Power Cost Adjustment #1 Effective January 1, 2001
Frequently Asked Questions
For information on the rates adopted by the City Council effective December 24, 1999, refer to
1999 Facts. The December 24, 1999 rates are superseded by the rates effective January 1, 2001.
Didn't we just raise rates a year ago? Weren't those rates supposed to last us through March 1, 2002?
A1:
The city reviews its utility rates every two or three years and the city council enacts whatever changes are deemed to be appropriate on the basis of that review. in november 1999, the most recent full review of electric rates culminated in the passage of a rates ordinance by the city council which set rates for the period at least through february 28, 2003. rates on the average went up by 3.2% on december 24, 1999. a further increase averaging 3.0% was scheduled for march 1, 2002. in addition, the council authorized a pass-through of the effect of increases in the bonneville power administration 's transmission rates on October 1, 2001 when the size of that increase, which was uncertain at the time the City Council acted, became known. The impact of the November 1999 rates ordinance on the rates of the various customer classes is shown in
Rates Detail Tables -- 1999. The rationale for the rate increases adopted by the Council is discussed in
Frequently Asked Questions, Rates 2000-2002.
The City Council has passed an ordinance which adds 0.4 cents (4 mills)
per kilowatt-hour to the energy rate charged to all customer classes, except streetlights and
low-income customers, effective January 1, 2001. Rates for low-income customers will increase
by 0.2 cents per kilowatt-hour. In percentage terms the increase would be 9.8% across all classes.
The percentage increase is smaller for residential customers (8.9%) and larger for non-residential
customers, since residential customers pay higher average rates under the current rate schedules
than non-residential customers. The monthly bill of the average residential customer will be $3.07
higher with the proposed power cost adjustment. The table below shows the impact on other selected
customers.
How long will the power cost adjustment be in effect?
A3:
In the first half of 2001, the City Council plans to review the financial guidelines
that City Light uses in setting rates. At the same time the Council will be able to undertake a comprehensive
assessment of City Light' s financial outlook, taking into account the effect of new power resources that will
be available to city light in 2001. (see
Question #7 below) In addition, the Council will have more current information on what the actual
impact of high market prices has been on the utility. At the conclusion of this review, the Council will be in a
position to decide what the level of rates should be in the future and how long the power cost adjustment needs
to be kept in place. It is expected that the power cost adjustment will need to be in effect at least through
the end of December 2002. See
City Light Surcharge Extended,
Seattle Times, December 5, 2000.
Market prices have increased for a number of reasons. The West Coast,
including California, can be viewed as a single market for power. Recently the demand for power in this
market has been at very high levels, due to the
booming Western economy, hot summer weather in the Southwest and population growth. The supply of power has not
kept up with demand. The western region has been slow to bring new power plants on line to meet growing demand.
Finally, the deregulation of the electric utility industry in California has not worked well. There is some
suspicion that the market is being manipulated to produce artificially high prices. Because the West is one
big market, these high prices have spread to the Northwest.
I thought City Light produced its own power. Why do we have to buy power in the market?
A5:
City Light's low-cost hydroelectric generating plants do produce most,
but not all, of the power consumed by its customers. City Light also has some long-term contracts
to buy power from other utilities, but even so, there is a gap between what is available from City
Light's owned and contracted resources and the amount demanded by its customers. City Light must buy
power in the market to fill this gap. Recently the amount that must be bought in the market has
increased because City Light limited the amount it purchases from the Bonneville Power Administration
and sold its share of the Centralia Steam Plant.
Why did City Light limit its BPA purchases and sell Centralia, since it has
to replace that power at high market prices?
A6:
At the time the decisions were made to limit BPA purchases and sell the
Centralia plant, market prices were much lower than they are today -- and lower than the cost of power
from BPA and Centralia. In addition, Centralia is the largest single point source of air pollution in
the Pacific Northwest. City Light is replacing that amount of power with the output of a much more
efficient, fully-mitigated combustion turbine. Centralia's new owners are cleaning up the plant at
very substantial cost and we will have replacement power available from the combustion turbine in July of 2001.
Yes, City Light has approached the solution to this problem from both
a long-term and a short-term perspective. Our long-term strategy is to reduce our dependence on
the wholesale power market by acquiring sources of power that are less costly than power purchased
in the wholesale market. In pursuit of this strategy we have just signed a contract with the
Bonneville Power Administration that will provide us with more than three times as much power
from Bonneville as we are now buying. The new Bonneville contract will take effect on October 1, 2001.
We have also contracted with the City of Klamath Falls, Oregon to purchase power from a new generating
plant owned by Klamath Falls, which is expected to come on line on July 1, 2001. We are also expanding
our conservation efforts and planning to acquire more renewable resources. About one third of our new
resources, aside from the Bonneville contract, will come from the combustion turbine; another third
would come from conservation and the final third would come from purchases of new renewables -- mostly
wind. With these new resources, our reliance on market power will be greatly reduced. In fact, under
most water conditions we will have surplus power to sell to the wholesale market, rather than buying
power from the market. Under these conditions, high market prices will work to our advantage.
Until these resources become available, however, we have no choice but to pursue a short-term
strategy of increasing rates now to repair the damage that high market prices have already done.
Can't City Light solve its financial problems by cutting its costs, rather than by raising rates?
A8:
Most of City Light's costs are fixed -- they can't be changed in the near term.
These costs include debt service (payments of principal and interest) on outstanding bonds, the cost of power
purchased under contracts with other utilities, taxes payable to the City and the State, etc. City Light has
made significant reductions over time to those costs that are not fixed. Staffing levels are now lower than
they were five years ago by more than 100 full-time-equivalent positions. In setting rates in November 1999,
the City Council assumed that City Light would reduce its operating budget in 2000 by $5 million. These
reductions have been made. urther reductions would be difficult to achieve in the immediate future, since
workload in a number of areas of the utility is at peak levels. Even if some reductions could be made, they
would be small relative to the size of the financial problem City Light faces as a result of conditions in
the power market.
I have other questions about this power cost adjustment. Whom should I contact?
A9:
Seattle City Light staff will be glad to answer your questions and
discuss the power cost adjustment with you. You may call us at
206.684.3000 or send an e-mail to
respond.scl@ci.seattle.wa.us. We are always
interested in how our customers feel about our policies.
Comparison Chart: The
Chart comparing Current Rates with New Rates Effective January 1, 2001 (which include the Power Cost Adjustment) is presented to you in Adobe Acrobat .pdf format (1.5mb). You will need Adobe Acrobat Reader (information and free download
here).
