Followup on last night’s story – according to a City Council news release we just received, councilmembers approved the highest proposed Seattle City Light rate hike under consideration – nearly 14 percent over 2 years. Read on for their announcement and explanation (followed by Councilmember Bruce Harrell‘s statement – added 11:32 am – saying he thought a smaller increase would have sufficed):

Faced with the choice between raising electricity rates or incurring higher borrowing costs, financial uncertainty, and violating its own financial policies, Council opted to pass a 13.8 percent rate increase over two years that will go into effect in 2010. The increase closes a $140 million gap between City Light revenues and spending plan.

“This rate increase will help maintain City Light’s financial stability while protecting our strong bond ratings,” said Council Budget Chair Jean Godden. “We’ve worked hard over the past eight years to put City Light on a solid financial footing – now is not the time to reverse that course. It’s a question of paying a few dollars now or a whole lot more later.”

City Light has relied heavily on selling its excess power, but the unpredictability and volatility of the current market has resulted in City Light burning through cash reserves that will be depleted by mid-2010 without a reasonable rate increase. Due to the slumping economy and decreased demand, City Light will fall well below revenue projections from selling surplus energy.

The package passed by Council includes $1 million in energy efficiency investments that the Mayor’s proposal did not include.

“Increasing energy conservation saves money in addition to reducing our carbon footprint,” explained Council President Richard Conlin. “The time of financial crisis is the exact time to conserve resources.”

The rate increase ensures that the utility will continue to provide stable service, improve our aging infrastructure and borrow money at the lowest possible interest rates. Utilities receive a bond rating based on their ability to repay what they borrow. The rating is based on cash reserves and policies that prevent shortages. By avoiding a downgrade in its bond rating City Light will save as much as $90 million over the next ten years in borrowing costs.

“Seattle City Light is our greatest public asset. It is our responsibility to maintain it as a strong public utility. We need to preserve its long-term viability,” said Councilmember Nick Licata.

While Council policy requires that City Light maintain 2.0 debt service coverage (DSC), City Light’s DSC today is about 1.3, well below the requirements set by the Council in 2004. The rate increase will push City Light’s DSC closer to 1.8. In the bond market, City Light currently has an AA- rating, which allows it to borrow cheaply. However if the utility were to go to the bond market with its current DSC, it would pay much higher borrowing costs.

“Seattle City Light ratepayers were able to enjoy decreases over the past few years because of the reserves built from selling excess power, but the environment today is completely different,” said Conlin. “It’s now time that we do what’s right to ensure that Seattle’s power remain clean and affordable well into the future.”

ADDED 11:32 AM: A statement from Councilmember Bruce Harrell, who chairs the Energy Committee:

“In a move to keep City Light’s borrowing costs low and maintain its commitment to
conservation, the Seattle City Council passed a 13.8 percent rate increase which
will begin in January 2010.

While I fully support the Council’s commitment to conservation and protection of the
Utility’s borrowing status, I believe the needs of the people and businesses should
always come first. I preferred a lower increase of 7.9 percent that could have
given the utility the necessary funds to operate efficiently, improve its debt
service coverage ratio to 1.6 and restored $1 million that was cut by the Mayor for
conservation.

We must continue to drive the costs of its operations down in order to protect the
people from unreasonable rates. However, even with a 13.8 percent increase, Seattle
City Light offers power at 6.42 cents per kwh which is one of the lowest rates in
the region. The average monthly bill of $44 will increase $6 per month. By
comparison the US average is 9.7 cents per kwh. Los Angeles has a rate of 10.20
cents per kwh and San Francisco has a rate of 12.94 cents per kwh.

It is not that either proposal is right or wrong. We brought several choices to the
Council. These are merely policy preferences with different points of view. The
Rate Advisory Committee (“RAC”), a nine member committee appointed by the Mayor and
City Council, recommended a 7-8 percent rate increase. The RAC represents small and
large businesses, neighborhoods and lower income residents.

The Energy Committee will continue to identify where City Light can create
efficiencies, and improve its development and implementation of the strategic plan
it submitted last year under the Committee’s request.

The 13.8 percent increase will create greater certainty that the utility maintains
its AA- bond rating which will allow it to borrow at a lesser interest rate when it
issues bonds in April of 2010 and help to fund its capital improvement plan. The
utility was rated A since 2001 and increased its rating to AA- in 2008. Less than 5
percent of Electric and Gas utilities in the United States fall into the AA rating.

The higher rating was achieved because of the utility’s revised financial policies
and because of its reduced reliance on purchased power.

Now that this current rate review has concluded, I look forward to an open and
transparent process of making sure City Light’s strategic plan is complete and the
people can maintain safe, reliable power at affordable rates.