Low snowpack means City Light may seek higher rates

The Seattle City Council is considering a temporary electricity-rate increase to shore up Seattle City Light's reserves as the utility faces its second revenue shortfall in two years.

Low snowfall this winter means Seattle City Light will likely be at least $70 million short of its projected revenue from energy sales. The utility relies on selling millions of dollars worth of hydroelectric power every year, one reason it says its rates are low.

"The disadvantage to hydro is that when you have bad water years, you're short on power," City Light Superintendent Jorge Carrasco said at a news conference Thursday. "In the last 10 years, we've had three normal water years. ... It isn't predictable."

The City Council will decide about a temporary rate increase this month, said Councilmember Bruce Harrell. The utility hopes to cover the shortfall through budget cuts. An increase is "a last resort," he said.

A 1 percent increase in rates would mean about $6 million in annual revenue, he said.

The utility also will sell surplus property, cut back on maintenance and capital projects and refinance its bond debt to try to scrape together a $100 million "rainy-day fund" to better insulate itself from future shortfalls.

The City Council late last year approved a 13.8 percent increase in this year's utility rates. The average monthly residential bill of about $44 increased $6.27.

That increase was the first since 2001, and it helped close a $70 million shortfall the utility faced because of lower-than-expected wholesale revenue.

Last year's snowpack was fine, but low natural-gas prices drove down the selling price of power.

In the past 50 years, only eight winters have had less snowfall than this year, according to Seattle City Light data. A snowy March could improve the snowpack, but at this point the utility is forecasting low flow through the dams it depends on for most of its power.

To avoid this kind of emergency in the future, council members want the utility to come up with a plan by the end of the month to cut its spending and build the $100 million rainy-day fund.

City Light has only about $25 million in savings now — small enough to make Carrasco concerned City Light could lose its good credit rating.

Building such a large cash reserve during already hard economic times won't be easy, said Harrell, but it will be a long-term response to the utility's unpredictable revenues.

Other regional utilities — Puget Sound Energy and Snohomish County PUD — say this year's low snowpack is not forcing rate increases. They depend less than Seattle on hydroelectric power and wholesale sales revenue.

Harrell and the other members of the council's utility committee wrote a strongly worded letter this week to Carrasco, telling him the utility had to develop a plan to keep its spending in line with its actual revenues.

"We believe it is prudent for you and the executive to develop a specific spending plan with actual targets that demonstrate such plan is in alignment with the actual revenue," the letter said. "While we have been sharing these policy directives at the last several meetings, we thought requesting a written work plan would prevent the utility from walking down a road of inadvertent and unmonitored spending into the next budget cycle."

In an interview, Harrell said it should have been up to Mayor Mike McGinn to tell the utility to spend less. "McGinn's going to have to step it up," he said.

McGinn, in response, said budget problems at City Light and other city departments are the result of decisions made by Harrell and the rest of the council.

"We've been in office two months," he said. "This budget and the Seattle City Light policies are a legacy of past decisions."

Emily Heffter: 206-464-8246 or eheffter@seattletimes.com