A PERFECT STORM
Setting Out
Seattle's interdependence with the rest of the region and with the nation was never more clear than in 2000. A number of factors, some distant, some local, combined to entangle City Light and its rate payers in the electrical energy crisis triggered by California's disastrous experiment with deregulation. As a result, City Light purchased more power on the open market than it had planned at costs far, far higher than anyone had ever experienced before or imagined possible.
At the end of 2000, City Light was left with a net income of negative $52 million, the largest loss in the utility's history. The new Strategic Resources Plan adopted by the City Council will soon free Seattle
from the wildest swings of the wholesale power market. With more energy from the Bonneville Power Administration (BPA), purchase of 100 average megawatts (aMW) of wind power from the planned State Line Project in southwest Washington state, and another 100 aMW to be supplied by the Klamath Falls turbine, City Light will be back on course toward its goal of relative energy independence.
The winds are still blowing hard, but City Light's ship is sound, its crew skilled, and its compass steady. A sheltered harbor lies ahead.
Gale Warnings
The question of how to manage the delivery of electricity has confounded people since the 19th century. In order to ensure reliable, low-cost electricity, the citizens of Seattle voted in 1902 to borrow money to construct their own power system. They believed that by owning this important commodity themselves, they would be free of the supply manipulation and price gouging then common around the region and nation. Since then, Seattle City Light has built its own generation system as an integral part of municipal government and a regional power network.
California's energy history followed a different course. Except for a few publicly-owned utilities, electricity is provided by three large corporations. In the early 1990s, when the price of electricity was low and the economy was becalmed in one of its deepest recessions, state political leaders sought to guarantee that power would be delivered at the lowest possible cost. At the same time, the apparent inevitability of deregulation made investment in new generation too risky for either public or private providers.
Then economic recovery lifted California out of its doldrums, and demand quickly overshot supply. Energy loads among the state's neighbors were also rising fast, leading them to pull back generation that they once exported and setting the stage for a regional supply crunch.
California's deregulation advocates promised stability and low prices. Their strategy relied on "the genius of the marketplace" to balance supply and demand and, theoretically, give everyone what they wanted by capping retail rates, liberating wholesale prices, and mandating conservation charges. "Everybody wins," was a common refrain in deregulators' speeches.
The situation was exacerbated by a sudden jump in the price of natural gas, which had idled at historic lows for a decade. The connection of western gas fields in British Columbia and Alberta to new transcontinental
pipelines diverted gas from western markets. This contributed to doubling and then tripling previous rates for the gas needed to fuel California's electrical generators.
In May 2000, wholesale energy rates doubled. In June they doubled again. After a two month respite, when each megawatt hour still cost three to four times what it had in prior years, the price shot up to 10 times historic levels. The volatility of the market was dramatized in December when cable television's Weather Channel broadcast an erroneous daily forecast for subzero temperatures in the Pacific Northwest. Energy prices suddenly spiked from an already high $200 per megawatt hour to an astronomical $2,000/MWh by day's end.
This is no joke for utilities that must have power and will pay anything for it. The California market design required the state's utilities to reinvent their power supply each and every day -- and on some days, the power was just not available. Blackouts disrupted economic life and threatened public safety. The restructured system prevented the utilities from recovering their costs in rates. California's largest utility, Pacific Gas & Electric, teetered and then fell into bankruptcy.
These power markets went mad just as City Light needed to replace 100 megawatts of capacity from the sold Centralia Steam Plant. Its planned replacement, the Klamath Falls combined cycle combustion turbine plant,
was still a year away from operation. Fortunately, City Light marketers purchased half of the needed power ahead, at a substantial savings. While City Light still needed to deal with the western power market, buying ahead reduced the exposure to rising prices. Then the cost doubled and redoubled. The astronomical prices of summer compelled City Light to approach the City Council in September for a 10 percent surcharge.
Water, Water Nowhere
Water is literally the fuel, and reservoirs the batteries, that run City Light's hydroelectric generators on the Skagit and Pend Oreille rivers. Accordingly, City Light power planners pay very close attention to the weather. At the end of November 2000, a mere 4.5 inches of rain had fallen at the Skagit River during the month -- compared to 14.5 inches for a normal year. Both rainfall and snow pack on the Skagit and Pend Oreille rivers continued to post the lowest levels on record through the winter.
The Northwest had seen low-water years before such as the drought of 1977, the state's worst to date. Typically, normal or above-normal precipitation returns by the following year after a drought. These earlier
power deficits have been met with short-term conservation and curtailments, and long-term energy efficiencies. For example, the city turned off every other streetlight to save power in 1977.
Nothing so drastic was required in 2000, but as the market demanded higher and higher prices, the utility embarked on an aggressive public campaign to reduce power purchases through a commitment at home and at work to save 10 percent of the utility's energy use commencing January 8, 2001. Clearly the program will help, but with low water behind its dams, City Light has been forced to go to the wholesale market more frequently and for more power than in the past -- just as prices soared to historic highs.
Heavy Chop
The extreme fluctuations of the power market that bankrupted California's venerable Pacific Gas & Electric and the lack of rain in the Northwest both came as a surprise, but these events did not find City Light or Seattle's elected officials unprepared or unwilling to act. Seattle and City Light have a history of looking ahead.
In 1970, the City Light planners saw that the power supply was not unlimited and the utility began to prepare for a new future. The era of large dam construction had ended, but load growth was projected to double every 10 years as it had in previous decades. In 1973, before there was a Mideast oil crisis, City Light inaugurated its Kill-a-Watt program to encourage
conservation. In 1976, conservation was made a major component of Seattle's energy policy on the simple principle that a kilowatt saved equaled, in some
cases exceeded, a kilowatt generated.
City Light put into place a thoughtful and rigorous policy for acquisition of new resources: buy only what you need and buy the cheapest first. This led to a series of conservation and generation investments that
kept the utility in control of its destiny.
In 1996, Seattle streamlined its various planning processes to shape its Strategic Resources Plan. At that time, market power was cheaper than that provided by the Bonneville Power Administration (BPA), so Seattle hedged its future resources by adding market purchases to its portfolio along with BPA and its other long-term contracts and owned capacities.
Four years later, this position became untenable as the California experiment fizzled and market power costs soared. Even before prices started to climb, City Light began plotting a new course. Seattle needed to be
free of the wholesale market and was committed to renewable and environmentally responsible energy sources.
Course Corrections
In April 2000, the City Council adopted City Light's 2000 Strategic Resources Plan, which committed the utility to double the current conservation over the next 10 years and to acquire 100 MW of renewable resources over the next 10 years. Most significantly, the plan called for a new relationship with BPA.
City Light and other power generators had long negotiated for a "slice" of BPA's federal hydroelectric system. For Seattle, this would equal about 5 percent of the power generated by BPA. The actual amount of power will fluctuate, depending on rainfall. City Light will accept some risk of reduced power output caused by meeting fish-protection regulations on the Columbia River system. City Light will pay about 5 percent
of BPA's system costs, including any budget overruns and debt payments to the U.S. Treasury. This sharing of risk with BPA also entitles City Light to enjoy any system benefits. For example, if a portion of Seattle's slice is sold to other parties, Seattle will receive the proceeds, and City Light will be able to market any surplus energy associated with its percentage of the system.
The contract also gives City Light a "block" of BPA power. A block is a firm amount of power shaped (or scheduled) to a monthly net requirement. All together, City Light will buy 493.8 average megawatts for the first five years of the contract and 608.2 average megawatts for the second five years. The contract runs from Oct. 1, 2001 to Sept. 30, 2011. City Light's cost over the 10 years is estimated at about $1.2 billion. Based on price forecasts, the contract could save City Light as much as $878 million compared to purchasing power from the wholesale market. The Strategic Resources Plan also authorizes contracting for 100 MW of output from a combustion turbine as insurance against adverse weather and water conditions and extraordinary load growth. The Earth Day Resolution adopted in April 2000 commits the utility to fully mitigate greenhouse gas emissions from such a source. The sale of the Centralia coal-fired power plant -- the largest point source of air pollution in the Pacific Northwest -- and City Light's participation in the new Klamath Falls, Oregon, gas turbine plant were part of this long-term strategy. But 13 months would elapse before Klamath would come on line to replace Centralia
power.
But City Light had an ace in the hole. It had reorganized its energy management staff to create an agile Power Marketing Group (PMG) in July 1999. This talented organization swung into action with around-the-clock, hourly analyses of the price of electricity, power flows, and system loads. The PMG examines the forward market for electricity and the day-ahead market to determine the best price for both the power that City Light buys and the power that it sells. In 2000, City Light bought and sold power from 58 different
marketers under 255 contracts for power, transmission services, and related facilities, and realized a net savings of $4.2 million, 19 percent better than
its first year.
Trimming Sails
Prior to 2000, wholesale electricity rarely cost more than $30 per megawatt hour. Seattle produces most of its own power for less than $10. The Bonneville Power Administration sold its power for $22. Beginning
in May 2000 however, utilities saw the cost of electricity go to $60 per MWh. From there the cost shot up beyond $500.
In a normal year, City Light buys 10 percent of its power from other utilities and on the open market, and still sells excess power when it has a surplus. In low water years, more energy must come from the West Coast marketplace.
Seattle's elected officials, the City Council and the Mayor, have demonstrated strong leadership by recognizing the complexity of the energy situation and by supporting the rates and borrowing needed to sustain the utility.
City Light and elected officials also recognized and addressed a new ingredient in the energy equation: large loads created by computer data centers and other telecommunication businesses.
Computers are not the only new customers needing large amounts of power. Bio-technology companies use large amounts of electricity for their research and manufacturing. The New Large Load Ordinance, passed October 9, 2000, allows City Light to negotiate rates with customers who need more than 10 MW of power. In keeping with Seattle's long-standing practice of basing charges on cost of service, these new customers will pay for any additional infrastructure and power purchase costs incurred by City Light. The fee will
vary depending on the type of infrastructure required, but all the costs -- whether for a few transformers or an entire substation -- will be paid by the customer. The cost of the additional power will reflect current market costs.
Steady As She Goes
Seattle City Light rate payers enjoyed the lowest electricity prices of any urban area in the nation in 2000. Since 1973, customers have helped reduce overall load growth by investing in conservation. In 1976, the Seattle City Council placed conservation on top of the resource acquisition hierarchy. Between 1977 and 2000, conservation measures have saved 5.7 million megawatt hours, enough electricity to power the city for 18 months. Seattle City Light has had the region's most aggressive utility conservation program for more than 20 years, spending $360 million to date. This has paid
off for customers, whose bills have been lowered by an aggregate of a quarter of a billion dollars.
City Light and the Northwest Power Planning Council joined forces in early 2000 to develop the Conservation Potential Assessment (CPA), an evaluation of how much more energy City Light could save in the next 20 years.
The key findings from the CPA, incorporated into City Light's 2000 Strategic Resources Plan, were as follows:
- Up to 260 aMW of additional cost-effective conservation can be acquired by customers in City Light's service territory over the next 20 years.
- Opportunities to save energy are available to all customer groups
- City Light's existing conservation programs will capture roughly half of the achievable conservation potential. More effort is needed to get the rest
With the emergence of the West Coast energy crisis and City Light's imminent need for cost-effective, environmentally benign resources to meet future power requirements, City Light has initiated a conservation
acceleration strategy designed to tap the remaining conservation potential in its service territory. This strategy calls for doubling conservation savings from six to 12 average MW per year over the next decade. This expansion will be achieved through City Light's proven conservation incentive programs, more stringent energy codes, and market transformation programs.
As a municipal utility, City Light has many different goals, ranging from assuring that its infrastructure meets the visual and functional expectations of the neighborhoods it serves to ensuring economic development and customer service. Five areas of the city have been identified by the Office of Economic Development as attractive to high tech development. South Lake Union and Interbay may need 100 MW of additional distribution system capacity in the next several years. Other areas included in this planning are Rainier Valley, Downtown, and the Stadium Transition Zone.
Planning and preliminary testing continued in 2000 for two other new programs that promise to save energy. A load-shedding pilot will allow City Light to notify commercial customers of impending price hikes on the
power market so that they can curtail use for short periods. City Light and the customer will share in the resulting cost savings. The Seattle Meter Watch will
allow downtown commercial customers to use the World Wide Web to view their energy use real-time, so that they can gauge the effectiveness of their own conservation measures. These products are planned for initial implementation in July 2001.
Meanwhile in residential neighborhoods, City Light staff members work closely with citizen representatives and urban planners to ensure that new and upgraded installations fit the needs and characters of the
communities they serve. In the University District, the City Transportation Department (SeaTran) and City Light cooperated in combining service on utility poles for a savings of $300,000. In West Seattle's Alaska Junction area, City Light worked with the neighborhood to install special-look street lighting. City Light has drafted a public benefits policy framework addressing various neighborhood plan initiatives such as lighting, undergrounding, and property disposition.
To encourage conservation, City Light will now buy back energy from customers who install their own renewable energy sources. This Net Metering arrangement saves the customer money and City Light benefits from a reduced load as well as additional supplies of power. This arrangement is available to customers who operate solar, wind, hydro, and fuel cell generating
systems of 25 KW or less.
Finally, at the North Service Center, City Light workers began testing a Capstone micro-turbine, a self-contained power unit that generates 3000 KW of electricity. The electricity powers the building and uses exhaust gasses for heating. This new technology may be an option for City Light customers in the future, and the Distribution Branch is gaining valuable
experience in this technology's potential long term public benefit.
Watching Our Wake
On April 22, 2000 -- Earth Day -- the Seattle City
Council reaffirmed our city's long-standing policy of responsible environmental stewardship. City Light was directed to meet the electrical needs of Seattle
with no net greenhouse gas emissions or harm to the natural habitats and to meet load growth by using cost-effective energy efficiency and renewable
resources.
Since the Chinook salmon was listed as a threatened species in 1999, City Light has kept to its policy of "fish first." In 2000, the utility continued its work to preserve this unique icon that is so reflective of the history and the culture of the Pacific Northwest. City Light efforts have long exceeded license requirements and other environmental standards. City Light's news for the salmon is good.
In 2000, the adult Chinook return to the Skagit River was 16, 930, compared to a 10-year average of 6,497. Approximately 77 percent of these fish spawn inside a 25-mile reach of the river just below the Skagit project. Smolt (juvenile salmon migrating from freshwater to saltwater) production was estimated at 6 million in 1999-2000 season. If only one half of one percent of these Chinook smolt return as adults, the 2003 run could be as large as 30,000.
One of the major causes of the decline of the salmon is the loss of habitat to development, logging, and agriculture. In recognition of this, City Light purchased 150 acres of key habitat on the Suiattle River, a tributary of the Skagit system. This now-protected parcel includes a broad corridor along the river, off-channel wetlands, and spawning and rearing habitat for Chinook.
Further downstream, City Light began a major project to help restore the Browns and Hall Slough on the Skagit River delta. The scarcity of high quality estuary habitat -- where salt water and fresh water mix -- is a
major factor limiting the survival of smolt in the entire Skagit River system. City Light also launched an extensive research program into the bull trout population behind its Skagit dams, one of only four healthy stocks in the state. These and other efforts helped to earn City Light the 2000 Skagit Watershed Council's Partnership Award.
On the Tolt River in north King County, City Light began a project in partnership with King County and others to reconnect the river with a key portion of its flood plain by moving back levees. This reach is the most important section of the Tolt system for Chinook spawning, but it has been altered dramatically over the years by flood control levees along both banks. The wider flood plain will absorb the fluctuations in water levels and permit the river to flow more slowly.
And on the Cedar River, where Seattle built its first
hydroelectric plant in 1905, City Light has joined in a Habitat Conservation Plan with Seattle Public Utilities. The plan provides a failure monitoring
system for the penstock intake gate. This will allow the remote closing of the water intake should the penstock fail during a major seismic event.
City Light's environmental efforts were not limited to salmon recovery. Pollution prevention is an important part of the utility's operations. City Light reduced its use of pesticides by 80 percent in 2000, as compared to average usage between 1995 and 1999. This was accomplished through a combination of reducing weed control efforts in some non-essential locations, increasing use of manual weed removal, and experimenting with non-chemical methods of weed control such as radiant heat and flame weeders.
City Light led a citywide effort to adopt health and
environmental criteria for environmentally responsible janitorial products. These criteria were incorporated into new contracts for janitorial supplies and services. City Light has also reduced more than 77,000 lbs. of hazardous waste by recycling spent lamps in 2000 -- City Light's first year of recycling this
waste. A new treatment system at Boundary Dam now cleans 40,000 gallons of water contaminated every year in the washing of large oily parts from generator
systems.
Finally, Seattle City Light was the first utility in the country to test plastic sleeves on utility poles. The sleeves are shrink-wrapped onto the end of the pole to reduce the risk of soil contamination from wood preservatives such as copper chromium arsenate. The
sleeves will also extend the life of the poles.
Below Decks
While California blackouts made national headlines, City Light workers in every division quietly plied their trades, modernizing systems, upgrading infrastructure, learning new skills, and meeting the day-to-day challenges of serving the public.
Joint development of the Consolidated Customer Services System with Seattle Public Utilities was completed in 2000 and "go live" scheduled for April 2001. This three-year project moved City Light's customer billing system off a Legacy mainframe computer onto a client-server based system, combining it with Seattle Public Utilities. This major change required the creation of new business processes, the development of new rules and procedures, exhaustive testing, and extensive staff training.
The remodeled South Service Center opened in 2000 and work on the North Service Center was well underway. A new Apprenticeship Training Facility at the South Service Center was dedicated to house City Light's 43-year-old apprenticeship training program where employees learn the highly technical and demanding skills of line workers. This program has paid dividends in increased efficiency and greater safety while producing a steady flow of skilled employees into City Light's work force.
The Center for Office Technology awarded City Light's ergonomic program the "Outstanding Office Ergonomics Award" for the public sector in 2000. The Safety & Health Team worked with more then 800 employees to promote injury prevention through timely ergonomic intervention. The program helped to minimize work related musculoskeletal disorders and to reduce lost work hours and workers' compensation costs associated with these injuries.
This skilled workforce also maintained City Light's high standard for reliability in 2000. The Power Management Branch was able to report that the average customer went without power for no more than 43 minutes
during the year, well below the system tolerance of 50 minutes, and the Downtown Network chalked up another year without any power outages. Fair weather helped to achieve this, but the credit really belongs to highly
dedicated employees and a well-maintained system.
City Light's past investments in its infrastructure are paying off with fewer service interruptions. When outages occur, power managers, public safety officials, and media relations staff can now track the progress
of restoring service in real-time on the utility's internal computer system.
The Generation and Plant Operations Division completed 98 percent of the work projected under the Capital Improvement Program, at 96 percent of the budgeted cost. These were all cost savings and were not the
result of any deferred maintenance. City Light staff has been assuming more responsibility for design and engineering and relying less on consultants. Examples of in-house projects were the Cedar Falls design work for compliance with the Cedar River Habitat Conservation Plan, and sub-projects related to the
Boundary Dam in the far northeast corner of Washington State.
As an example, City Light crews at Boundary Dam completed rehabilitation of Generator 54, the fourth of six turbines to be reworked. City Light workers have demonstrated that they could accomplish the 12-year project at 25 percent below the original estimated cost of $131 million. Boundary Dam crews designed and built massive lathes to smooth turbine rotors and other components to exacting tolerances. The entire rehabilitation project is scheduled for completion in 2007.
Employees at City Light's power plant on north King County's Tolt River made on-site repairs to a cracked generator waterwheel and maintained production of approximately eight megawatts of desperately needed
electricity. The outstanding effort by the City Light team came at a time when market power had become prohibitively expensive.
Overall, City Light's 20 generators in six power houses
achieved 85.9 percent availability, exceeding the goal of 85.4 percent. This was accomplished through the hard work and dedication of City Light staff and despite the temporary loss of half of the Tolt generator's production.
The Course Ahead
October 2001 will mark a major milestone with culmination of multi-year planning and negotiations leading to a new Bonneville Power Administration contract, new renewable resources, and an enhanced conservation program. Seattle will still need to occasionally buy electricity on the open market, but these purchases will be balanced by sales and will constitute a small part of the system load.
The experience of 2000 and the spring of 2001 tested every member of City Light's crew and every part of its ship: the capacities of its organization and resources, the skills of its employees, the leadership of Seattle's elected officials, the solidarity of its customer-owners, the durability of its values. In each of these instances, the utility met the challenge, and emerged stronger for the experience.
The waters in 2001 are still uncertain. But even if they prove rougher than in 2000 and the sea runs hard against the utility, the endurance and skill gained during this year of the Perfect Storm will see City Light and its customers safely to home port.
Related links:
A Perfect Storm
, Superintendent Gary Zarker,
Not Our First Storm
, Brief History of City Light,
2000 Soundings
