This week’s meeting was part 2 of 3, intended to be a Q&A session with SCL staff so that the Council members could learn more about specific issues in the Strategic Plan. The third, and probably final, meeting is scheduled for July 14, in which Council members will propose amendments to the plan and possibly vote on a final version to send to the full Council to enact.
The first part of the meeting was a report from the Seattle City Light Review Panel, a 9-member committee comprised of customers and subject-area experts, tasked with providing input and feedback to SCL on their planning efforts. They conveyed their unanimous support for the plan, though raised some ongoing concerns for the Council to bear in mind.
The second part of the meeting was Q&A with Jim Baggs and Paula Laschober of SCL, two senior leaders in the organizations. The Council had submitted several questions ahead of time, and Baggs and Laschober answered them in both verbal and written form — in addition to fielding new questions in the committee meeting.
The conclusion one draws from the Strategic Plan and from hearing both the Review Panel and SCL executives is that Seattle City Light is a utility entering a period of massive change. At the moment, demand for electricity is flat, and in some years it is actually declining despite the overall growth in Seattle’s population and economy. Much of this is due to conservation; estimates show that across the US full installation of LED lights could reduce electricity consumption by up to 10%; and the newest generation of efficient buildings can save 40-80 percent off their total energy bill. But it’s also in part — a steadily increasing part — due to “self-generation” from customers’ own generation infrastructure (mostly solar).
The power distribution grid is also changing. It wasn’t that long ago that the grid was almost entirely one-way, pushing power out to customers. Now it has become more bi-directional as customers sell surplus solar generation back to the utility. That is also leading to more “grid defections” as customers disconnect themselves entirely as they reach self-sufficiency, and that trend will likely continue when battery technology finally catches up so that excess solar generation can be stored by consumers and used at night.
This makes things tough for a power utility. SCL is a capital-intensive business with high fixed costs: their generation capacity, their distribution network, and metering capabilities. And they can’t build it out to average demand for power; they must build it to be able to handle peak demand, so it’s overbuilt by necessity for most daily usage.
Having high fixed costs affects their pricing, since they need to cover their expenses: if usage goes down (which it is), then prices need to go up in order to raise enough revenues to keep the business in the black. Normally if a business is seeing sales drop, it considers lowering prices to make it more attractive; not only does SCL not have that option, but we require it to invest in conservation programs ($45 million last year) to drive sales lower. It’s absolutely the right thing to do, but it puts even more pressure on SCL’s business. This is a problem that many utilities are seeing, and is particularly exacerbated by home solar installations that generate excess electricity that utilities are often required to buy back from consumers; since the cost of maintaining the grid is built into the per-kilowatt-hour cost of electricity, there is no provision for recouping costs for grid maintenance for people who sell energy back — and the costs just become higher as they are spread among the remaining customers. Inevitably the way we think about the power distribution grid as a city asset, and choose to pay for it, will need to change.
There are other weird artifacts in SCL’s business, such as the fact that most of the conservation incentive subsidies, such as solar installations and building efficiency measures, mostly help more affluent customers because they also require upfront investments by the customer.
Eventually we will run out of “low hanging fruit” conservation measures, and usage will start trending back up as the city’s growth outstrips conservation savings. In the meantime, SCL needs to be thinking about how to grow its business into new opportunities, such as electric car chargers (cannibalizing gas sales as more people buy electric cars), mass transit electric buses and light rail trains, and data centers for tech companies such as Amazon and Microsoft. To the extent that we can move people off fossil fuels onto electric alternatives, then SCL’s business gets better and electricity rates stay low.
In the meantime, SCL is estimating an average annual increase of 4.3% for rates over the next six years, with larger increases in the first few years and smaller ones for the later years. The danger with that, as the Review Panel noted, is that SCL may change its mind and increase the later-year rates between now and then. Over the past four years, rates have gone up in total around 20%, but the silver lining to that is that because of conservation efforts reducing usage, the “bill impact — the increase a customer sees in the bill — has been closer to 6%. That is likely to continue at least for the next few years as we are in no danger of imminently running out of energy conservation opportunities. Nevertheless, the overall trend of lower usage and higher rates is worrisome to many on the Review Panel, at SCL, and on the City Council.
The Council poked at a few other areas of the plan to see if there were opportunities to make improvements. It asked if it would be possible to delay some of the Advanced Metering Infrastructure(AMI) initiative for a few years, and what the effect on electricity rates would be if that happened. It’s a bit complicated, SCL explained, because the effort, which will install 430,000 new meters by the end of 2019, is already underway and some contractual obligations are already in place. It’s also important to note the role that AMI plays in other efforts in SCL: the new meters mean that SCL no longer needs to send people around to read meters as the new meters automatically send their readings back to SCL, and there will be an ongoing cost savings as a result of removing that job. Also, the new meters are an important part of how home solar installations are connected to SCL’s grid , so as more solar is installed (there were 2,244 last year; SCL has a goal of 4,300 by 2018) the AMI infrastructure will be required anyway.
One of the biggest projects that SCL has underway right now is the new Denny Substation — the first new one in Seattle in 30 years. It is intended to provide additional capacity in the downtown and South Lake Union areas when it comes online in Match 2018. It will also provide “network service,” a redundant distribution system that provides a higher level of fault-tolerance for customers who elect to pay for it (it costs more than normal power service). Technology, biotech and manufacturing companies that have critical equipment on-site (and there are many in South Lake Union, including Amazon) are the target customers for this. Council member Sawant, the chair of the committee, pushed hard on this, wanting to understand whether the Denny Substation was required just for those customers or more broadly for the region, and if it was required for those customers she will look to make them pay for it rather than spreading the cost across all SCL customers through higher rates. The SCL staff explained, and their planning documents support, that while the Denny substation build-out includes some redundant equipment intended to implement network service, the substation as a whole is required to bring additional capacity to South Lake Union given the rapid development of the area, and that all the substations provide some level of backup for all the other substations in the city, so the utility’s policy is to share some of the cost across all customers as well as charge more for network service so the cost is split. Sawant did not seem satisfied with their answer, so we can probably expect to see her introduce an amendment to the plan; she might opt to raise the network service cost, or to attempt to find another mechanism to allocate the Denny Substation cost to SLU companies.
Sawant also asked whether it would be possible to increase SCL’s apprenticeship program as part of a larger effort to increase the city’s Priority Hire program.
Most of the other Council members present (Bagshaw, Burgess, Gonzalez and Juarez) asked few questions during the committee meeting, and none mentioned specific amendments they were considering. Given that overall the Strategic Plan is being well received, we should expect few changes by the Council when they convene again on the 14th.
SCL has some big issues it will be struggling with as it morphs over the next several years. At least it seems to have a good handle on the issues, even if the answers are still elusive.