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May 7, 2002 - Seattle Mayor Greg Nickels said today he will ask the City Council to repeal City
Light's third tier residential electrical rate.
"The third tier was motivated by a good idea -- to get people to conserve electricity," Nickels
said. "But it is clear that the third tier has had unintended consequences and is hitting people
who just plain can't afford it. Let's get rid of it."
The mayor said he wanted the third tier removed no later than July 1.
The third tier rate took effect in July, 2001. The City Council had adopted it earlier in the
year at the peak of the energy crisis and in reaction to a newspaper story listing the top 10
residential energy users in City Light's system.
The legislation added an additional tier to Seattle's two-tier rate structure in which the first
16 kilowatt-hours per day are billed at 4.32 cents per kilowatt-hour and the remaining energy
consumption is billed at 8.65 cents. The third tier rate is 16.53 cents per kilowatt-hour for
usage above 125 kilowatt-hours per day in the winter and 60 kilowatt-hours per day in the summer.
When the council passed the third tier legislation, City Light raised concerns about unintended
effects. Those concerns have proven valid.
Early this spring, Nickels requested an analysis of the third tier by City Light staff. The
analysis shows that while the rate might have reduced energy consumption in some cases, there
are several unintended consequences. These include:
- Summer Impact - The 60-kilowatt-hour per day summer threshold is too low and is capturing several
thousand more customers than in winter. City Light originally forecast that about 13,000 customers
might go into the third tier in winter. The actual figure was about 12,500. But when the lower
summer threshold went into effect in April, third-tier customers increased by about 10,000. An
unusually cold April contributed to this phenomenon.
- Bill Impacts Much Too Severe - Customers in the third tier are seeing very big bills. While
most third-tier customers have seen bimonthly increases in the hundreds of dollars, there have
been some cases where the amounts rose to more than $1,000 for the billing cycle. Third tier
rates add from 20 to 40 percent per billing cycle for those affected.
- Unintended Customer Impact - The Council included a third tier rate at reduced levels for
low-income residents. At the time, it was thought that not many low- income customers would be
affected. About six percent of the utility's low- income customers (about 1,200) appear to be
in the third tier, probably for reasons only marginally within their control. Low-income customers
who heat with electricity have seen bill increases of 40 to 60 percent. City Light expects even
more low-income customers to face third-tier rates in the summer, with its lower consumption
threshold.
- Rates No Longer Relate To Energy Market - Just after the Council adopted this rate, wholesale
energy market prices tumbled back to historical levels. A marginal cost of energy of $200 per
megawatt-hour seemed to justify the third tier last year, but that cost is now about $35. There
is little economic rationale for the third tier given City Light's current power portfolio.
"It's clear from our analysis that the third tier is no longer justified and is hurting people
it was not intended to affect," Nickels said. "I think it shows that messages we send to customers
through rates need to be considered very, very carefully."
Removing the third tier will affect about $3 million a year in utility revenue, or about one-half
of one percent of City Light's annual revenue. Removal of the third tier is not expected to change
City Light's ongoing effort to pay down its debt.
The mayor's proposal went to the council today.
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