The city council will vote within the next week on how much (not whether, but how much) to raise City Light electric rates in 2010. Possible rate increases range from 6.5 percent (the rate council energy chair Bruce Harrell says he’ll support) to 14 percent or higher (the increase backed by energy vice-chair Jean Godden).
Rates have to go up for at least the next two years because City Light’s sales of excess power on the wholesale market haven’t met expectations. In fact, they’re running about $10 million behind quarterly projections, which translates to a potential rate increase of between 8 and 15 percent. That’s nothing compared to the 50-percent rate increase that hit ratepayers in 2001, but it’s still enough to notice on your electric bill.
Here’s where it gets (a little) complicated: City Light and outgoing Mayor Greg Nickels want to create a system where rates adjust (down or, usually, up) automatically as soon as wholesale sales fail to meet projections by a certain level. So, to give a totally hypothetical example, if wholesale power sales were $10 million short after 3 months, that might trigger an automatic 8 percent increase. Council members pretty much unanimously dislike this idea because it takes them out of the process.
Where council members aren’t unanimous is on how much to increase electric rates.
On the high end are folks like Jean Godden and Richard Conlin, who prefer to raise rates about 14 percent now, for a couple of reasons. 1) Rates are going to have to go up that much by 2011 anyway, so why not go ahead and get it out of the way instead of hiking people’s power bills in stages? 2) Related: If the city only raises electric rates, say, 6 to 8 percent, it will risk having its bond rating downgraded from AA- to BBB, which impacts the interest rates at which City Light (and potentially the rest of the city) can borrow money. Translated: A lower bond rating make it harder and more expensive for the city to borrow money.
“My concern is that if we don’t take fairly decisive action now, we’re going to be dribbling and drabbing things out for a long time. I kind of take the position that we need to bite the bullet and take care of the whole thing now,” Conlin says. As for reducing City Light’s bond rating, he says, “I’m very concerned about that, because if you allow one of your departments to go down, that can affect the other ones as well. In this precarious financial situation, when it’s really tough to borrow any money, I’m not sure I want to take that risk.”
On the low end are council members like Bruce Harrell, who says he can keep next year’s rate increase down to 6.5 percent by “taking a scalpel” to City Light’s budget—cutting things like transmissions costs at the Stateline wind project and vacant positions at City Light and selling surplus City Light properties. Harrell says that for every $5 million the city cuts from City Light’s budget, it can reduce the potential rate increase by one percent. He adds that he isn’t concerned about the city’s bond rating because most cities are already rated BBB.
“What I’m trying to convince Conlin of is that if we lose our elite status, it’s a smarter, calculated play because we make the city pay for it … rather than you and me and people on fixed incomes,” he says. Harrell estimates a decreased bond rating might cost the city between $5 and $10 million over the next 20 years.
However, supporters of the higher, onetime rate increase say it would cost more than that, and that their plan would maintain the existing low-income power rate for people on fixed incomes. And Conlin questions whether City Light would be able to sell its excess buildings, as Harrell has proposed. “I think it’s a bad time to sell property, and it does a disservice to the ratepayers to just sell it” at any price, Conlin says.
The council’s energy committee will discuss (and possibly vote on) the proposed rate increase this afternoon at 2:00.
