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Source: Seattle Post-Intelligencer Publication date: 2000-10-27 Arrival time: 2000-10-28

Clean, cheap, reliable electrical power - it's as Seattle as rain. But the electric power system in the Western United States, including Seattle City Light, is undergoing a difficult transition. Rate increases, unfortunately, are as imminent and inevitable as our winter rains. Wholesale electric power, which had been holding steady at $20- $30 per megawatt-hour for much of the past five years, soared at times this summer to more than $1,000 per megawatt-hour. Prices have moderated some, but are still reaching the $200 range.

There are three main reasons for the wild price spikes.

First, the Southwest had unusually hot weather this summer and used a lot of air conditioning. Second, the West has experienced rapid economic growth for several years without concurrent development of new generating and transmission facilities.

The third and most frustrating reason is the dismal failure of California's deregulation experiment.

California's deregulation plan forced private utilities to sell their electricity-generating plants to a host of unregulated marketers. The state now has little control over the power sellers, who hold power back from the market and then sell at premium prices.

Power transactions focus on the hour-ahead market, when the prospect of imminent outages drives prices up to astronomical levels. It's a system that encourages price gouging. Wholesale prices bear no relationship to the cost of generating the product - and customers ultimately must pay the price. In San Diego, where retail rates fluctuate with the market, customers have seen their bills as much as triple this summer.

The situation in California has driven up the cost of wholesale power throughout the West. While City Light's own dams provide relatively cheap power, we still buy about 15 percent of our resources on the market. And this thin slice consumes about 40 percent of our power budget. We now project net expenditures of nearly $70 million more for market power than we estimated when we set rates at the end of 1999.

Adding to the volatile mix of a deregulated market, tight supply and high demand is an unprecedented load growth within City Light's service territory.

The explosion of the Internet has created a new industry of Web servers - huge data centers that process information for Internet- based businesses. These businesses require very large loads - anywhere from 40 to 100 megawatts, compared with seven or eight megawatts for a large high-rise office building. Earlier this year, developers of a number of these data centers began applying for building permits.

We recognize that new developments of this type are a necessary part of the high-tech economy we want to encourage in the region, but they put considerable stress on our distribution and generation systems. In a relatively short amount of time, they can suck all the available capacity from our distribution system. They will increase the amount of power we have to buy from the market, thereby increasing our power costs. Simply folding these new large customers into our rates, as we have in the past, could boost rates for everyone else by 10 percent to 20 percent.

It all adds up to an unsettling time for the electric industry in general and City Light in particular. Here's how we're dealing with it:

For the short term, City Light must adjust rates to reflect the realities of the power market. We have proposed to the Seattle City Council a power rate adjustment that will raise rates by four-tenths of a cent per kilowatt-hour. Customers will see about a 10 percent increase in their electric bills. If approved, it would take effect in January 2001 and stay in effect until we've recovered the $70 million shortfall, probably through 2002.

Also, the City Council has adopted an ordinance proposed by Mayor Paul Schell that will give City Light the authority to contract with customers whose loads are greater than 10 megawatts. That will enable us to secure added distribution costs up front and negotiate power supply arrangements that more accurately reflect our power costs. Our goal is to serve these new large customers equitably without adversely affecting current customers.

For the long term, we have a strategy to move us toward independence from the chaotic power market.

We will buy our full entitlement of power from the Bonneville Power Administration. That will go a long way toward stabilizing our resources and power costs.

We will give careful consideration to buying a share of a combustion turbine, fueled by natural gas. It's a clean, reliable source of energy and safeguards us against dry years, when our dams produce less power.

We will acquire about 100 megawatts of renewable energy over the next 10 years. Wind, geothermal or solar power will add to our already impressive portfolio of environmentally benign energy supplies.

We will double conservation over the next 10 years. Every kilowatt- hour we save through conservation is one we won't have to buy from the market.

This package of acquisitions will stabilize our costs by the end of next year. We know that reliability is crucial to our customers, and we are committed to meeting the demand for our service.

This is a challenging time for Seattle City Light. We are confident that we can continue to meet our customers' needs and contribute to the region's economic vitality while keeping our bills the lowest in urban America.

-- Martin Thompson (, October 29, 2000

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