion, analysis and testimony. Following is a chronology of RSA discussions and the press release that announces and describes the RSA:
January 6, 2010 (ETC): Began review of financial policies and introduced RSA concept during the Energy, Technology and Civil Rights Committee (ETC) meeting.
February 3, 2010 (ETC): Re-examined financial policies during the ETC meeting as an agenda item, focusing on RSA and debt service coverage ratio.
February 8, 2010 (Council Briefing): Continued announcement of RSA and discussed the different funding mechanisms to build the fund during Council Briefing.
February 17, 2010 (ETC): Placed draft RSA Legislation on agenda for ETC meeting. Legislation was available for public consumption dated February 10, 2010.
February 21, 2010: Distributed an article on BruceHarrell.org discussing the RSA.
February 22, 2010 (Council Briefing): RSA discussed with the Full Council with an announcement of a possible vote on March 3.
February 25, 2010: Discussion with the Seattle Chamber of Commerce’s Tax and Regulatory Committee, on RSA and City Light issues.
March 1, 2010 (Council Briefing): Open discussion with the Full Council and described RSA components, including a temporary surcharge, sale of surplus property, and refinance of debt.
March 3, 2010 (ETC): More RSA discussion during ETC as an agenda item. Fiscal note added for public consumption (Version 1, February 18, 2010).
March 4, 2010: Snowpack Press Conference held with Superintendent Carrasco and Councilmember Harrell with discussion of RSA.
March 4, 2010: Article run in the Seattle Times with the headline: “Low snowpack means City Light may seek higher rates.”
March 8, 2010 (Council Briefing): Open RSA discussion with the Full Council and continued discussion of the components to build it.
March 15, 2010 (Council Briefing): Open discussion with Full Council on RSA. Preliminary discussion on an ETC vote on March 17th.
March 17, 2010 (ETC): Openly discussed and voted out of ETC, 3-0.
March 22, 2010 (Full Council Meeting): RSA approved 9-0 by Full Council.
City Council Establishes $100 Million Rate Stabilization Account
Reserve fund provides long term rate stability for City Light customers
SEATTLE – Today the Seattle City Council approved Council Bill 116817 by a 9-0 vote. The ordinance creates a $100 million Rate Stabilization Account (RSA) for Seattle City Light. The account provides protection for Seattle City Light customers from the volatility of the wholesale power market. In addition to providing an insurance program against the fluctuations of the wholesale power market, the fund also shores up the bond rating of City Light, allowing the utility to borrow at lower rates and ultimately deliver lower cost power to its electricity customers.
“The RSA is a forward thinking mechanism that will serve City Light customers so that they will not be subject to unreasonable rate fluctuations,” stated Councilmember and Energy, Technology and Civil Rights Committee (ETC) chair, Bruce Harrell. “Simultaneously the RSA will address the more immediate need of preserving the Utility’s bond rating at the highest level possible. This means significant savings to the customers”
The Energy, Technology and Civil Rights Committee (ETC) also established a new City Light Review Panel, and approved resolution 31187 that sets City Light’s debt service at 1.8 times coverage and directs the Utility to fund 40 percent of its six year capital improvement program with cash from operations. The Council will evaluate the efficacy of these policies before the end of 2011. To address the immediate shortfall caused by the eighth lowest snowpack in the last 50 years, the ETC has directed City Light to identify spending cuts in their Operations & Management and Capital budgets and for a plan to be presented to the committee by March 31, 2010.
Council President Richard Conlin said, “Council has worked hard to protect the long term interests of City Light customers. The RSA will help ensure that City Light maintains its favorable bond rating and continue to deliver the cleanest, cheapest power in the nation.”
The RSA will be funded by several sources including approximately $50 million in refinancing of City Light bonds, up to $25 million from City Light’s existing Contingency Reserve Account, $10 million from surplus property sales, and a temporary 4.5 percent customer surcharge through 2011. As the reserve fund grows, the surcharge paid by customers will drop; to 3 percent when the RSA reaches $80 million, 1.5 percent when it reaches $90 million and zero when the account reaches $100 million.
Councilmember Nick Licata added, “This action sends a message to the rating agencies that the Council will make prudent decisions to ensure City Light’s financial stability and protect customers from rate fluctuations caused by wholesale revenue volatility.”
City Light has been subject to serious wholesale revenue shortfalls in the past. Last year, there was a $74 million shortfall caused by low energy prices. This year, the eighth lowest snowpack in the last 50 years, has caused an estimated $80 million shortfall. Economists are predicting that energy consumption will remain low, further eroding City Light’s bottom line.
“Given the volatility of the past two years, I believe this mechanism will be a great tool to protect the customers,” said Councilmember Mike O’Brien.
“There is no such thing as a normal water year anymore,” said Mayor Mike McGinn. “The RSA takes an important step toward long term sustainability by helping Seattle City Light manage fluctuations in wholesale revenue caused by reduced snowpack levels. We will continue to work with Councilmember Harrell and the City Council to improve long term financial planning, review capital investments and ensure the Utility is managed as effectively and efficiently as possible.