City Light projects a rate increase over the next seven years of 33 percent — on the heels of 18 percent rate increases in the past two years. Some of the utility's biggest customers are upset, saying City Light should cut its spending before raising rates.
Seattle City Light’s power plants have too many employees. Distribution costs run high. Work crews are about twice the size of industry norms. Overtime costs are double the industry average. Work rules hamper productivity. Some spending is based on “political drivers.”
That’s according to a $140,000 study by a City Light consultant that says the publicly owned electric company is quite inefficient.
In all, the UMS Group reported City Light could save $35 million a year if it ran more like comparable power companies. Instead, customers have seen City Light raise rates 18 percent in the past two years — and it projects an increase over the next seven years of 33 percent.
It’s not a pretty picture to imagine every time you flip a switch, power up a computer or charge a phone, or even a car. Consider how it hits City Light’s biggest customers, such as Boeing and the University of Washington, which spend upward of $10 million a year for electricity in Seattle.
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Boeing, and some other customers, say City Light needs to get leaner before jacking up rates. If the city utility with a $1 billion budget doesn’t fix problems now, according to a Boeing energy analyst, its rate increases would “institutionalize the existing inefficiencies.”
City Light’s response: Trust us.
Superintendent Jorge Carrasco says he welcomes the independent expert’s view City Light could be more efficient.
Give him a few years, and the backing to change union contracts, Carrasco says, and he can deliver $18 million in annual savings.
But that’s not good enough for some customers, says Eugene Wasserman, head of the North Seattle Industrial Association and co-chair of a citizen-review panel shaping the utility’s six-year strategic plan.
While City Light’s projected increases would amount to about $3 per month for the average household, they could cost the biggest customers more than $500,000 a year. So they’ve hired energy experts, lobbyists and consultants to press their case.
“Nobody trusts City Light to change, based on past experience,” says Wasserman, who has served on several City Light advisory groups dating back to the 1990s.
And it’s not all City Light’s fault.
A “change agent”
The highest-salaried city employee at $224,000, Carrasco oversees 1,670 employees working as far away as Boundary Dam near the Idaho-Canada border. He sells electricity in energy markets competing with natural-gas magnates. And he reports to a revolving cast of elected officials, who have given up on past proposals to squeeze more efficiency out of employees.
Hired as a “change agent” in 2004, Carrasco came to Seattle after the Enron-led energy crisis of 2001 rocked City Light, driving up rates 58 percent and debt by $500 million, leading the City Council to sack his predecessor, Gary Zarker.
Carrasco says he tried right away to economize, starting with contract talks with electrical workers’ Local 77, the utility’s largest union. But managers don’t dictate the city’s bargaining positions; those orders come from the mayor and City Council.
Negotiations with the tenacious union stretched over two years, according to city labor-relations chief David Bracilano. The city eventually dropped key demands, such as reducing crew sizes.
“We got very little of what we hoped to accomplish,” Carrasco said in an interview.
There was still plenty to do, though.
He replaced Zarker’s top managers, paid down City Light’s debts, bolstered its bond rating, cut millions from projected spending, eliminated 71 positions, and shortened the time it takes to replace streetlights.
He admits he could’ve done more. “We all share responsibility here,” he said.
The council-ordered UMS study, he says, might make City Light employees more receptive to change. The report focused on operations where 70 percent of City Light employees work — power generation, transmission and distribution. “Policymakers and employees will now have third-party independent information that should be the basis for action,” Carrasco says.
One example of a work-rule inefficiency cited in the report: it now takes three City Light crews to replace a power pole — one to deliver a pole, one to plant it and one to wire it. It’s a significant issue because half of City Light’s 89,000 wood poles are more than 35 years old, exceeding their life expectancy.
Some problems rest with managers, according to UMS. But others require labor changes beyond Carrasco’s power. Local 77’s contract runs until early 2013 and negotiations will start next year.
It’s difficult, Bracilano cautions, to get sweeping changes in a single negotiation. “We tell electeds ‘you don’t get all of what you ask for, so it will take longer than you like to hear.’ “
When Mayor Mike McGinn asked city employees last year to give back some of their expected cost-of-living increases, most agreed. But City Light’s Local 77 did not, refusing to open its contract. Its members will get a 3.7 percent pay raise next year, according to Bracilano.
Union officials did not return calls seeking comment.
Carrasco says he doesn’t disagree with calls for City Light to operate more like a business. But he is firm, even defiant, about not giving rebates to ratepayers this year or next because City Light is enjoying a $21 million windfall.
If City Light takes a short-term view and gives rate relief to “squeaky wheel” customers, he says, “then we’re going to have to deal with outages and more costs because we’re not trimming trees and doing things that are cost-effective and that well-run utilities are doing.” That includes decreasing debt, investing in equipment and building up reserve funds.
Those clamoring for lower rates, he adds, “are the same people who are going to shout the loudest when that crew doesn’t show up at their business establishment immediately when they need a service connection or some other service. You can’t have it both ways.”
“There’s talk, and there’s action,” says Don Stark, a lobbyist for Boeing, Swedish Hospital and others leading a campaign against rate increases.
City Light often falls back on its rates — among the lowest in the country — as a line of defense, saying customers still have an edge over competitors in other parts of the region and country. But, according to UMS, rates could be lower. And if they continue to climb, Boeing government-relations manager Rich White wrote McGinn, “how long will that price-point advantage last?”
Stark’s clients would like rebates next year instead of a scheduled 3.2 percent rate increase. Or, they’d like City Light to defer future rate increases until the utility can demonstrate it must have the money.
Big customers remain unimpressed by Carrasco’s sense of austerity. In a letter to city officials, White called Carrasco’s recent cuts “cosmetic.”
Some business leaders believe Carrasco is being too conservative. They would rather short City Light’s budget and force the utility to become more lean. “Ratepayers always feel City Light shouldn’t get money until they actually need it,” Wasserman said.
Carrasco’s long-term argument sounds like a scare tactic, Stark says. “It’s somebody’s job to understand ratepayers need an advocate.”
That gets to an underlying issue. Some business people tend not to trust politicians to run City Light.
Mayors and council members lack expertise to oversee City Light’s complex and far-flung operations. Their attention is also spread thin, divided among police, parks, libraries, human services and more, from banning plastic bags to creating codes of conduct for sidewalk solicitors.
City officials also may lack incentive to impose more discipline on City Light because it’s funded by electricity rates and doesn’t compete for general-fund money, the pot of tax dollars that pays for most services including police, parks and libraries.
The Manufacturing Industrial Council of Seattle argues city officials have a conflict of interest because 6 percent of rate revenue goes into the city’s general fund; every increase means more money for the council to dole out. The industrial group points to comments by Councilmember Bruce Harrell after a 2009 vote to increase rates 13.8 percent. The group says that when Harrell spoke to Seattle Chamber of Commerce members about that hike, he said it was driven, in part, by the council’s urge to help general-fund programs. The hike steered about $3 million to the General Fund.
Harrell, in an interview, said his comments were misconstrued. “What I said was that, when rates are increased, the general fund receives a positive impact, and I’m sure many council members are aware of that. But it does not govern their decisions.”
Facing political winds
All of this has rekindled a debate about how best to govern City Light.
A mayor’s blue-ribbon committee called for changes in 2002. Another expert panel agreed, concluding its work in 2006 with strong words: “The board unanimously agreed City Light governance must be changed if public power is to thrive in Seattle … City Light is subject to political winds, with sound business judgment sometimes falling victim to struggles for political advantage.”
The panel recommended the city appoint an independent board to advise elected officials. Politicians still would have final say on rates, but they’d have a group of experts to keep watch on City Light.
But don’t count on it. The council and former Mayor Greg Nickels didn’t pick up the banner for change. The expert panel disbanded. A new advisory group was reconstituted with scaled-back powers.
Harrell, who has led council oversight of City Light the past four years, isn’t a fan of creating a new board. He points to lax corporate boards that contributed to the recession. “If we learned one thing from corporate America,” he says, “it’s that having a separate board is not a guarantee of success.”
McGinn doesn’t sound ready to make major changes. He’s open to different governance models, he says, but notes that having elected officials run City Light has led to benefits such as energy conservation.
McGinn wouldn’t commit on rate increases, saying he’s waiting to see what the citizen-review panel recommends, by early next year. But investing in equipment for long-term rate stability and reliable clean power, the mayor said, are competitive advantages that outweigh short-term financial relief for customers.
Bob Young: 206-464-2174 or email@example.com
|Top 5 customers|
|Amounts paid by City Light’s biggest customers last year and their share of total retail revenues.|
|University of Washington||$20 million||3.2%|
|Nucor Steel||$19.1 million||3.1%|
|City of Seattle||$14.2 million||2.3%|
|Source: City Light|