Seattle City Light 2016 ANNUAL REPORT | Audited Financial Statements 35 THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 - 35 - 4. RATE STABILIZATION ACCOUNT The Rate Stabilization Account (RSA) is a restricted cash reserve established to reduce the need for rapid and substantial rate increases solely to comply with the Department’s bond covenants. In March 2010, the Seattle City Council adopted Resolution No. 31187 and Ordinance No. 123260, establishing revised financial policies and parameters for the operation of the RSA created by Ordinance No. 121637 in 2004. Ordinance No. 123260 identified the sources of significant funding of the RSA and specified parameters for its operation. The RSA is drawn down to supplement revenues when surplus power sales revenues are below the budgeted amount, and conversely, deposits are to be made to the RSA when the surplus power sales revenues are greater than budgeted. Deposits or withdrawals may be made up to and including the date 90 days after the end of the applicable year. Ordinance No. 123260 established a target size for the RSA of no less than $100.0 million and no greater than $125.0 million, and authorized the imposition of automatic temporary surcharges on electric rates when the RSA balance is within the below specified levels: RSA Balance Action Less than or equal to $90.0 million but greater than $80.0 million: Automatic 1.5% surcharge Less than or equal to $80.0 million but greater than $70.0 million: Automatic 3.0% surcharge Less than or equal to $70.0 million but greater than $50.0 million: Automatic 4.5% surcharge Less than or equal to $50.0 million: City Council must initiate rate review within 45 days and determine actions to replenish RSA to $100.0 million within 12 months In February 2014, the Seattle City Council adopted Ordinance No. 124426 (retroactive to December 2013), directing specific cash transfers to the RSA with the intention of reducing the likelihood of future rate surcharges. Ordinance No. 123260 originally required a rate review whenever the RSA balance exceeded $125.0 million, along with the implementation of measures to reduce the RSA balance to $125.0 million within a period of 12 months or less. Subsequently, the Seattle City Council adopted Ordinance No. 124108 in February 2013 (retroactive to January 1, 2013) which extended the timing of this required rate review and associated action to an effective date of January 1, 2014. In 2016, actual net wholesale revenue was $5.5 million less than budgeted. Hence, net transfers of $5.5 million were made from the RSA to the operating cash account during the year. At June 30, 2016, the RSA balance was $89.1 million (below the $90.0 million threshold) which triggered a 1.5% rate surcharge effective August 1, 2016. Transfers from the RSA were partially offset by $4.4 million surcharge revenue resulting from this 1.5% surcharge. Interest of $1.2 million was earned on the RSA in 2016. The RSA ending balance was $91.1 million at December 31, 2016.