Seattle City Light Progress Report 2004-2014

A progress report shows Seattle City Light's accomplishments since 2004.

From 2000 to 2003, Seattle City Light went through some of the toughest times since it was founded more than a century ago. The West Coast energy crisis hit and the utility had no financial reserves. Its bond rating was downgraded, an aging infrastructure had been neglected, and customer satisfaction was low. By the end of 2003, the Seattle City Council decided to change City Light’s leadership.

In 2004, after a national search, the City hired Jorge Carrasco to run the utility. The new team quickly set out to fix the most pressing problems, knowing that lasting change would require much more than the urgently needed quick fixes. They wanted to make City Light more responsive and reflective of the world around it. Change happened – as it always does – by having a vision that became a plan, then taking steps every day to turn the vision into reality. That’s what has happened at Seattle City Light over the past decade.

The following pages describe the progress made over the past 11 years, as well as the challenges that remain ahead.

Quick facts about Seattle City Light

  • Seattle City Light is the 10th largest of the nation’s 2,200 publicly-owned utilities.
  • City Light has the highest bond rating of any publicly-owned electric utility in the Pacific Northwest.
  • City Light’s rates are the lowest among the 25 largest U.S. cities.
  • City Light has more than 1,800 employees. Ninety percent of them are represented by two unions; the International Brotherhood of Electrical Workers, Local 77 and the Professional and Technical Employees, Local 17.
  • 50 percent of the energy used by City Light customers is produced by the hydro-power resources the utility owns. Another 40 percent comes from power purchased through the Bonneville Power Administration (BPA). The rest comes from power exchange agreements, near-term purchases, sales made in the wholesale power market and conservation.
  • In 2005 City Light became the first carbon-neutral utility in the country.
  • In 2014, City Light had 415,056 customers. While ninety percent are residential customers, two-thirds of City Light’s energy is purchased by commercial customers.
  • City Light offers a deep discount (60 percent) for customers making less than 70 percent of the state median income.

Improved Financial Performance

For most of its history, Seattle City Light has enjoyed a well-deserved reputation for delivering low-cost, reliable energy. That changed during the West Coast energy crisis (2000-2001). Banks and others manipulated the energy market causing a 1,000 percent increase in energy prices. It was also the Northwest’s driest year on record, depleting City Light’s ability to generate hydro-electricity.

The result was that the utility was short on power and had no cash reserves. City Light was forced to borrow money and buy power at the worst possible time. This caused a 58 percent rate increase and huge debt. By 2003, City Light posted a loss of $8.1 million, leading the rating agencies to downgrade the utility several times.

The new leadership team implemented strict cost controls. Between Dec. 2004 and Dec. 2013 City Light was able to repay $732 million in long-term debt. The utility also posted $161.8 million in net income in 2006 – the largest amount in its history. Even more, City Light started paying a bigger share of its capital projects from operating revenue, becoming less dependent on borrowing. Next, the utility began building up a reserve fund which started at $25 million and now stands at $120 million.

With finances under control the utility began to gradually reduce its rates. Beginning in April, 2004 and lasting until September, 2009 customers saw an overall rate reduction of 12 percent. In 2008 alone customers saw their rates drop by an unprecedented 8.4 percent, the largest single reduction in more than 35 years.

The utility also set out to improve its efficiency. Since 2004, City Light has saved more than $84 million by improving work processes, streamlining purchasing, improving productivity and investing in new technology. Additionally, it has identified new efficiencies that will save at least $18 million per year starting in 2015. In 2014 alone the utility exceeded its target and saved $24 million. Seattle City Light’s solid outlook can be attributed to sound financial and operating policies.

Financial Policies

In 2010, the City Council adopted a Rate Stabilization Account (RSA) with a target balance of $100-125 million. The RSA is a cash reserve fund that City Light can use when wholesale market prices, or a water shortage, cause an unexpected drop in revenue. If the fund goes too low, a small surcharge is added to customer bills in order to replenish it.

In addition to the RSA, the Mayor and City Council approved City Light’s Strategic Plan in 2012 which calls for a 4.7 percent average annual rate increase over six years. The City Council’s willingness to endorse the plan, and adopt other financial policies, has helped to strengthen the utility’s ability to keep rates stable and improve reliability. In 2014 the Mayor and City Council reaffirmed their commitment to the utility endorsing the 2015-2020 Six Year Plan with an average rate increase of 4.4 percent.

Operating Results

Seattle City Light has an annual operating budget of $1.4 billion with approximately $3.7 billion in total assets.

Since 2004, its debt has dropped from 85 percent of its capital investment financing to less than 60 percent. This means the utility has been generating enough revenue to fund close to half of its capital program with cash. During this same time period, the utility’s bond rating has been upgraded 7 times. Moody’s Investor Services and Standard and Poor’s have rated City Light Aa2 and AA respectively. No other publicly-owned electric utility in the Pacific Northwest is rated higher. Financial milestones chart

Improved Risk Management and Power Supply

In 2004, City Light had no meaningful risk management plan in place. The new management team worked with a newly-formed Advisory Board, appointed by the Mayor and City Council, on a long-range risk management plan which resulted in a transfer of the risk-oversight function from Power Marketing to the Finance Division. The utility also hired a director of Risk Oversight who has direct access to the General Manger and created a risk management system for energy trading, as well as an internal risk oversight committee.  In 2013, City Light deployed a five person internal audit function to ensure the utility’s risk management, governance and internal control processes are operating effectively.

Today, risk oversight goes beyond energy trading to include construction projects, budgeting and emergency preparedness.

The utility further reduced its risk by building up its own power generating capability. City Light went from being short on power in 2000 to having surplus power to sell in the wholesale energy market.

This all happened in a very deliberate way over several years.

First, the utility looked inward to ensure that it wisely managed its energy supply and improved the value of its power and transmission resources. To do this City Light created the first-ever Integrated Resource Plan to guide power acquisitions.

Next, the utility began adding to and diversifying its energy portfolio by investing in wind power and doubling its energy conservation program. Over a five-year period the utility increased its conservation savings from 7 average megawatts to 16.0 – enough to power 16,322 homes.

City Light was then in a good position to renegotiate its contract with the Bonneville Power Authority. The BPA contract represents about 40 percent of the power the utility needs to meet its energy demands. The contract, which took effect in 2011, means City Light will have clean power from BPA until 2028.

City Light spent nearly a decade working with stakeholders, community organizations and the federal government to re-negotiate its Federal Energy Regulatory Commission (FERC) license for Boundary Dam. While the re-licensing process was complicated and lengthy the result guarantees hydropower from Boundary for the next 42 years. It also means substantial cost savings and adds to the long-term financial stability of the utility.

City Light is also benefitting from its latest FERC re-licensing of the Skagit Hydroelectric Project. The contract guarantees hydropower for the utility until 2025. Skagit currently makes up about 21 percent of the City Light’s power resources.

Customers First

In 2003, City Light was faced with a growing number of unhappy customers. There were complaints about frequent and long power outages, poor customer service, high rates and billing problems. Many people had lost confidence in the utility.

The utility got to work to address all of these problems.

First, a new billing system that suffered from glitches and produced inaccurate bills was fixed. In short order, customers received bills that were consistently accurate and reliable. The utility is now getting ready to install the next generation of this billing system. Rest assured it will be thoroughly tested, and re-tested, before it is launched.

The utility has also taken steps to reduce the chances of power outages by proactively managing the trees and other vegetation around its power lines. The entire service area is maintained on a 4-year cycle by City Light workers who use the most comprehensive and environmentally responsible techniques to ensure safe and reliable power for the utility’s customers. In 2014 alone 587 power line miles received vegetation management services.

City Light also started an aggressive program to upgrade its aging infrastructure and provide customers more reliable service. The utility invested about $60 million on the Work and Asset Management System (WAMS). The system identifies and evaluates problems with things like poles, transmission lines and power transformers – an estimated 900,000 assets. The purpose is to identify and fix problems early. Since 2011, WAMS has assessed 115,000 poles, 50 power transformers, and surveyed 527 miles of overhead transmission lines, allowing City Light to extend the life of these valuable public assets.

The utility also launched an improvement project focused on electrical service to reduce the amount of time it takes for new electric connections. Prior to 2004, the normal time for a new connection took approximately 100 days to complete. Today, a new electric connection takes about 40 days.

A new Outage Management System has improved the utility’s ability to respond to outages and communicate with customers in real time. Customers can now access outage maps online, or on a smartphone, and find out how many customers are out of power and when power will be restored. Power outages are now fewer, and shorter in length. In 2014, City Light averaged less than one outage per customer and the average length dropped to 70 minutes.

The utility expects to launch Automated Metering Infrastructure (AMI) in 2016 with completion expected in 2017. This will allow City Light to obtain real-time data about electric use and get news of an outage instantly. AMI will also provide customers with more accurate billing and the ability to better manage their own consumption.

City Light is embracing technology to communicate more directly and efficiently with its customers. Already, it uses a variety of social media tools and mobile phone apps to facilitate real-time, two-way communication with customers.

This work has paid off. In 2013 and 2015, J.D. Power rated City Light highest in customer satisfaction among business customers of midsize utilities in the west region. City Light also ranked 2nd among residential customers in the west region, reflecting steady improvement over the past 10 years.

Customer satisfaction is at the core of everything the utility does. The work never stops and it drives all business decisions.

Workforce Optimism

The utility decided it was time to update its vision, mission and value statements. The first thing agreed to was that City Light needed a renewed focus on customers. This simple, but meaningful change has had a profound and positive affect on the culture of the organization.

The management structure was reorganized to better fit customer needs which helped them recruit the most diverse leadership team to ever lead the utility. City Light also put together an executive compensation program, with the Mayor and City Council’s approval, that was tied to performance. This allowed them to attract top talent from around the country.

Seattle City Light employees are the key to delivering safe, reliable, and affordable energy. Investing in its employees is good for business, good for customers, and the right thing to do.

City Light’s Strategic Plan recognizes the utility faces significant business risks if workforce challenges are not addressed. Half of City Light’s employees will be eligible to retire in the next five years, and despite some significant improvements in workplace safety, the employee injury rate remains too high.

In 2012, City Light began to focus on these employee performance and safety challenges. By the end of 2014, the utility witnessed tremendous progress. Hiring goals are on track and worker safety has significantly improved.Safety improvements chart

 

A Bright Future

Two things have put the utility in perhaps the strongest position in its history, the Rate Stabilization Account and the six-year Strategic Plan.

After addressing the utility’s most urgent issues, City Light needed to do some long-range planning to ensure its future financial and resource position would be strong. Never before had the utility focused on planning in such a deliberate way, or aligned its budget with strategic objectives and the rate-setting process.

A nine-member City Light Review Panel was appointed by the Mayor and City Council to help the utility tackle this huge effort.

In 2012, after two years of development and considerable public involvement, the Mayor and City Council adopted the six-year Strategic Plan.

The success of getting the plan adopted centered on the fact that the utility focused on the basics: improving customer service and rate predictability, increasing workforce performance and safety practices, enhancing organizational performance and continuing its conservation and environmental leadership. The utility also made certain to address impacts on low-income families and committed to stay within the agreed-upon rate path.

After just two years, there is a more consistent focus on programs and services that are important to customers. The results are making a difference:

  • The utility is on track to realize $18 million in annual savings through efficiencies beginning in 2015 and expects to realize even more beyond that.
  • The projected rate path is on target.
  • Of the 36 initiatives identified in the plan, 34 are on track for completion and two have been completed

The next step was to keep the plan relevant beyond the original six years. To do this, City Light updated the plan in 2014.

Updating the plan every two years also allows City Light to address long-term challenges. For instance, forecasts for load growth and capital project expenses change and must be factored into the plan. The need to change rate design for both commercial and residential classes may also require other changes in the plan.

Affordability

City Light was founded on the principle that its rates should be affordable and predictable. The utility has worked hard to be able to live up to this principle year after year.

Among the 25 largest U.S. cities, City Light offers the lowest rates. Also, City Light’s 36-year conservation program is among the longest-running in the nation. Our green efforts help customers save energy, and money.

For most City Light residential customers, energy costs represent about 1 percent of their household income.

For customers living on wages 70 percent or below the median income (that’s about $61,740 per year for a family of four), City Light offers a 60 percent discount on their utility bill. It also offers low-income customers a free energy assessment, complete with resources and tips on how they can lower their bill even further. For those who need temporary emergency assistance to pay their electric bill, City Light has a program in place to help them too.

The utility’s Rate Stabilization Account helps mitigate rate volatility due to low water and/or low wholesale energy prices. The RSA is designed to shield customers from huge rate increases like those seen in 2000- 2001, maintain customer services and avoid unplanned budget cuts.

National leadership

Seattle City Light is a recognized national leader on energy policy and practice, as well as environmental issues. The utility’s leadership team is known for their expertise. Together, they are helping to shape and change energy policy at the national and local levels. Here’s how:

American Public Power Association – The APPA is a service organization for the nation’s more than 2,000 community-owned electric utilities based in Washington, D.C. APPA-member utilities serve more than 47 million Americans. City Light’s General Manager served on the APPA CEO’s Climate Change and Generation Policy Task Force.

Alliance to Save Energy – The Alliance is a bipartisan, nonprofit coalition of business, government, environmental and consumer leaders. Formed 37 years ago by Senators Charles Percy (R-Ill.) and Hubert Humphrey (D-Minn.), the Alliance is the leading national voice in energy efficiency. City Light’s General Manager was elected co-chair.

Large Public Power Council – Founded in 1987, LPPC is comprised of 26 of the nation’s largest public power systems. Together, LPPC members represent 90 percent of the public agency owned, but non-federal, transmission investment in the nation. City Light’s General Manager is a current board member and past chair.

Electric Power Research Institute, Inc. – The Institute conducts research, development and demonstration of generation, delivery and use of electricity for the benefit of the public. An independent, nonprofit organization, EPRI brings together scientists and engineers as well as experts from academia and the industry to help address challenges in electricity. City Light’s General Manager serves on the board.

The Nature Conservancy – A leading national environmental organization, The Nature Conservancy’s mission is to conserve the lands and waters on which all life depends. City Light’s General Manager completed board service for the Washington State Chapter in 2013.

City of Seattle’s Green Ribbon Commission – The Commission’s work has helped guide City policies on greenhouse gas emissions and identify key economic opportunities for Seattle’s clean energy future. Appointed to the Commission in 2005, and again in 2012, City Light’s General Manager and other City Light staff helped shape its energy-related recommendations.

U.S. Department of Energy Municipal Solid-State Street Lighting Consortium – The purpose of the Consortium is to share technical information, and experiences related to LED street- and area lighting and to evaluate effective products on the market. The Consortium has amassed data to help municipalities make smart decisions when buying and installing high-quality, energy-efficient LED lighting. City Light continues to be a leader in the Consortium.