AN ORDINANCE relating to the City Light Department; establishing parameters with respect to the Rate Stabilization Account within the Light Fund created by Ordinance 121637; and adding a new Section 21.49.086 to the Seattle Municipal Code; and ratifying and confirming certain prior acts.

WHEREAS, since 1977 the Mayor and City Council have set electric rates for the City Light Department (City Light) in compliance with specific financial policies adopted by resolution; and

WHEREAS, the purpose of such financial policies is to maintain City Light's financial strength; and

WHEREAS, wholesale market sales of surplus power are a major source of revenue for City Light, and due to the uncertain nature of its two primary drivers, hydroelectric generation and power market prices, this revenue is unpredictable, extremely variable, and largely uncontrollable; and

WHEREAS, the size of this source of revenue has increased significantly since 2001 when, at the City's directions, City Light greatly increased the size of its power portfolio; and

WHEREAS, by Ordinance 121637, the City in 2004 created a Rate Stabilization Account within the Light Fund (the "Rate Stabilization Account") for the purpose of reducing the need for rapid and substantial increases in City Light rates solely to address bond coverage and additional bond requirements under ordinances authorizing City Light bonds; and

WHEREAS, the Rate Stabilization Account has not yet been funded; and

WHEREAS, Resolution 31181 adopted by the City Council on January 11, 2010 declared the Council's intent to complete a comprehensive review of City Light financial policies and to establish new policies by March 31, 2010, designed specifically to address the impact of the variability of wholesale revenue on the utility's financial performance; and

WHEREAS, the City Council has completed its review of City Light financial policies; and

WHEREAS, consistent with the certain recommendations of the City Light financial policies, the City Council desires to provide additional parameters on the funding, operation and expenditure of amounts in the Rate Stabilization Account; NOW THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. A new Section 21.49.086 is added to the Seattle Municipal Code as follows:

SMC 21.49.086 Rate Stabilization Account

A. A The purpose of the Rate Stabilization Account established by Ordinance 121637 is, among other things, to absorb fluctuations in City Light's annual revenue in any given year due to deviations in net wholesale revenue from the amount assumed in the adopted budget for that year. Deposits into and withdrawals from the Rate Stabilization Account also affect the calculation of "Net Revenue" under certain provisions of ordinances authorizing City Light bonds, and can therefore serve to absorb other fluctuations in "Net Revenue" as that term is defined in those bond ordinances. Except as otherwise provided by ordinance, funds in the Rate Stabilization Account cannot be used for any purposes other than those specified herein .

B. Target size of the Rate Stabilization Account:

The target size of the Rate Stabilization Account shall be no less than $100 million and no greater than $125 million.

C. Initial funding of the Rate Stabilization Account:

Initial funding of the Rate Stabilization Account will come from a variety of sources including:

(1) the amount remaining in City Light's existing Contingency Reserve Account;

(2) cash from operations in 2010 in excess of that required for operations and debt service;

(3) revenue from the sale of surplus property in 2010 and 2011 not already recognized in City Light's 2010 Adopted Budget;

(4) allowable savings in 2010, 2011, and 2012 from refunding bonds in 2010; and

(5) other sources of revenue as determined by the City Council.

D. Baseline for the Net Wholesale Revenue forecast:

For the purpose of this Ordinance, Net Wholesale Revenue means gross wholesale revenue less the amount of wholesale purchases.

The Net Wholesale Revenue forecast for any given year shall be the simple average of such revenue realized over all years beginning with 2002 and ending with the last year prior to that of the forecast for which City Light has complete information, unless, after consideration of additional information, the City Council determines a different methodology is warranted. The forecast thus established shall be the amount of Net Wholesale Revenue assumed by the City Council for the purpose of establishing City Light rates and budgets.

The annual forecast will be distributed over the quarters of the year as follows:

30% for January 1 to March 31;

35% for April 1 to June 30;

15% for July 1 to September 30; and

20% for October 1 to December 31.

The amounts determined in this way will be the quarterly Net Wholesale Revenue forecasts for the purpose of Subsection E and will be reported by City Light in its annual budget proposals.

E. Use of the Rate Stabilization Account:

Effective January 1, 2011; should the actual Net Wholesale Revenue for any quarter be less than the forecast for that quarter as determined in Subsection D, City Light will transfer the difference, rounded to the nearest million dollars, from the Rate Stabilization Account to the Light Fund. Alternatively, should the actual Net Wholesale Revenue for any quarter be greater than the forecast for that quarter as determined in Subsection D, City Light will transfer the difference, rounded to the nearest million dollars, from the Light Fund to the Rate Stabilization Account. In each case the transfer will occur within thirty days of the end of the quarter in question.

No later than thirty days after the end of each quarter, City Light will notify the Mayor and the City Council of the forecast and actual Net Wholesale Revenue for that quarter and for the year to date, and of the amount remaining in the Rate Stabilization Account after transfers authorized under this Subsection.

F. Replenishment of the Rate Stabilization Account:

(1) Whenever the amount in the Rate Stabilization Account is $90 million or less, City Light will impose a surcharge equal to 1.5% of base rates at the earliest opportunity. The proceeds from the surcharge will be deposited into the Rate Stabilization Account. The surcharge will remain in effect until the amount in the Rate Stabilization Account reaches $100 million and will be removed at the earliest opportunity thereafter.

(2) Whenever the amount in the Rate Stabilization Account is $80 million or less, City Light will impose an additional surcharge equal to 1.5% of base rates at the earliest opportunity. The proceeds of the additional surcharge will be deposited into the Rate Stabilization Account. The additional surcharge will remain in effect until the amount in the Rate Stabilization Account reaches $90 million, and will be removed at the earliest opportunity thereafter.

(3) Whenever the amount in the Rate Stabilization Account is $70 million or less, City Light will impose an additional surcharge equal to 1.5% of base rates at the earliest opportunity. The proceeds of the additional surcharge will be deposited into the Rate Stabilization Account. The additional surcharge will remain in effect until the amount in the Rate Stabilization Account reaches $80 million, and will be removed at the earliest opportunity thereafter.

City Light will notify the Mayor and the Council in writing of its intent to impose a surcharge under either of these provisions.

(4) Effective after the fund has reached its minimum target value of $100 million; If, in spite of the rate surcharges provided for in paragraphs (1), (2), and (3) of this Subsection, the amount in the Rate Stabilization Account is $50 million or less, the City Council will initiate a rate review, if the Mayor has not already done so, within forty five days that will increase rates, reduce City Light spending, or identify additional sources of funding, or a combination of these measures, to bring the amount in the Account up to $100 million within a period of 12 or fewer months.

Interest earned by the funds in the Rate Stabilization Account will be deposited into that account.

Nothing herein shall limit the authority of the City to deposit other amounts into the Rate Stabilization Account as may be authorized by ordinance.

G. Disposition of excess funds in the Rate Stabilization Account:

Effective January 1, 2011; whenever the amount in the Rate Stabilization Account exceeds $125 million, the City Council will initiate a rate review, if the Mayor has not already done so, within forty five days that will decrease rates, allow City Light to cover more of its capital expenditures with cash from operations or defease outstanding debt in order to keep future rates low, increase its expenditures, or a combination of these measures, to bring the amount in the Account down to $125 million within a period of 12 or fewer months.

H. Consistent with Section 22 of Ordinance 121637, deposits into or withdrawals from the Rate Stabilization Account in respect of any fiscal year may be made up to and including the date ninety (90) days after the end of that fiscal year.

Section 2. Any act consistent with the authority of this Ordinance and taken after its passage but prior to its effective date is hereby ratified and confirmed.

Section 3. This ordinance shall take effect and be in force thirty (30) days from and after its approval by the Mayor, but if not approved and returned by the Mayor within ten (10) days after presentation, it shall take effect as provided by Municipal Code Section 1.04.020.

Passed by the City Council the ____ day of _________, 2010, and signed by me in open session in authentication of its passage this _____ day of __________, 2010.

_________________________________

President __________of the City Council

Approved by me this ____ day of _________, 2010.

_________________________________

Michael McGinn, Mayor

Filed by me this ____ day of _________, 2010.

____________________________________

City Clerk

(Seal)

Tony Kilduff/Dan Eder

LEG, City Light Rate Stabilization Account, ORD

February 10, 2010

Version # 1