Last week, I attended a press conference at the site of the former Greyhound Bus maintenance shop at Denny and Pontius, celebrating new art murals bordering the planned City Light substation there. The substation is needed to handle increasing demands for electricity in South Lake Union, Uptown, Denny Triangle, and First Hill. Click on Denny Substation to learn more about it.

An interesting aspect of these murals is the organization that produced them: Urban ArtWorks. Not only do they provide attractive art for otherwise dismal construction sites, they exercise social justice by paying at-risk youth, along with local artists, to create the work. Stephanie Tschida, Urban ArtWorks executive director, tells me over 70% of those at-risk youth – those in our juvenile justice system – who complete an Urban ArtWorks project do not re-offend.

Nick (far right) with some of the mural artists and their probation counselors

For the Denny Substation project, Urban ArtWorks reached out to the Cascade neighborhood, inviting them to participate in Urban ArtWorks’s ‘Community Painting Days’, during which they transported several panels, paint, and youth interns and artists to work on the panels at the Cascade People’s Center. Neighbors from ages 2 to 80 pitched in.

The founder of Urban ArtWorks, Mike Peringer, published a book about the organization titled “Good Kids: the Story of Artworks,” which is being made into a film.

Sci-Fi Writing Contest for Youth:

Speaking of writing, last year I served as a judge for the Experience Music Project (EMP) Museum’s Science Fiction and Fantasy Short Story writing contest. I enjoyed reading all kinds of wild and crazy stories from some very imaginative kids.

On Friday, March 1st, the winners of this year’s contest will be announced. EMP received 111 submissions this year – more than double than in previous years. On April 20th, an awards ceremony will be held at EMP in the afternoon. Contest winners will be invited to participate in workshops at Jack Straw Productions on writing and vocal coaching and will take part in a recording session to produce an audio version of their winning entry. Winners will also read excerpts from their stories in EMP’s Sky Church during the awards ceremony held in April.

Check EMP’s website for more information.

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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.

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No one likes higher utility rates but one is certain to come next year. Given that Seattle City Light is in a budget crisis, it will run out of cash early next year and will need to issue a significant amount of debt ($200 million) to fund its capital program. The Council must decide this week what their rates will be for 2010.

Below I provide a brief and hopefully understandable explanation of what the situation is. I have not touched on all possible elements that could affect the utility’s rates, but I’ve tried to hit on what seems to be the most important in meeting this critical challenge.

First off, a bit of context; City Light’s rates are significantly lower than the nearest comparable electrical utilities, Puget Sound Energy and Tacoma Light and the Snohomish Public Utility District, even after the Mayor’s proposed 8.8% increase is included. Office buildings, big-box retail with grocery, medium sized industrial manufacturer and small manufacturer serviced by City Light all have utility bills ranging from 16% to 64% below these other three utilities.

Seattle City Light’s rates will be increasing, that is certain. The question is by how much? The Council is currently trying to decide if the Mayor’s proposed 8.8% increase is the right amount. The debate right now, in the most general terms is to determine how to keep City Light’s bond rating from either falling or falling so far as to harm the utility’s ability to raise funds that it needs to operate.

City Light has an annual budget of just over a billion dollars, yet less than $300 million is really discretionary; the rest is committed to debt service, capital projects and contractual obligations. So when proposals are made to cut their budget instead of raising rates to cover their revenue gap, the question of where to cut without harming direct service to rate payers becomes tricky. Even under the Mayor’s proposed budget, cuts were proposed to the tune of $11 million, including $1 million in conservation projects.

There are several moving parts to this puzzle. The first is the existing gap between revenue and budget, which is currently pegged at $140 million. Half of that amount is a long term structural issue due to rates not keeping up with expenses.  The Council and the Mayor decreased City Light rates in 2007 and overall rates have declined 25% since 2003 when inflation is taken into account, and for medium, large and high demand customers the rate decrease comes out even greater, to 40%.

The other $70 million in revenue shortfall is due to the rapid decline in natural gas prices that has driven down the price of electricity that City Light sells on the open market, known as surplus energy sales. These sales compete with natural gas for buyers of energy. Given the national economic climate with a 10% unemployment rate, this relationship is not predicted to change in 2010. Consequently City Light lowered its projected sale for surplus energy to $120 million in 2010. Even this lower estimate may represent a recurring tendency for City Light to overestimate revenue it expects to receive for its surplus energy; in five of the last 7 such projections, City Light has overestimated revenue.

The second moving part of this puzzle is determining how the bond market will rate City Light’s financial condition. Standard and Poor is a credit rating agency that rates the financial strength of utilities on a number of conditions, one of the most important being their debt service coverage (DSC). The DSC is the amount of revenue available to the utility to pay debt service, after paying all other costs. Under current City policy, which was set by the Council, City Light should set retail rates to generate at least twice as much revenue as needed for debt service (referred to as 2.0 coverage).  Unfortunately, today City Light’s actual DSC is about 1.3. At 1.25, bond covenants on certain outstanding bonds would prevent City Light from issuing more bonds.

The Council is currently trying to determine what the minimal DSC can be to sustain a financially healthy utility. City Light is currently rated AA- by Standard and Poor. City Light is one of the highest rated utilities, and allowing it to borrow at a low rate. If we do not meet the 2.0 DSC we will most likely see a rating decrease. Once a rating decrease takes place, the lower rating remains for a number of years; the last time City Light’s financial rating was decreased it took over 7 years to get back to our previous higher rating.

The closer we get to 2.0 the lower the drop in our rating. A one-grade decrease to A+ would result in $1 million a year for 20 years in higher bond costs for a $200 million bond. City Light goes out to the bond market about every two years with bond packages as high as this amount. In addition, a lower rating loses us the opportunity to take advantage of the low bond market rates to re-finance current bonds that we are paying a higher interest rate on. This saving could easily amount to a one time savings of over $20 million.

The Mayor’s proposal would have adopted a 1.6 DSC, after increasing rates by 8.8%, and require setting up an automatic rate adjustment mechanism that would use future quarterly rate increases to compensate City Light for shortfalls in surplus energy sales. This mechanism, known as a PRAM, was opposed by our citizen oversight group, the City Light Rates Advisory Committee. In addition, rates would also be planned in 2011 and in 2012, for a total of at least a 22% increase over three years.

The Council is considering two alternatives to the Mayor’s proposal. One would increase City Light’s rate by 13.8% to achieve a DSC of 1.8, thereby keeping the financial rating of City Light as close as possible to our written policy of having a 2.0 DSC. The other alternative is to go with a rate lower than 8.8% and accept a lower bond rating and consequently lock in higher financing costs for years into the future. Future rate increases and further budget cuts are possible with both options, although a double digit rate increase is almost certain next year if the lower rate hike is taken now.

Each option has strengths and weaknesses. Given the weak economy many businesses that are struggling would feel the impact of a rate increase. That concern is balanced against allowing City Light to cut maintenance on its huge power generating investments and reduce service to its ratepayers. I believe that path could jeopardize Seattle’s greatest public asset, our publicly owned electrical utility, which delivers electricity lower than any nearby private utility.

Whatever option is chosen, it is absolutely necessary for the Council to adopt the recommendation of City Light’s Rate Advisory Committee to unify strategic planning, budgeting and rate-setting in order to achieve a sustainable and healthy City Light. We must begin to control City Light’s operating budget first and then establish rates to meet that budget, rather than setting the rates to meet City Light’s budget. That would be the only sure way to provide reliable, dependable, fair and predictable rates capable of weathering economic downturns such as what we are currently experiencing.

The Council will vote on an increase in City Light’s rates tomorrow, November 12th, in the Budget Committee.

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.

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Restaring Hanford Nuclear Reactor

This Monday (10/18/99) I will be introducing a Resolution at the Full City Council Meeting urging the United States Secretary of Energy to halt efforts to restart the Fast Flux Test Facility (FFTF) nuclear reactor and the proposed Plutonium processing at the Hanford Nuclear Reservation. I have 5 other co-sponsors on the resolution so I expect it to pass.

The sponsors of this legislation oppose the startup of new nuclear missions or facilities at Hanford, which would contribute additional radioactive or hazardous wastes, until the site is in full compliance with state and federal environmental laws and the threat of contamination from Hanford wastes to the Columbia River is eliminated.

Restarting the FFTF would signal a reversal in Hanford’s primary mission to shutdown and cleanup its nuclear waste as required by the 1995 Hanford Clean-Up Agreement.

The FFTF nuclear plant has been kept on hot standby for the last several years. That status has already diverted more than one million dollars from the cleanup effort, which is $200 million dollars short of its cleanup budget.

Two-thirds of the nation’s waste sits in the underground tanks at Hanford. One-third of those tanks has leaked more than one million gallons of radioactive waste into the soil and the groundwater that would flow into the Columbia River. The water from the Columbia River irrigates agricultural fields for food production, much of which is consumed by Seattle Citizens. The seizure of contaminated agricultural products and milk sometime in the future is not an inconceivable possibility if the leakage proves to be significant.

The City urges the Federal Government to allocate the funds saved from shutting down the FTTC reactor for protecting our region’s public health and environment through cleanup of Hanford’s nuclear legacy – as guaranteed in the Hanford Clean-Up Agreement.

Starting up the FFTF reactor would also expose our citizens to the importation of Plutonium fuel through Puget Sound or the Port of Seattle. The City of Seattle had previously opposed (Resolution #28848, December, 1993) the import of spent nuclear fuel through our Port due to the extremely high risk of shipboard fire. Plutonium fuel is a similar hazardous material that poses a similar risk.

Consequently this legislation also opposes the import of spent nuclear fuel or materials with similar high-risk properties – such as Plutonium fuel proposed for operation of the FFTF reactor – through the Port of Seattle or Puget Sound.

DOE Public Hearing

This Monday evening (10/18/99) at 7:00 PM the United States Department of Energy (DOE) will hold a Public Hearing on the scope of its Environmental Impact Statement on the restart of the FFTF reactor. The Public Hearing will be held at Seattle Center’s Northwest Rooms, Rainier Room.

The Resolution urges Seattle residents to make their views known at this and other public hearings, and urges the U.S. Department of Energy to respond to these views.