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By City Councilmember Nick Licata.
Urban Politics (UP) blends my insights and information on current public policy developments and personal experiences with the intent of helping citizens shape Seattle’s future.
Should The SCL Superintendent Be Reconfirmed?
To rework an old Italian politician’s declaration that “Caesar’s wife must be above suspicion”, in Seattle today citizens, residents and ratepayers are declaring that “City Light’s Superintendent must be above suspicion.” Caesar divorced Pompeia shortly there after; Gary Zarker’s marriage to City Light is similarly on the rocks.
However, the case before the City Council is not as simple as catching an intruder in one’s home at night. Rather it is a tale somewhat like Kurosawa’s movie Rashomon, although in this case with only two very different versions on how a tragedy occurred.
On one hand we have a story told by the Mayor, a number of city employees and some environmentalists, in which our City Light was a well-run ship and that its captain was the victim of the perfect storm – one which lasted a couple years. It is a story of innocence adrift in a sea of Enron dragons. It could have happened to any of us!
The other tale is one of a captain absent from the bridge, watching some other Mariners on the tube with the ship’s owner, all the while ignoring the investors’ hesitant concerns telegraphed to him from shore about the weather reports of approaching storms.
The problem is that in either case, there has been a significant loss of confidence in SCL. The decision to confirm or not reconfirm Superintendent Gary Zarker is one of the most important decisions this City Council will have to make in years.
The SCL Superintendent should be up for reconfirmation every four years. We, the Council, did not exercise that authority in the past and we should have. But we are doing so now because SCL’s management has come under severe criticism particularly because City Light has encumbered a huge debt and had Standard & Poor’s lower its bond rating three times within a 22 month period. These conditions significantly contributed to a 58% rate hike over the past three years.
On a national comparison, SCL’s recent financial performance ranks up there with Global Crossing and AOL Time Warner in that all three managed to lose more than one year’s revenue in a 12 month period. It should also be noted that other utilities were also negatively affected by the energy crisis of 2000-2001. Private companies that leaped into the deregulated world, that the Federal Government was pushing, have lost 85% of their market value. However, SCL did see the highest rate increases among all the public utilities in the northwest.
Seattle City Light is the crown jewel of our municipal government. Its budget is actually bigger than our general city government’s. It’s the third largest public utility in the nation. And as a public utility it serves the public interest not private investors. We, the Council and Mayor, represent the public’s interest and must act accordingly, even if it is a tough decision.
I have reached the inescapable conclusion that our Superintendent did not instill public confidence because of his lack of responsiveness to timely and repeated requests for dealing with the energy crises. This may be due to a heavy dependence on a top management lacking the experience needed to manage one of the largest and most complex public utilities in the nation.
Let me briefly illustrate my points.
The Council asked the Superintendent for a strategic resources assessment on how SCL would deal with the growing energy crisis. We did this two times, first in late 1999 and then again in late 2000. A strategic resources assessment looks at what are our current resources and which ones will we need in the future.
In a November 1999 Council Resolution the Council specifically directed the Utility to address a number of issues. City Light provided a 2000 Strategic Resources Assessment but a memo to SCL from the Council’s Energy Committee stated that it “did not include the thorough analysis of risk policies that had been requested.”
In October of 2000 the Council reaffirmed its interest in a strategic resources analysis by amending the rate legislation to present to the Council by March 31, 2001 a detailed assessment of whether its current financial policies are adequate to manage the risks associated with the current resource portfolio as well as other planned acquisitions. City Light responded six months late and the detailed analysis of risk management was still lacking.
In essence we never got a straight forward detailed answer. This was particularly important with regards to the sale of the Centralia coal plant. The Council made the decision 2 years before it was finally sold. The Council was aware of the risks when we made the decision to sell it in May of 1998. The Council requested that City Light look at their risk management policies as part of their 1999 work plan, because of the planned sale of Centralia.
We knew there was going to be a hole to be filed. SCL did not provide us a strategic review of how the energy was to be replaced. The level of analysis they did provide did not approach a strategic plan as requested.
With regards to risk management, the Superintendent has up to today not responded to the strong recommendation made by Deloitte-Touche that SCL should have loss limits as they are trading on the energy market.
That recommendation was made in August of 2000 and in November 2000 it was rejected by the Superintendent in writing: “At present we do not believe formal position limits are necessary. The RMC (Risk Management Committee) reviews both volumetric and price position limits routinely and makes decisions based on current and expected conditions.” Although last week Superintendent Zarker said he not recall rejecting loss limits at that time and now says it is something that could be considered with the Council.
I find it disturbing that SCL did not have loss limits in place for the year that SCL was trading in the energy market before the Deloitte-Touche report. In addition, the quality of the risk manual that guides that trading was considered inadequate by the Vantage Consulting report that was conducted through the City Auditor and released last year.
Lastly there is the issue of having top management at SCL falling short in the experience that we would expect of a utility of this size. The Vantage Report concluded that, “There is an obvious and critical lack of senior utility managers at SCL with in-dept electrical utility experience.” In particular it noted that the senior management lacked experience outside of City Light and that contributed to City Light’s problems in dealing with the energy market.
SCL contracted with EES to look at this problem and they have issued a report this week. I have reviewed the report and note that when the EES Report looked at the four top management positions, City Light’s upper management is more in-grown, less certified and less experienced than the other public utilities surveyed. City Light is one of the largest utilities in the nation, we can do better than having less than average management. Below I’ve summarized their findings.
Let me make clear that Superintendent Zarker has contributed much to SCL. With his strong background in budgeting; he was able to significantly reduce the number of City Light employees while maintaining a high level of service. And I believe that he has established a good working relationship with many the unions within City Light. And he has been an articulate spokesman for our region in opposing deregulation of the electric energy world.
But while these are qualities that I admire, they are not sufficient to overcome the general lack of confidence that I feel and one that I believe is shared by some others on the Council and in the general public.
I believe it is time to start securing a reasonable timeline for a transition to new leadership. And I expect that the Mayor, SCL and the Council will work together to see that happen in an orderly and timely manner.
Comments On The EES Consulting Report Reviewing SCL
Q. Did the Superintendent provide the senior management expertise that SCL needs to operate effectively in these times?
A. The Vantage Report concluded that, “There is an obvious and critical lack of senior utility managers at SCL with in-depth electrical utility experience.” In particular it noted that the senior management lacked experience outside of City Light and that contributed to City Light’s problems in dealing with the energy market.
In response SCL hired the EES Consultants to conduct a management review. This review was released this week. Interestingly, a visit to the EES Consulting website does not reveal any Management Review projects that they have conducted in the past. The general conclusion of the report could be seen as an argument for why the Superintendent should be reconfirmed.
But when I went through a second time and actually analyzed the data within the report, the conclusions could have been much harsher. In particular when the EES Report looked at the four top management positions, SCL came up noticeably short on experience in comparison to other public utilities. Let me illustrate.
Superintendent/General Manager – Their survey showed that the qualifications for other comparable personnel in this position included on average 25 years of electric utility related work. Zarker has 8 years. Many have graduate or legal degrees; Zarker has an undergraduate degree in liberal arts. Most have some utility-related experience outside of the utility where they are currently employed (Zarker has zero), and this outside experience accounts on average, for half of their total work experience.
Deputy Superintendent of Generation – The EES survey revealed that slightly more than half of the personnel in comparable positions have some utility-related experience outside where they are employed. City Light’s Generation Deputy has none. Most have graduate degrees and half are licensed engineers. City Light’s Generation Deputy is not a licensed engineer and has a bachelor degree in electrical engineering with some management training.
Deputy Superintendent of Power Management – Most personnel in comparable positions have graduate degrees and more than half are licensed engineers. City Lights’ Power Superintendent has an undergraduate degree in management and is not a licensed engineer.
Deputy Superintendent for Distribution – Most personnel in comparable positions have over 25 years of electric utility-related experience. City Light’s Distribution Superintendent has 6 years. Slightly less than half have some utility-related experience outside of their current utility. City Light’s Distribution Superintendent has none.
The most obvious conclusion is that City Light’s upper management is more in-grown, less certified and less experienced than other public utilities. Although the EES Report does not mention the relative size of the other 14 public utilities that are compared to City Light, it is probably accurate to say that City Light is one of the three largest if not the largest public utility in the survey in terms of number of employees and energy generated
Given this information one can only conclude that the Superintendent has not met the prevailing standard to staff SCL with the experience needed to manage one of the largest and most complex public utilities in the nation. This in fact was a need recognized by Zarker when he was first confirmed in 1994 and wrote to the City Council, “I am never going to be an industry expert, but I do expect to help the people in this organization to develop…”
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