The electricity utility says its rates must rise 30 percent over six years, even after Mayor Jenny Durkan ordered cost reductions. Despite Seattle’s growth, demand for power is declining, officials say.
Update: The Seattle City Council voted 8-1 Monday to pass Seattle City Light’s new six-year strategic plan, which calls for electricity-rate hikes averaging 4.5 percent annually.
Seattle City Light says its rates must rise 30 percent by 2024 to cover expenses, even after scaling back a proposed spending plan.
Mayor Jenny Durkan recently demanded the utility reduce its projected costs by about $350 million over six years in response to a watchdog panel ringing the alarm over what the panel described as unsustainable spending by the utility.
The City Council is scheduled to vote Monday on whether to approve City Light’s new strategic plan, which calls for the typical residential customer’s monthly electricity bill to increase by an average 4.5 percent annually, from $65 to nearly $85 in 2024 (assuming the customer’s use remains constant).
The hikes would be larger without Durkan’s cuts to the six-year plan. On the other hand, officials do not yet know how City Light will achieve the reductions.
Despite Seattle’s growth, customer consumption of electricity is declining due to advances in energy efficiency, causing the utility to collect less revenue than projected and to take on additional debt, the City Light Customer Review Panel warned Durkan in a strongly worded letter this year.
Separately, the utility is spending massive amounts of money on infrastructure projects, with cost overruns and other problems — including an embarrassing mistake in purchasing advanced meters — adding to the burden of necessary upgrades.
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“It is time for the city to place much more focus on controlling the utility’s costs going forward,” wrote the review panel, a nine-member volunteer group.
Rate hikes are nothing new in Seattle. When City Light last adopted a six-year strategic plan in 2013, the utility included average annual increases of 4.7 percent, and updates to that plan have driven the hikes even higher.
The council in November approved a six-year plan for Seattle Public Utilities with average annual increases of 5.2 percent for water, sewage, solid waste and drainage.
But the council is now considering another round of hikes at a particularly delicate time, with Seattle residents under pressure from taxes and housing costs that have climbed and with Durkan searching for a permanent new City Light general manager.
Longtime executive Jim Baggs stepped in as interim general manager in December after the resignation of Larry Weis, whose tenure of less than two years saw the utility hammered for billing-system errors, a huge backlog of customer complaints, allegations of sexual harassment and delays in installing the advanced meters.
“There have been significant changes in leadership … and these are ongoing,” the review panel wrote, identifying the turnover as a challenge for City Light.
The rate increases set for Monday’s vote are slightly smaller than initially proposed. In April, City Light called for annual average hikes of 5.1 percent, stirring concern on the review panel, which opposed the plan.
“We are ringing the alarm bell,” the panel wrote to Durkan in May. “Continual rate increases that significantly outpace the rate of inflation are threatening our diverse economy. The projected rate of growth … is not sustainable.”
The mayor responded last month by directing the utility to trim the hikes from 5.1 percent to 4.5 percent, saying that would require City Light to cut from its plan $18 million in operations-and-maintenance spending every year and $241 million in capital spending over six years.
The reductions would be equivalent to 6 percent of City Light’s annual operations-and-maintenance budget and 9 percent of its six-year capital budget, Durkan wrote in a letter to the review panel.
“I recognize these are deep cuts and will create challenges,” she wrote.
While the panel has expressed support for Durkan’s plan, City Light officials have yet to figure out where to cut, utility spokesman Scott Thomsen said Friday.
“On the operations side, we’re looking at some longer vacancies when people leave positions,” Thomsen said. “There are a lot of ideas on the table.”
Though City Light benefits from hydroelectric power, it shares a major challenge with other utilities across the country: declining demand. In recent years, the utility has collected $118 million less than projected in customer revenue, the review panel pointed out.
Electricity use is ebbing as buildings and people conserve energy, a greater percentage of people become apartment dwellers and the industrial sector sheds jobs, the panel wrote. Mounting employee-compensation costs also are part of the picture, Thomsen said.
The number of executives at City Light grew from 12 in 2012 to 38 five years later and the utility has used overtime pay to manage the construction boom.
But the most important cost driver “continues to be its very large capital-investment program,” the review panel wrote, attributing 48 percent of the utility’s anticipated spending growth to debt coverage for infrastructure projects.
Though the upgrades generally have been necessary, City Light now must try to rein in spending, the review panel wrote, highlighting a number of specific issues.
The utility is paying $210 million to build a new Denny Substation that early engineering estimates pegged at $89 million. The cost of a new billing system with Seattle Public Utilities soared from $48 million to $110 million. And City Light expects to spend an additional $82.4 million by 2024 moving its electricity systems around to make way for departments that are rebuilding the downtown waterfront, according to the review panel.
Some of the extra spending can be explained, Thomsen said. Unexpected environmental-remediation work, skyrocketing construction costs and expensive amenities added during the public design process — including an off-leash dog park — combined to boost the price tag of the Denny Substation, the spokesman said.
But Thomsen offered no excuse for why officials failed to budget for $5.4 million in sales taxes on the new meters the utility is installing across the city.
“That was our error,” the spokesman said. “When we received the price from our supplier for the meters, we believed the tax was included in the price — and it was not.”
The building boom has required City Light to buy more meters than officials thought would be needed, also helping to push up the total cost of the rollout.
To cover the overrun, City Light will delay some maintenance projects and repurpose $8.2 million in conservation incentives that no customers signed up for, Thomsen said.
In considering the utility’s strategic plan Monday, the council may ask City Light to work on revising altogether how its rates are structured.