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District Energy a Key Step for the Climate and Our Economy

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District energy systems are one of the most effective ways to provide affordable and clean energy for heating and hot water.  Generating energy in a central location and distributing it to nearby areas is much more efficient than having separate heating units in each building.

Seattle is one of the fortunate cities around the world that already has a very well functioning district energy system, operated by Seattle Steam Company, and serving some 200 buildings downtown and on First Hill.  Seattle Steam has been operating its system for 115 years.  For much of that time, it was taken for granted as an economical service, but not seen as a particularly innovative player.  In the last few years, however, as energy analysts around the world have begun to understand how efficient and clean district heating systems can be, Seattle Steam has taken on a new importance, and the company has invested in new technologies to reduce pollution and greenhouse gas emissions and maximize the efficiency of its energy use.  The University of Washington also operates a district energy system serving campus buildings.

Last year, the Office of Sustainability and Environment (OSE) reviewed the opportunities for new and expanded district energy systems around Seattle.  Based on that study, OSE recommends moving forward with planning to expand district energy systems on First Hill, including at the new Yesler Terrace redevelopment, creating a “strategic district energy partnership”, which the City would drive through contracts with private companies who would deliver the actual district heating services.  OSE recommends that the City move forward with creating a legal framework and contracts for utility service in 2012.  OSE also recommends exploring promising future opportunities in Capitol Hill, South Lake Union, and the University District.

As a first step towards realizing the promise of district energy with Yesler Terrace and First Hill as the initial project, on Monday, October 10, the Council unanimously adopted Resolution 31329, supporting the efforts of OSE to prepare the groundwork for district energy in Seattle and identifying the policy analysis the Council anticipates will be necessary to allow the City to take the next steps in the process.

The resolution calls for OSE to work with other City departments, non-City agencies, and entities with technical, financial, legal, or other expertise, to generate key information to provide the framework for proceeding into the next stage of district energy development.  OSE is asked to identify the basis for recommending the “strategic district energy partnership” approach and how it compares to other alternatives, such as creating a smaller, stand-alone district energy system for Yesler Terrace which could possibly be expanded in the future or creating a municipal heating district.

OSE is also asked to:

  1. Conduct or cite policy, financial, legal, and other analysis to the extent necessary to compare the alternatives, evaluating pros and cons and tradeoffs;
  2. Identify entities or groups that have interests in the area or the issues and how they might be affected by the choice of alternative;
  3. Identify and address challenges or barriers to implementing alternatives;
  4. Identify the changes in City law or practice that might be needed, including revising or waiving City requirements, the pros and cons of making such changes (costs, legal, policy, etc.), and the likely schedule for considering them; and
  5. Identify the changes in state law (if any) that might be needed, the positions and interests of other groups in the state, and assess the likelihood of the City being successful in securing the changes.

For the partnership approach recommended on First Hill, OSE is asked to respond to the following questions:

  • What is the City’s authority to select and contract with a retail district energy provider?
  • What regulatory authority over scope, operations, guarantee of load, rates, performance etc., does the City have?
  • What might the legal structure of such an entity look like? What are the risks to the City of involvement in such a legal construct?
  • Does state law provide a feasible basis for such a system? What authority does it give the City in this context? What risks are involved in using that authority?
  • If a new district energy system were to include a guaranteed load to a new provider, what consumer protections would exist and how would they be enforced?
  • What might the City’s role(s) in a new structure be? These could include regulatory, financial (capital, operating, debt, guarantees), contractual, etc.
  • What is the likely financial implication for the parties over 10, 20, 30 years? How might capital costs reasonably be financed and recovered?
  • What would be the process and criteria for establishing a rate structure for retail customers? What is the likely range of possible rates? How would rates be expected to compare to those for existing systems, and to those for other alternatives? How might future expansion be financed and paid for?
  • If key parts of a new system were to rest on contractual relationships among parties (e.g., City, new retail provider, Seattle Steam, customers), what might happen when the various contracts end? What if a particular party were to choose not to renew a contract? What if a particular party failed to perform?

Great ideas are not enough to make serious change.  It is also essential to sort through the legal, technical, economic, and logistical issues that have to be resolved before an idea can be brought to reality.  The City is excited about the prospects for making district energy a reality.  Now it is time to get down to the hard work of figuring out how to make it actually happen.

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