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Low snowpack, gas fracking threaten to drive up City Light electrical bills

Cheap natural gas is driving down the amount of revenue the utility collects from wholesale electricity sales. Customers in Seattle could end up paying the difference.

Seattle City Light ratepayers will likely get whacked with rate surcharges later this year, the CEO of the utility said at a City Council meeting on Wednesday. Low natural gas prices, pushed downward by increases in hydraulic fracturing, are partly to blame for the looming electricity bill bump, which could happen sooner or later depending on winter snowfall in the Pacific Northwest.

The surcharges are designed to replenish City Light’s “rate stabilization account,” which acts as a reserve to buffer unexpected drops in the utility’s revenue. A city ordinance requires surcharges to kick in if the account dips below certain balances. The fund is on track to hit one of those balances later this year.

Exactly when the surcharge would occur is uncertain. But City Light general manager and CEO Jorge Carrasco and a council staffer indicated at Wednesday's Energy Committee meeting that customers would probably see the charge tacked onto their electricity bill by August. 

A 2010 city ordinance set the target size for the account at $100 million. A balance-drop to $90 million triggers a 1.5 percent rate surcharge. The surcharge increases to 3 percent if the account balance declines to $80 million, and to 4.5 percent if it dips to $70 million. As the fund balance is restored, the surcharges are removed.

The current account balance is roughly $90 million, according to City Light spokesman Scott Thomsen. To avoid an immediate surcharge, City Light plans to transfer $8 million of leftover money from its 2013 budget into the account. The transfer will require City Council approval.

In the past, City Light has relied heavily on selling surplus electricity to wholesale buyers — like other utilities — to maintain the balance. But in recent years, cheap, domestically produced natural gas has driven down energy prices and, as a result, City Light’s wholesale cash flow.

Meanwhile, an unusually low mountain snowpack is creating further financial uncertainty for the utility. Roughly 90 percent of the City Light’s power comes from hydroelectric dams. A thin winter snowpack can reduce river flows and, ultimately, the amount of water available to produce electricity. Extremely dry years can leave City Light with less power to sell and can sometimes force the utility to buy electricity itself on the wholesale market.


Snowpack levels are below normal so far this winter in the Pacific Northwest, which could affect hydroelectric power production in the region. This map compares the amount of water contained in the regional snowpack to a historical median amount. Source: Natural Resource Conservation Service.

As of Jan. 22, the amount of water contained in portions of the Cascades snowpack amounted to less than 70 percent of the median level measured between 1981 and 2010, according to data compiled by the United States Department of Agriculture's Natural Resource Conservation Service.

The timing of the surcharges could partly depend on how much more snow falls during the rest of the winter.

“If the council authorizes the transfer and we have a normal water year for the rest of the year,” City Light's Carrasco said during the meeting, “Then the surcharges are likely to kick in August, I believe, and then another one in November.”

“If we don’t have a normal water year,” he added, “They could kick in earlier than that.”

This year would not be the first time the council has authorized City Light to transfer money from other parts of their budget into the account. “If we had not moved $45 million in the last two years, we would be in a world of hurt right now,” council staffer Tony Kilduff told the Energy Committee. “We’ve had three years of experience telling us this thing isn’t working.”

Average net wholesale revenue for Seattle City Light between 2002 and 2010 was around $104 million. “That got built into City Light’s spending plan,” Kilduff said, “and its budget and into the retail rates.”


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Comments:

Posted Thu, Jan 23, 8:13 a.m. Inappropriate

Maybe I'm missing something, but am I getting this correctly that City Light is responding to lower revenues not by cutting expenses but increasing what it charges its customers? That's sort of like the US. Postal Service responding to their revenue declines by increasing the cost of a stamp instead of looking at spending less money by cutting Saturday deliveries. In either case, only the effect is being addressed while the cause is ignored. Bureaucracy at its finest.

Posted Thu, Jan 23, 9:25 a.m. Inappropriate

The majority of the utility's costs are fixed - e.g., running a few dams, maintaining sub-stations, reading meters, sending bills, etc. Reducing expenses - where? It's not like running a grocery store. The "expenses" that you say should be reduced are a big part of the economic engine that runs the city; do you really want to cut back on the technical experts who connect the electricity to the new apartment house or business? Or get lines back in order after a storm?

Saratoga

Posted Thu, Jan 23, 8:45 a.m. Inappropriate

I like how this article attributes all of the reduced domestic demand for energy on fracking--a conservative cause celebre. But wait! Isn't some of the recent dampening of the nation's energy needs also attributable to conservation efforts--a liberal cause celebre? But, of course, we shouldn't expect a Seattle 'news' outlet to report anything that doesn't slam conservative views in some way or another, should we? Recent reports on the proposed utility price hikes couldn't hide the fact that the increased costs of salmon protection plans (a liberal cause) bear a lot of the blame, so it became imperative to look for a way to tarnish conservatives with the same brush. If local ratepayers are upset by this latest assault on their pocketbooks, they shouldn't single out environmentalists and their salmon protection plans as the culprits--no, it's those damn multinational oil companies and their environmentally unsafe fracking operations which are at fault! QED

Posted Thu, Jan 23, 9:42 a.m. Inappropriate

You misread the article. Cheap natural gas isn't reducing demand - it's that it is so cheap that hydro utilities can't sell their surplus power at the prices they used to - i.e., they are competing with electricity produced by natural gas plants. So, City Light doesn't have as much income from selling wholesale power as it used to - and when there isn't much snowpack, there is even less opportunity to sell wholesale power.

Saratoga

Posted Thu, Jan 23, 10:04 a.m. Inappropriate

Well, then, to revise my point, cheaper energy prices are mainly the result of 2 factors--greater energy supply (due to fracking) and lower energy demand (due to conservation efforts). The article puts all the 'blame' (if you will) for these price differences on the supply side (Those darn oil companies!) while neglecting the demand side (Those darn environmentalists--oops, we're not supposed to say that!)

Posted Thu, Jan 23, 10:12 a.m. Inappropriate

The reduced demand from energy conservation is already built into the revenue forecast - so that was already accounted for. (And don't diss it - thanks to energy conservation, City Light hasn't had to buy a bunch of more expensive power. Keep in mind - there is no "fuel" cost to that hydro - the more you stretch the supply of existing hydro with energy efficiency, the less need to buy or build other, more expensive resources.)

Saratoga

Posted Thu, Jan 23, 10:48 a.m. Inappropriate

When you look at other comparable utilities, such as Idaho Power and Portland General Electric - both private entities- SCL cost per KWH is substantially lower. OK - PGE does have some co-gen in their energy portfolio but Idaho Power has quite the portfolio of dams in their corner.

And yes - cost of energy is by far the primary reason SCL is no longer getting the money they used to when selling their power on the grid. Gas fired or co-gen plants are eroding that price quotient. AND, yes, SCL does have some cost items - maintenance such as that big honkin' Denny substation project, a tunneling/increased power project going on at Skagit, T-line maintenance, and yes, environmental project implementation over the next 30 years at the Boundary Hydro Project as part of their relicensing agreement with the Tribes/agencies. Their dams, and most others, were put in when there were little if any environmental constraints and no mitigation requirements.

Now with the relicensing process regulatory agencies and Tribes have a seat at the table in deciding mitigation for fish, wildlife, land use, recreation, vegetation and other concerns. This does cost - but for Boundary, SCL's largest power producer, they did bargin for retaining their operational flexibility, which means at least the potential to sell excess power on the grid when they have it.

The coming chorus of progressive idiots running SCL and how they are gouging us is uninformed. As usual.

Treker

Posted Thu, Jan 23, 10:53 a.m. Inappropriate

Jorge Carrasco and his top executive class should all be taking a substantial pay cut before they come at us again. At least they can't halve our service for the same money like SPU wants to do, but that's little comfort really.

This comes from an article about the last big hit City Light wanted (or was it the same one they're seeking now? I don't know). It appeared on seattlepi.com written by Vanessa Ho and dated May 7, 2012:

"The rate proposal comes at a time when the high salaries of City Light managers have been a sore spot in Seattle. According to the Puget Sound Business Journal last year, City Light Superintendent Jorge Carrasco made $225,057 in 2010 – making him the city’s highest paid employee – at a time when many people were still struggling after the recession.

Of the city’s top 10 highest paid executives, 7 were City Light managers, including Carrasco, PSBJ found.

At a news conference Monday, Carrasco sort of addressed the issue of rate hikes and pay. He said some City Light senior managers are being paid 20 to 40 percent below market, and that he wasn’t expecting major pay increases for many “field-oriented” workers, other than cost-of-living raises."

And note the usual and tiresome excuse that even though they're being paid like princes at our expense, they're being paid "below market." I submit we need to redefine "market"? I don't care what the market is; if citizens where these arguments are made over and over again all said, "Too bad. We don't care. Give us someone who is eager to learn and will accept less compensation," we'd not only be saving money, we'd be training the leaders the next generations need. If everyone says no to extortion, then it fails. Time to make at least the symbolic gesture, Mr. Carrasco. Donate the excess to the rate stabilization fund, please.

mspat

Posted Thu, Jan 23, 11:33 a.m. Inappropriate

Really? You want to hire linemen or dam operators or CEOs who learn on the job about electricity? I'm one ratepayer who would prefer to have experienced and knowledgable people making sure that when I flip the switch, the lights come on - dependably and safely. And the fact is that City Light has to compete with Puget Sound Energy and Tacoma Power and Snohomish PUD to attract and retain a qualified workforce. Running an electric utility is NOT for amateurs.

Be careful what you wish for - and see how well the utility does with low-paid, inexperienced people next time there is a big windstorm or earthquake - or no snowpack when the utility has to by power on the market, when everybody else wants the same power.

Saratoga

Posted Thu, Jan 23, 11:33 a.m. Inappropriate

Make that "buy" power . . .

Saratoga

Posted Fri, Jan 24, 6:53 p.m. Inappropriate

I don't, and didn't, advocate hiring trainee linemen; as far as I know, we do that now through the union apprentice program. Careful reading of my comment would reveal that I referred to the overpaid Carrasco his top level executives. I believe those "leadership" jobs are a crock. No one needs that much money, especially when they're asking us for yet another handout. I'd like to see some indication that they are reducing expenses in ways that do not implicate basic service. I think reducing executive pay is one way to do that and would be a demonstration of good faith.

mspat

Posted Thu, Jan 23, 11:27 a.m. Inappropriate

Whadda sack of bull pucky.

The low value of power on the Columbia grid, often negative off peak, is caused by wind - never around when needed, surplus always, and must be dumped on the grid for whatever Bonneville can get for it - all 4.5 GW of it.

What happens when a bunch of halfwit voters encouraged by AWEA money, add 15% unreliable to energy production capacity at a time of flat load requirements resulting a dead loss to taxpayers of almost 10 cents for every KWh produced.

Alberta ratepayers thank state voters for the freebee.

sethdayal

Posted Thu, Jan 23, 11:48 a.m. Inappropriate

SCL makes the most money off the capability to sell excess power to CA during the summer - by far. And yes, those wind farms are driving BPA grid operators crazy. High pressure system and cold - wind don't blow so it ain't helping. In the summer there is no way to reliable predict wind - unlike water flow which is modeled quite well.

Last year with a good snow pack BPA said thanks wind farms, but no thanks on that power - we don't need it. The wind farms promptly sued.

Idaho Power is taking a very aggressive stance on the issue and forcing the regulatory structure to change their calculations of avoid cost so it more accurately reflects what happens in the real world grid management and the unreliability of wind power.

Treker

Posted Thu, Jan 23, 12:22 p.m. Inappropriate

The last two comments are particularly good. WA state requires a higher and higher percentage of electricity to be produced by "renewable" sources, which, so far, are very expensive. And hydro power is not considered "renewable" I believe.

So people complaining about increasing electricity rates should look no further than the mandates for increasing amounts of wind and solar power in WA State.

Lincoln

Posted Thu, Jan 23, 1:42 p.m. Inappropriate

Correct. Hydro is not considered renewable under the law requiring a percentage of energy come from renewable. Even on the federal level it is not considered renewable though the National Hydro Association is working with Congress on a bill to change that.

Treker

Posted Thu, Jan 23, 2:18 p.m. Inappropriate

LANGUAGE MATTERS!

IN FACT, the law being referred to does state that hydro is a renewable resource. But, since the purpose of the law is to INCREASE the percentage of energy from renewable resources, I-937 does not allow utilities to count EXISTING (legacy) hydro resources toward the renewable energy targets they are required to meet.

Whether hydro from irrigation ditches, etc., will be allowed to count is a subject of current legislation.

Saratoga

Posted Thu, Jan 23, 3:26 p.m. Inappropriate

Sure does- and here it is

(10) "Eligible renewable resource" means:
(a) Electricity from a generation facility powered by a renewable
3resource other than fresh water that commences operation after March
31, 1999, where: (i) The facility is located in the Pacific Northwest;
or (ii) the electricity from the facility is delivered into Washington
state on a real-time basis without shaping, storage, or integration
services; or
(b) Incremental electricity produced as a result of efficiency
improvements completed after March 31, 1999, to hydroelectric
generation projects owned by a qualifying utility and located in the
Pacific Northwest or to hydroelectric generation in irrigation pipes
and canals located in the Pacific Northwest, where the additional
generation in either case does not result in new water diversions or
impoundments.

----Which translates to NO EXISTING HYDRO. And there are no, NONE, NADA proposals for instantaneous run-of-river projects anywhere in the PNW right now of any substance. What? That rinky dinky proposal for hydro on the Skykomish? More hydro is being taken down than going up these days in the PNW. What is left is micro hydro on existing penstocks, such as irrigation districts.

So-for all intents and purposes - hydro is NOT in the considered renewable. Unless you include the (right now) pipe dream of marine hydro, which can't seem to get off the ground even with major subsidies.

Treker

Posted Thu, Jan 23, 12:26 p.m. Inappropriate

Fracking and inexpensive natural gas have been a sensational thing for the U.S. They have allowed us to convert a lot of coal plants to natural gas, which has reduced greenhouse gas emissions. And cheaper natural gas is lowering energy prices, which is good for everyone.

My building on Queen Anne uses natural gas for heat and for the hot water heaters. Cheap natural gas is far more important to us than the price of electricity.

Cheap natural gas produced in the U.S. is a great thing for this country.

Lincoln

Posted Wed, Jan 29, 11:37 a.m. Inappropriate

Suggest you watch Gasland I and II.

mspat

Posted Thu, Jan 23, 2:26 p.m. Inappropriate

Mr. Lucia,

The "rate stabalizaton account" was created by the Council and can be changed by the Council.

THE problem is that after the ENRON debacle/ price manipulation of the last decade, what changed was the
Southern California electrical market.

For years, City Light, as well as every other NW Public ( including BPA) and private utility with surplus water to sell, sold as much power as they could load on the Intertie south, then used the revenue to offset local costs and keep down rates. (In August, San Diego Gas and Electric charges as much as 15 cents per KWH RETAIL for air conditioning load.)

NW uitilities compete for this business.

But Southern California utilities are better organized - better focused - than they were a decade ago. THEY are investing in Conservation, more efficient cooling. They aren't the sitting ducks they used to be.

City Light keeps operating as if NOTHING HAS CHANGED. BPA and every wind farm generator in Eastern Wa
is competing for the same market. THERE IS LIMITED INTERTIE CAPACITY for out of region sales.

There is no longer an endless revenue stream that City Light can utilize to subsidize local, Seattle retepayers.

Fracking is really a minor issue. When was the last time you saw an air conditioning unit powered by natural gas? "Snow pack" is a real issue, but if you can't get space on the Intertie to sell 100 KWH, what makes you think you're going to get Intertie space for 150 KWW?

Ross Kane
Warm Beach

Ross

Posted Thu, Jan 23, 2:39 p.m. Inappropriate

1. Use rebates or other incentives to encourage the installation of more privately owned solar panels connected to the City Light grid. Disperse power generation and reduce electricity consumption, providing excess energy available for sale during daylight hours to California during their times of peak demand.

2. Subsidize the expansion of natural gas service on streets in the city where it doesn't currently exist. Reduce demand on electricity.

3. Start a rebate or incentive program to provide motion-sensitive light switches to subscribers.

4. Create incentives for saving energy, perhaps through a credit on the subscriber's account if they reduce their power usage by a certain percentage. For exampe, you get $300 credit on your City Light account if you reduce your energy consumption by 10% over a 12 month period.

talisker

Posted Thu, Jan 23, 2:58 p.m. Inappropriate

Cheap gas will be temporary. It always is. The fracking boom will end, but long before, gas companies will need to pay the full cost of producing their product, rather than pretending it doesn't exist - which includes paying back the people and PUDs whose water they befoul, and the tax-payer funded cleanup efforts around the pipeline ruptures, train derailments, drilling accidents, blowouts, explosions, evacuations, and poisonings that follow fracking wherever it goes. For a generation, we lost visibility on the real costs of fossil fuel production domestically. Now we're going to spend a generation poisoning ourselves to rediscover those costs. And by the time we push back, the oil and gas companies will have taken their profits and run. But we'll pay for it. In real dollars. It's just a matter of time.

nullbull

Posted Thu, Jan 23, 3:03 p.m. Inappropriate

Sorry, the POINT being that we should invest in keeping our own power production capacity in good working order, because when the boom ends and/or prices begin to reflect the true costs of production, we'll want to be there with our cheaper, cleaner product.

nullbull

Posted Thu, Jan 23, 3:27 p.m. Inappropriate

Agreed.

Treker

Posted Thu, Jan 23, 4:39 p.m. Inappropriate

Me too, and I appreciate the knowledgable comments.

louploup

Posted Wed, Jan 29, 11:39 a.m. Inappropriate

Amen. Well said.

mspat

Posted Thu, Jan 23, 10:47 p.m. Inappropriate

This is not about the demand for electricity and the costs of producing . It is about having a certain amount of money set aside in case we cannot sell a fixed amount of surplus electricity. There are city ordicances which say, when the amount in the reserve--a rainy day fund--go below 'X', a surcharge will be added.

Change the ordiance. It is not part of the US Constitution, the Gettysburg Address or one of the ten commandments--last I looked. A rainy day fund is exactly what it sounds like--money set aside in case of emergency. We are no where near an emergency. The fund has shrunk but nothing is happening. We have no need for the funds.

There are those who will say 'But Wall Street--who buys our bonds and sets the interest rates we will bear cares if you have a rainy day fund'. To which I say 'Ha!'. Many of you readers were not around when the Washington Power Supply System (WPSS--pronounced 'Whoops') defaulted on the largest municipal bond ever. WPSS came right back, a year or so later and sold all the bonds they wanted and paid the same rate of interest.

The entire City Light ought to come under the most intense scrutiny possible--both government, media and even private parties: how can a utility with paid-off dams, no 'energy' costs--coal, natural gas or ground up pallets--can have rates as high or higher than other utilities.

I know, I know: lines must be maintained, service restored and low-cost LED light bulbs to be handed out. But there is no excusing City Light. Someone needs to step in, clean up and set the ship right.

Dick Falkenbury

Posted Wed, Jan 29, 11:41 a.m. Inappropriate

Completely agree. Thank you.

mspat

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