|Frequently Asked Questions|
|Q 1 We have already had two rate increases this year. Why is another increase required?|
|A 1 At the end of January, when the City Council adopted the rate increase that took effect on March 1, 2001, City Light informed the Council that, unless conditions improved in the months ahead, it would be necessary to request a further increase later in the year. Conditions have not improved since January -- in fact, they have worsened. Precipitation has continued to be below normal, and as a result City Light has had to buy more power than expected in the wholesale market at high prices. Rates for electricity must be increased again in order to maintain the financial stability of the utility.|
|Q 2 What will happen to City Light rates on July 1, 2001?|
Effective July 1, 2001, all energy charges (except energy charges for low-income customers) will increase by 0.49 cents (4.9 mills) per kWh. The average percentage increase for the City Light system as a whole will be 9.3%. Most General Service (non-residential) customers will experience percentage increases of more than 9.3%; most residential customers will see percentage increases of less than 9.3%. This is because residential customers on the average pay higher rates than non-residential customers. The uniform increase of 4.9 mills per kWh, when applied to the higher average residential rate, results in a lower percentage increase; when applied to the lower average non-residential rate, the result is a higher percentage increase.
In addition to the increase in energy charges, the residential rate structure will be changed by the addition of a third rate block.
|Q 3 What is the third block and why has it been added to the residential rate structure?|
For many years City Light has had a “two-block” rate structure. Consumption in the first block (10 kWh per day in the summer months and 16 kWh per day in the winter months) has been charged a low rate. Consumption above those levels has been charged a higher rate which reflected the marginal cost of energy -– the cost of supplying an additional unit of energy to the Seattle electrical system. Setting rates equal to marginal cost allows the consumer to see the true cost of the electricity being consumed and leads to a more efficient use of resources.
Over the past several months City Light has had to buy large amounts of energy in the wholesale market at prices that have been much higher than the estimate of the marginal cost of energy used in setting rates. The City Council felt it was important that these high market prices, which represent the short-term marginal cost of energy, be reflected in rates for at least some City Light customers. Effective July 1, 2001, a rate of 16.0 cents per kWh in Seattle and Tukwila (16.1 cents per kWh in the other suburban jurisdictions), which approximates the wholesale price of energy, will apply to consumption in excess of 60 kWh per day in the summer months and 125 kWh per day in the winter months. We estimate that no more than about two percent of residential customers would be subject to the third block rate in any month. Setting a high rate for these high-consuming customers will provide a strong incentive for them to reduce their consumption.
|Q 4 Will the definition of the winter and summer rate seasons change?|
Yes. Currently the winter rate season extends from September through February; the summer rate season runs from March through August. Effective July 1, 2001 March will become a winter month and September will become a summer month. The Council made this change because the level of consumption in March more closely resembles consumption levels in the winter months, while the amount consumed in September was closer to consumption in the summer months. The new winter season will therefore be from October through March; summer will run from April through September.
With the exception of rates for low-income customers (see below), the distinction between the rate seasons only affects the consumption levels at which the second-block and third-block rates will apply. Rates in the three blocks are the same year-round; they do not change with the season. Effective July 1, 2001, in the summer rate period City customers will be charged 3.72 cents per kWh for the first 10 kWh per day of consumption, 8.05 cents per kWh for consumption above 10 kWh up to 60 kWh per day, and 16.0 cents per kWh for consumption over 60 kWh per day. In the winter months, the first-block rate of 3.72 cents per kWh will apply to the first 16 kWh per day of consumption, the second-block rate of 8.05 cents per kWh will apply to consumption above 16 kWh up to 125 kWh per day, and the third block rate of 16.0 cents per kWh will apply to all consumption above 125 kWh per day.
|Q 5 What will happen to rates for low-income customers?|
|A 5 First and second-block rates for low-income customers will not increase on July 1. A third-block rate will apply to low-income customers, effective July 1, but at half the level of the third-block rate for standard residential customers (8.0 cents per kWh for Seattle and Tukwila customers, 8.05 cents for other suburban customers). Low-income customers will not see any increase in rates on July 1 unless they are consuming at unusually high levels.|
|Q 6 Will seasonal rates continue to apply to low-income customers?|
Customers in the low-income rate classes are the only customers who now have rates which differ by rate season. The seasonal rate differential was eliminated for all other rate classes when the March 1, 2001 rate change took effect.
The rate ordinance adopted by the Council on May 29 eliminates the difference between summer and winter rates for low-income customers, effective October 1, 2001. A year-round rate will take effect on October 1 in each of the three rate blocks which will raise the same amount of revenue on an annual basis as would be raised by rates which differ by season. The October 1 rates for low-income customers will also include the effect of increases in rates charged by the Bonneville Power Administration. (See below.)
|Q 7 Are there any other rate changes in the new ordinance?|
|A 7 There is one minor change in the demand charge for the Medium General Service rate classes. The current rate structure includes different demand charges in the winter and summer months for customers in these classes. Effective July 1, a year-round demand charge will take effect in each of the Medium General Service rate classes that will raise the same amount of revenue as would be raised by a seasonally differentiated demand charge.|
|Q 8 Is this the last rate increase City Light customers will see this year?|
|A 8 There will be one more rate increase in 2001, which will consist of two parts and will be effective October 1, 2001. First, all energy charges, except low-income energy charges, will increase by 0.05 cents per kWh (0.5 mills per kWh) to pass through the effect of increases in the transmission rates charged by the Bonneville Power Administration. Low-income energy charges will increase by 0.02 cents per kWh (0.2 mills per kWh) for this purpose. The second part of the October 1 increase will pass through the impact of increases in the rates Bonneville charges for power, as authorized by the City Council in the ordinance enacting the March 1 rate increase. The magnitude of the Bonneville power rate increase is not known at this point. Bonneville plans to announce its proposed increase late in June. Estimates of the likely size of the Bonneville increase have ranged from 50% to 250%. Recent estimates have tended to be at the lower end of that range. For every 5 percent by which Bonneville rates increase, City Light rates would have to increase by about one percent in order to pass through the full effect of the increase.|
|Q 9 Will rates ever come down again?|
Yes, and here's why.
The City has had to raise electric rates in 2001 in order to deal with the financial effects of poor water conditions and volatility in the wholesale power market. The effects on City Light's finances have been severe because City Light has had to purchase large quantities of wholesale power at high prices. However, City Light has contracted to buy additional power in the future at prices that are lower than current wholesale market prices. In July 2001 City Light will begin to receive 100 megawatts of power under a contract with the City of Klamath Falls. On October 1, 2001, the amount of power available under City Light's new contract with Bonneville will more than double. City Light is also currently negotiating other power supply contracts. When the power from these contracts becomes available, City Light will no longer need to be a net purchaser of wholesale power, and in fact should be a net seller of power under all water conditions. Revenue from these power sales, in combination with the revenue from the three power cost adjustments enacted in 2001, should enable City Light to offset the financial deficit that has accrued in 2000 and 2001 as a result of the crisis in Western power markets.
Just when it will be possible to lower rates, and how much they can be lowered, depends on a number of factors: the level of demand from our customers, water conditions, wholesale market prices. Lower levels of demand, better water conditions and (once we become net sellers of power into the wholesale market) higher market prices will enable City Light to lower rates sooner rather than later. In any case, City Light needs to leave the power cost adjustments in effect long enough to ensure that it will have enough cash in March 2003 to pay off the $182.2 million in revenue anticipation notes that the utility issued in April 2001 to finance its cash flow. Also, the Council has directed City Light to review the financial policies it now uses in setting rates. Current financial guidelines need to be reassessed to take into account the higher level of risk to which the utility is exposed as a result of volatility in power markets. If new policies are adopted, they could affect the timing and extent of any future rate decreases.
|Q 10 What can I do to reduce the impact of higher rates on my finances?|
The most important thing you can do is reduce your consumption of electricity. This will not only lower your own bills, but will also save City Light money by lowering the amount of power that must be purchased in the wholesale market when City Light has an energy deficit, and by increasing the amount of power available for sale into the market when City Light is in surplus. City Light's conservation program stands ready to provide you with helpful hints on how you can lower your energy consumption. Conservation Home
City Light offers rate discounts in excess of 50% for customers whose household income falls below prescribed levels. The City Council recently increased the income eligibility standards for low-income rate discounts. You might review your finances to see whether you meet the new eligibility standards for rate discounts.