Council News Release

PROPOSED NUCOR CONTRACT RAISES COUNCIL CONCERNS ABOUT POTENTIAL IMPACT ON RATEPAYERS
Council members question whether preservation of Nucor jobs could lead to loss of other jobs

SEATTLE – Members of the Seattle City Council’s Energy & Environmental Policy Committee today expressed concern over proposed contracts between Seattle City Light and Nucor Steel Seattle, Inc., saying that while job protection is important, ratepayers should not have to bear the burden.

“The Executive has generally taken the right approach in trying to work cooperatively with Nucor to find contract terms and a rate structure that match Nucor’s needs,” said Councilmember Jean Godden, chair of the Energy Committee. “Nucor’s readiness to work with City Light on establishing mutually beneficial terms for the occasional interruption of its electric service shows that the company is anxious to be a strong, long-term partner with City Light.”

Last month, the Mayor sent the Council legislation that would authorize renegotiated power contracts for Nucor. As part of the contracts, Nucor would pay City Light $9 million up front to settle a long-term payment schedule it inherited from bankrupt Birmingham Steel, which Nucor took over in 2003. In return for the prospect of lower long-term power rates, Nucor has said it will maintain current jobs and possibly upgrade its facilities in Seattle.

“Nucor’s willingness and ability to pay $9 million upfront demonstrates both its current financial strength and the longer term view it has taken towards the Seattle facility,” said Godden. “I share the concern about protecting jobs and creating an environment in which businesses are encouraged to grow and expand in Seattle. But I believe that the current range of rates that is specified in the contract – the $42 to $49 per MWh (mega-watt hour) that Nucor will ultimately pay for power – is too narrow. If the upper range were increased somewhat, we could both maintain flexibility and fully preserve our future rate setting options.”

Under the proposed contracts, Nucor will only make the $9 million payment if its electricity rates for 2004 are within a $42-$49/MWh range, which could represent a significant discount from the standard rate paid by other industrial customers.

“If Nucor contracts provide rates that are lower than the rates for other industrial customers, that is not fair to the other businesses,” said Councilmember Nick Licata. “In fact, if other customers’ rates go up as a result of the Nucor agreement, we could see a negative impact on employment in other sectors.”

Further, argued Councilmember David Della, if Nucor is successful in renegotiating lower rates, other industrial companies, or perhaps all types of companies, could seek similar renegotiations that could undermine the financial health of City Light, or lead to increased rates for potentially all of City Light’s other customers.

If other industrial companies sought and received contracts similar to that proposed for Nucor, the result could be about a $6 million revenue loss in 2005 and beyond. That impact would likely be passed on to City Light’s other customers.

"I think that the precedent of establishing a discounted rate for one entity opens the door for others to come and request a similar break,” said Councilmember Richard Conlin, who noted that the proposed Nucor contracts deviated from the City’s usual policy in considering rate negotiations. “Given City Light’s recent financial difficulties, I don’t believe that we can afford to do this. More importantly, rates should be set through an objective and open process. This negotiated rate is not fair to our other 350,000 ratepayers.”

The Energy & Environmental Policy Committee will discuss these proposed contracts further at its next meeting on Feb. 25 at 9:30 a.m.

“We look forward to working further with Nucor to make changes or to find other comparable ways to address our concerns about the impact of these contracts,” said Godden. “I remain very open-minded about finding a solution and look forward to any creative proposals that can be brought forward. I am sure that we can find terms that work for all of us.”

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City Council