Seattle Mayor Mike McGinn submitted a budget to the Seattle City Council proposing a rate increase for Seattle City Light of 4.3% for 2011 (ave. rate of $.0688/kWh) and 4.2% for 2012 (ave. rate of $.0730/kWh). The utility, long on power during some periods of the year, has suffered low revenues from wholesale power sales in the last two years placing enormous strains on the budget. A rate surcharge was enacted earlier this year to create a hedge account against this revenue uncertainty (the surcharge will be retired when the account is funded at $100M). The Mayor’s proposal is based on an overall flat budget from the current year going forward in 2011 and 2012. The utility’s focus will be deferred maintenance, obligated capital investment for projects such as the Alaska Way Viaduct, and a commitment to restore funding for SCL’s 5 Year Conservation Plan that has suffered cutbacks over the last 18 months. Though the proposed rate increases maintain SCL’s rates as some of the lowest in the country, pushback on the budget was immediate by a number of groups. A Seattle Times Op-ed on October 11th by the West Seattle Chamber of Commerce and a local industrial customer, decried the rate increase proposal and encouraged a “belt tightening” solution as a way to “live within its means”. This recommendation is of course long on sentiment and short on specifics. An institution as large and complex as Seattle City Light (the budget is just over $1B annually) deserves careful analysis and a complete understanding of the unique business model of an electric utility. A utility, like Seattle City Light, sells an essential commodity (our economy runs on its product) and has an “obligation to serve” – that is, it does not have the tools of a typical business which can shut down production or abandon market coverage. A utility is obligated to serve its customers with sufficient product on instantaneous demand 24 hours a day, every day of the year. A typical belt tightening move (declining service to West Seattle for the month of November for example) common to the private sector, simply doesn’t exist for an electric utility. This does not argue for a utility budget of any amount or against the need for careful cost control – in good and bad economic times – but it does mean that a utility’s rates must reflect the cost of service and the necessity to provide reliability, product quality, and long term infrastructure preservation of the system. The Seattle City Council will be deciding on the Mayor’s budget proposal by the end of November.
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