NEXT TIME THE RIVERS all run dry, Seattle City Light customers won’t be left up the creek. So say utility officials, who’ve taken a tanning in the last few months for buying exorbitantly priced power during the drought of 2000 that’s now costing ratepayers heavily. This week, on the second anniversary of the Northwest’s energy crisis, City Light actually got some good news: Major agencies gave the utility’s bonds solid ratings.
Meanwhile, the municipally owned utility isn’t shirking from its critics. Instead, City Light director Gary Zarker is claiming that by 2004, City Light’s short-term debt will be paid off, rates will begin falling, and best of all, the utility will never, ever get burned in the open energy market again.
That’s a hell of a claim from a utility that so far has flailed helplessly in the rough rapids of the deregulated energy market. But there’s more. City Light also says its new power contracts will save more fish in the Columbia River.
“We’re trying to set the record straight: [City Light’s] power portfolio is something we ought to be proud of,” says City Light strategic adviser Kevin Clark.
Such optimism begs a lot of explanation. A recent study by the Municipal League of King County questioned City Light’s planning acumen, the City Council has commissioned an audit, and on May 7 Mayor Greg Nickels announced the formation of the City Light Review Committee to assess the utility’s long-term strategies. But City Light says recent controversy has obscured the utility’s overall sound footing. In October, City Light entered a new relationship with the Bonneville Power Administration (BPA)—the federal agency that sells low-cost power from Columbia River dams—that locks in three times as much BPA power as City Light had secured in 2000. That’s actually a lot more power than City Light needs to meet its current requirements. But the terms of this deal are unique: Whereas City Light used to contract for predetermined quantities of BPA power in advance, it now receives a percentage, or a “slice,” of whatever the dams can churn out at a given time. In wet periods, the utility will have a surfeit of power to sell; in dry times, it might have to buy from another source.
Yikes! Isn’t power brokering what got City Light into its current mess?
City Light argues that the deal is more secure than it looks. Clark says the utility now has enough generating capacity from nonhydro sources (a gas turbine plant at Klamath Falls, Ore., and the State Line Wind Generating Plant are new additions to City Light’s portfolio) to avoid significant purchases on the open energy market even in dry years. And, says Clark, the utility has been enjoying tidy profits from the sale of excess power (a record $110 million expected this year), speeding the payment of the colossal debt the utility has racked up from buying on the open energy market.
Critics argue that the utility is setting up ratepayers for further abuse by investing in excess production. “They’re subject to whatever happens in the [open energy] market again. It isn’t good utility planning,” says Rud Okeson, a member of City Light’s Rates Advisory Committee.
But public utilities have good reasons for entering into so-called “slice” contracts with the BPA, says Kevin O’Meara, senior economist for the Public Power Council. BPA’s rates rose sharply in 2001 because the Columbia River dams couldn’t generate enough electricity during the drought to meet the needs of the BPA’s customers, forcing the agency itself to buy expensive power on the open energy market. The agency found itself in that bind not because of the demands from its original customers—publicly owned utilities like City Light—but because, over the years, the lobbying efforts of private utilities and aluminum smelters have earned them a right to BPA power, too. Slice contracts, which currently account for about 20 percent of BPA sales, reduce its incentive to speculate on the open energy market, because the contracts only commit the agency to deliver power it has on hand. O’Meara says some public utilities are concluding that they’d rather find extra power themselves rather than get “hammered” again by the BPA’s forays into the market. “The current system is basically a loaded gun pointed at our head ready to go off anytime,” says O’Meara. Public utilities are asking the BPA to increase slice contracts to 80 percent of total sales.
Clark says City Light’s current BPA contract has paid off beautifully over the past seven months. But he argues that the benefits go beyond dollars and cents. In exchange for receiving a guaranteed portion of BPA generation, City Light has to agree to pay that same portion of the BPA’s operating costs. Those costs include efforts to promote energy conservation, invest in green energy, and restore salmon habitat along the Columbia. Clark says utilities with slice contracts are helping ensure that the BPA receives a steady flow of cash for environmental programs (although salmon protectors are not yet convinced). Currently, the BPA pays such costs out of revenues, which in lean years can run thin. Guaranteeing those costs is also a good way to make sure the BPA doesn’t miss debt payments to the federal treasury, which almost happened in 1996 when utilities abandoned the BPA in favor of cheaper rates on the open market. BPA spokesperson Ed Mosey says East Coast legislators would relish an opportunity to use a missed payment as an excuse to force the BPA to sell power at market rates, transferring the profits into the national till.
But critics question whether City Light is pursuing a policy agenda that, while laudable, is tilted away from the interests of its ratepayers. Jim Greenfield, who chaired the Municipal League’s City Light study committee, says that although the utility is right to promote the interest of Seattle’s environmental sensibilities, he’s not persuaded that the utility knows how to manage the concomitant risks. “These concerns shouldn’t come at the detriment of the utility’s primary mission, which is to provide electricity to its customers at reasonable rates,” says Greenfield.
