The city of Seattle reached a $3.5 million settlement in a lawsuit against Seattle City Light filed by residents who received incorrect, and shockingly high, utility bills.

The settlement addresses issues raised in the August 2019 lawsuit that says Seattle City Light improperly billed some of its customers based on an estimated usage of electricity.

The suit contended that Seattle City Light invested in technology that would estimate customer usage, and relied on that technology instead of checking meters, to bill customers.

The utility company said, though, that the bills based on estimated use were too low and in some cases customers had underpaid for years. In an effort to rectify the losses, the utility sent out corrected bills that in some cases were in the thousands of dollars.

Ari Brown of the Terrell Marshall Law Group filed the lawsuit against Seattle City Light, seeking unspecified damages over the use of what it called “wildly incorrect” estimates to bill customers.

The suit, filed in King County Superior Court, alleged that Seattle City Light invested in faulty — and costly — technology and then, when it failed, sought to correct the system’s errors by serially overcharging customers.

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In response to complaints by customers about huge bills, City Councilmember Teresa Mosqueda ordered an audit of the electric utility’s billing and customer-service practices and suggestions for improvement.

The $3.5 million settlement will be divided into two funds for qualifying residential Seattle City Light customers who received one or more estimated bills followed by a bill based on actual usage between Aug. 21, 2015, and June 8, 2020.

About 25% of the net settlement will be allocated to a “True Up” fund for residential customers who received at least one estimated bill followed by a bill based on actual usage, according to the city.

The remaining 75% of the net settlement will be allocated to an “Elevated Bill” fund for residential customers who received a bill in which the average kilowatt hours per day was 400% or more than their average daily kilowatt usage for a comparable billing period.

Seattle City Light estimates the potential class could include around 300,000 residential accounts, but it is unclear how that figure breaks down between the two funds. The amount each customer receives depends on the number of qualifying claims made.

Once the court grants preliminary approval of the settlement agreement, potential class members will receive notice, providing an opportunity to submit a claim, object or opt out. These notifications will likely go out before the end of the year, according to the city. In all cases, customers must submit a claim to receive funds.

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The settlement administrator will process claim forms and notify Seattle City Light of customers who should receive credit on their account. The settlement administrator will mail checks to those who submit valid claims and who are not current customers of Seattle City Light.

The effective date of the settlement, and distribution of funds, depends on final court approval.

In a statement, Seattle City Attorney Pete Holmes said: “Considering that attorneys’ fees alone could eclipse the settlement figure if this case were taken to trial and then appealed, this was the right move. I’m glad to have the majority of the settlement total made available to existing City Light customers in the form of a future bill credit, and I’m thankful to the team who helped bring this case to resolution.”