Danger, High Voltage

A new superintendent faces old problems at burned-out City Light: $1.5 billion of debt and a contradictory mandate.

Jorge Carrasco's confirmation as superintendent of Seattle City Light on Feb. 2 was probably as easy as the job will get for the 54-year-old Texan. Thanks to the Vantage Report, a 119-page critique of the utility that the City Council used to help oust former City Light superintendent Gary Zarker, Carrasco knew exactly what the council was expecting from a new leader. But from here on, he won't have a cheat sheet, and he'll be walking the same political tightrope that cost his predecessor his job.

For years, the City Council and the mayor's office have used City Light as a tool of environmental policy. The utility has a well-deserved national reputation for being environmentally friendly yet offering some of the lowest rates in the country. City Light maintained its energy-conservation programs throughout the 1990s, while other utilities abandoned theirs. The utility's salmon recovery work on the Skagit River, where it operates a hydroelectric project, is considered a model recovery program.

But rarely were the costs of such programs passed on to consumers. That was good for ratepayers and a City Council member hoping to get re-elected, but it also led to City Light's staggering $1.5 billion debt. The utility was "trying to be the most environmentally sensitive utility in the country," says a regional utility manager who has studied City Light's finances and policies. "But they never wanted their customers to feel the impact of their programs. They hid the costs and pushed them out until it almost broke their back."

The secret to City Light's seeming success was exposed during the energy crisis of 2000. The philosophy of borrow now, pay later, and hope to someday pay down the debt with sales of excess hydroelectric power finally caught up with the city. When the energy markets exploded in the spring of 2000, City Light was buying huge blocks of power on the open market—a decision made by the City Council in the mid-1990s during the promising days of deregulation, when it was thought that rates would go down in a free market. But the opposite happened. To keep the lights on during the rate crisis, City Light did what it had always done, borrowing $600 million. Then it did something unusual, raising rates by 58 percent. Those policies cost Zarker his job.

Carrasco's biggest challenge will be getting a handle on City Light's $1.5 billion debt, but he might catch an early break, thanks to a good water year—abundant snow in the mountains means plenty of water for hydroelectric generation—and several new risk-management tools the council adopted in the wake of the energy crisis.

City Light is projecting that revenues from sales of surplus power will be somewhere between $140 million and $190 million this year. Optimists at City Hall are hoping that $100 million of that money could help pay down the last of the short-term debt the utility acquired during the rate crisis.

That could leave between $40 million and $90 million in profit. Carrasco could quickly create a $100 million cash reserve, as requested by City Light's newly formed Advisory Council, which is made up mostly of industry veterans. By refinancing some bonds and selling some of the utility's excess power capacity on the futures market, Carrasco could shore up finances in a short time—a politically expedient victory.

THAT MIGHT PUT a smile on his bosses' faces for the short term, but just over the horizon is Paul Allen's dream for the South Lake Union neighborhood and $200 million in electrical upgrades that will be needed for intense development there. Will the council revert to its old habit of debt financing, or pass the costs on to customers? It's hard to imagine the City Council forcing Paul Allen to pay for something as boring as substations. It's also hard to imagine ratepayers willingly sharing the expense.

And what about maintenance deferred since the crisis?

Rate hikes make for big targets on the backs of council members. Just ask Heidi Wills, the former chair of the City Council's energy committee, who was un-elected in November.

THE COUNCIL'S GOAL of having a financially sound utility that is also a national environmental leader with low, business-friendly rates puts Carrasco in a tight spot. He could be torn between making sound financial decisions and funding politically popular environmental programs. The council says it wants City Light to remain an environmental leader while stabilizing rates, while the Advisory Council says borrowing isn't the way to go. "The policies of the city since 1992 that featured more borrowing to keep rates low are simply not sustainable," says Jay Lapin, chair of the advisory board.

Carrasco has very little experience making energy policy or running an electric utility; nor, before joining City Light, did Zarker, which is one reason his critics wanted him fired. But Carrasco is expected to hire a new chief operating officer, as recommended by the Advisory Council and the Vantage Report. The COO would handle the day-to-day operations of the utility, freeing Carrasco to focus on his strengths—management, finance, and politics.

And he will have several masters to please. Carrasco will need to gain favor with Mayor Greg Nickels and Deputy Mayor Andrew Lofton, who keeps an eye on City Light. He'll also be working with rookie council member Jean Godden, the head of the environmental and energy committee, whose energy policy experience is limited to turning lights on and off. In addition, Carrasco will need to have a close relationship with the Advisory Council while soothing bruised relations with the utility's unions.

WHILE MENDING FENCES in his backyard, a contentious debate over the future of the regional Bonneville Power Administration is raging in the Northwest and in Washington, D.C. This might be the area in which Zarker's absence is most felt. Zarker was widely recognized as an active and knowledgeable voice in helping shape the region's energy policy. Carrasco will need to quickly familiarize himself with extremely complicated issues that have been brewing for years.

"It looks to me like they hired a political guy and have made it clear that they don't want him to cut back on environmental programs, but at the same time [they want him to] fix these problems," the regional utility manager says. "I just wonder how long it will be before he realizes he can't have his cake and eat it, too."

Steve Ernst is an associate editor at Clearing Up, an energy policy newsletter based in Seattle.

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