Councilmember Bruce Harrell
CITY COUNCIL APPROVES CITY LIGHT RISK MANAGEMENT POLICY
Policy Intended to Manage Risk of Volatile Power Trading Function
SEATTLE — Following the recommendation of Councilmember Bruce Harrell and the Energy and Technology Committee, the City Council today approved the Seattle City Light Risk Management Policy. City Light officials and Councilmembers have been eager to see the development, completion and approval of this policy. However, approval of the policy did not take the fast track through Harrell’s Energy and Technology Committee. Councilmember Harrell initially received the proposal from the Mayor’s Office in April and subjected it to analysis by his office and the resident power industry expert on Central Staff. The careful analysis resulted in changes to the policy that aligned it better with the Council’s expectations.
“The urgency of the Risk Management Policy cannot be understated, as it was the absence of such policy that contributed to the financial crisis that City Light faced in the early part of this decade,” said Councilmember Harrell. Recently, Superintendent Carrasco was reconfirmed to lead City Light for the next four years. As part of the reconfirmation, Councilmember Harrell and the Council established five expectations for him, three of which, were requested to be completed by August 2008. The completion of the Risk Management Policy fulfills the last of those three expectations.
The Risk Management Policy is necessary because of the natural uncertainty that City Light faces in both the quantity of power available to the utility and the range of prices prevailing in the wholesale power market. In a typical year the supply of power inherent to City Light exceeds the demand of its customers, creating a surplus. This surplus power is then sold in the wholesale power market. The revenue generated by selling is used to offset costs that would otherwise be borne by City Light’s retail rate payers. City Light can sell its surplus power as it is generated, or contract in advance for sale in anticipation of future generation. Both methods of selling involve risk and the policies adopted by the Council to provide City Light with critical guidance on how to balance those risks to best serve the rate payers.
The completion of this policy is significant because it is an important element that helps to ensure the financial stability of the utility as it buys and sells power in the often volatile energy trading market.