Update: Council approved the increased City Light rates on Monday, 9/17.
Seattle City Light (SCL) is asking Council to approve a two-year rate package that includes increasing rates for SCL customers. No one enjoys paying their utility bills, and we can all get frustrated when the costs go up. So I wanted to take some time here and explain a bit about where these rate increases are coming from and what they are going to help invest in. Feel free to let me know if you have any questions or comments by emailing me at email@example.com.
Seattle City Council recently adopted Seattle City Light’s 6-year Strategic Plan by a vote of 8-0 in July, 2012 (Resolution 31383). The plan lays out critical investments in infrastructure maintenance and new technologies, while bringing predictability and stability to future rates for all SCL customers.
The 6-year Strategic Plan is the culmination of two years of work by the City Light Review Panel, a group of nine SCL customers and stakeholders, including representatives from residential and commercial customers.
Seattle City Light has the lowest rates for customers in a major city in the country, and customers as close as Bellevue pay significantly higher bills than SCL customers.
Despite Seattle’s low rates, we know we can operate the utility more efficiently, and so City light is committed to finding $18 million per year in operational efficiencies by 2015. Even with these savings from efficiency gains, new investments are still needed.
Key Rate Drivers
City Light is 110 years old, and much of its infrastructure is more than 80 years old and in need of upgrading, such as retrofitting or replacing City Light’s many street light and utility poles across the service area.
City Light also needs to make some new technology investments to continue providing services that attract new business and jobs to the area, such as a new substation to accommodate new tech and healthcare industry in South Lake Union as well as improved reliability to the First Hill hospitals. These investments also will help City Light realize their efficiency goals. In addition, City Light hasn’t built a new substation in more than 30 years, and hasn’t had to because Seattle customers’ great strides in conservation have lessened the need for increased energy demands on SCL. However, a the new substation is necessary to meet both Seattle’s growing population and our increasing reliance on technology. The new substation is planned for the South Lake Union area, however, it will serve the entire service area and relieve some of the load on the existing Broad Street, East Pine and University Substations.
Reduced reliance on net wholesale energy revenue
Seattle City Light revenues have long been based on a mix of retail rate revenues (revenue from customer/ratepayers) and revenues from the sale of surplus energy on the wholesale markets. Currently, due to the vast amount of natural gas on the U.S. market, wholesale energy prices are at near record lows, meaning lower than expected returns from City Light’s wholesale energy trading which puts upward pressure on retail rates to meet the utility’s revenue requirements. The Rate Stabilization Account – a reserve fund established in 2010 to help smooth out this volatility – has helped ease some of this pressure, but it was not designed to address long term trends like we are currently seeing with low natural gas prices. Because of this, the 6-year strategic plan includes a policy decision to reduce City Light’s reliance on net wholesale revenues by significantly lowering the expected revenue from these wholesale sales and instead relying more on the true cost of service for retail customers. This shift begins in 2013-2014 and accounts for a significant portion of the increase revenue demands on ratepayers as the utility “trues up” the cost of service.
Updating City Light customer cost allocation formula
The ultimate rate changes that customers will see will depend on their “rate class” and their consumption level. Most bill payers fall in the residential rate class, but about two thirds of the retail revenue comes from business customers, and there are about a dozen business classes depending on the amount of their consumption, their need for highly reliable service, their location, and often the time of day they consume energy. City Light allocates costs to different rate classes based upon cost drivers associated with each class. For instance, and investment that will serve all customers such as a new substation will be spread across all rate classes, but an investment to improve reliability to critical business users by adding redundancy to the system will be paid almost exclusively by the class that benefits from these investments. Because of this, different rate classes will see differing rate increases in 2013-2014.
Additionally, at the residential level, there are two rate “blocks.” The first block is at a lower rate for a fixed amount of energy consumption. This lower block is intended to provide a base amount of very low-cost energy to residential customers to cover their basic needs. The second rate block is charged for all energy consumed above the base level and reflects the higher, marginal costs of running the system. For 2013-2014, the first block actually sees a rate decrease, while the second block sees a rate increase. Overall, residential bills are expected to increase, but low-consumption customers may actually see bills decrease. We will continue our robust conservation programs to get more customers into this program.
Low-Income Rate Assistance Pilot
Months ago, as a part of any proposed rate increase, I requested City Light develop new tools for customers to better manage their bills through conservation and increased enrollment in the utility discount program among eligible low-income customers. Many low-income residents are also very high energy users. This is in part because they are often renters of older building that may be under-insulated, have inefficient appliances and furnaces, and haven’t been properly air sealed, and often are heated by baseboard electric heat. SCL is beginning a pilot program in September to reach out to these households and work with them and their landlords on strategies to lower their energy costs. SCL is also continuing to identify customers, particularly seniors, who may be eligible for the program but are not currently enrolled, and to proactively outreach to them about enrolling.
Customers will see new rates beginning in January of 2013 that will add about $2.90 per month to the average residential bill.