Text of Statement to Seattle City Council at Zarker Reconfirmation Hearing

Delivered by Putnam Barber, Municipal League Chairperson, on February 27, 2003

We commend the Council on the openness of its reconfirmation process and its recent public outreach.

After a long period of review and evaluation, the board of trustees of the Municipal League of King County recommends that the Seattle City Council decline to reconfirm Seattle City Light Superintendent Gary Zarker. We have lost confidence in the superintendent’s ability to address and resolve the serious problems at the utility.

For years, Seattle City Light was widely admired for providing a reliable supply of electricity to its ratepayers at fair and reasonable prices in a manner that reflected community values. New leadership is necessary to restore the utility to this enviable state.

The cumulative result of his performance is reflected in City Light’s rates. City Light customers are now paying rates well in excess of those paid by customers of municipally owned Tacoma Power, which has been able to lower rates substantially from their mid-crisis levels while Seattle's will remain high for years. We have lost the substantial rate advantage we held over some investor owned utilities in the region. City Light rates are now higher than the national average for light industrial customers. Low-cost hydroelectric power has traditionally provided Northwesterners with lower rates than electricity customers experience elsewhere.

The incumbent has made recent comments, directly to us and quoted in newspaper accounts, that demonstrate that he does not accept the seriousness of the recommendations contained in the Vantage Consulting report, although he told the Council last fall at an Energy Committee meeting that he accepted the vast majority of them and would try to address them. Of particular concern are his assertions (made at a meeting he requested with the Municipal League on February 11) that Seattle City Light has all the expertise it needs and that long range strategic planning is no longer useful in the electrical industry.

More generally, his written responses to the Council for the questions addressed to him by Councilmember Wills do not reflect the seriousness of the problems at Seattle City Light nor do they offer the Council any meaningful role in devising the overall strategy by which the utility will address those problems.

In his response to these questions, the Superintendent lists his current goals as: "Create a long term financial strategy that provides stability, predictability and opportunity for our customers; Engage our elected officials and our customers in the effort to keep the Northwest’s unique energy system cost-based and under local and state control; Restore employee morale." These are worthwhile goals, but they do not address many of the serious concerns about the management of City Light. Perhaps most troubling, they do not give attention to any reduction in the burdens that current high rates are imposing on Seattle City Light customers.

Taking problems seriously and being willing to engage independent professional advisors, citizens, ratepayers and elected officials in their solutions are essential elements in the qualifications for the leader of a municipal utility. In spite of numerous opportunities to do so during the examination of Seattle City Light’s current condition and prospects, the incumbent has not demonstrated that he can address issues in that way.

The Municipal League of King County started out nearly two years ago asking questions about patterns at Seattle City Light that seemed troubling to us. First to come to our notice were the substantial rate increases in 2000 and 2001 in response to a combined drought and period of unprecedented increases in wholesale electricity prices and unpredictable fluctuations arising out of California’s failed deregulation experiment. The answers we received from the incumbent and other City Light officials led us to ask further questions on a wider range of topics.

Subsequently, the Mayor and Council have both made efforts to address concerns about City Light. The Mayor appointed a well-qualified and committed blue ribbon commission whose report suggested the need for close attention to the effectiveness of the way Seattle City Light is governed. The Council authorized an independent and rigorous expert performance review by Vantage Consulting. The results of the consultant’s review, combined with the Seattle City Light response to it, have confirmed the basis for our serious concerns about City Light’s future.

Seattle City Light’s own recent comments and performance suggest that resolution of the utility's problems go beyond the ability and willingness of current management.

Expertise: "There is an obvious and critical lack of senior utility managers at SCL with in-depth electric utility experience" (Vantage Report, pg. 95). Although the Municipal League recognizes that many senior managers at City Light have enjoyed productive careers in various branches of city government, the question is whether these senior managers possess the experience and skill that are appropriate for managing a large and complex electrical utility. At our meeting on February 11, the current superintendent commented on this issue, stating that City Light has all the expertise that is needed to run the utility, although not the type of expertise that others (presumably the Vantage consulting team) believe the utility should have. One very important critical component of an executive’s responsibility is matching needs in the workplace with the appropriate personnel. On this matter leadership at Seattle City Light is deficient.

Strategic Planning: As the Vantage Report succinctly stated: "A formal strategic plan and planning process are needed, with a formal integrated communication of shared mission, objectives and tactical plans" (pg. 93). In our judgment implementing this recommendation would do much to forestall the ad hoc decision making of the past few years, a pattern that has not served Seattle City Light ratepayers well. In spite of several discussions of various types and approaches to planning that have been offered by the incumbent since the publication of the Vantage Report, it does not appear that steps are being taken to implement the needed formal and integrated planning process for the utility.

Risk Management: While Seattle City Light has now begun the process of upgrading its Risk Management Manual as recommended by Vantage, it still has not presented the City Council with a proposal for setting loss limits, which Vantage recommended be done immediately. This is not a new recommendation, having appeared in a 2000 audit of Seattle City Light performed by Deloitte and Touche.

Cost Cutting: We have seen no signs that Seattle City Light leadership has taken seriously the need for careful cost cutting during its present fiscal crisis. In addition to better managing its own costs, Seattle City Light should also be working closely with suppliers such as Bonneville Power Administration (BPA) on cost cutting strategies. This issue needs much higher priority.

Financial Planning: "As evidenced by an average annual build-up of over $100 million in debt, current financial planning is inadequate and financial planning issues need to be addressed immediately" (Vantage Report, pg. 93). Our confidence has not been increased by the Superintendent’s subsequent statements that the $1.7 billion debt is not unduly large, is a result of policies adopted prior to his tenure, and is not out of line with large publicly owned utilities nationwide. In spite of these assertions, new financial policies have in fact been put in place with the goal of reducing overall debt. Public understanding of the burden of debt at Seattle City Light depends on clear presentation of all its elements and is not advanced by highlighting changes in one type of debt without attention to the effect on others. Restoring Seattle City Light to financial strength depends on taking these issues much more seriously and engaging the entire community in their solution.

Defensiveness and Lack of Self-correction: The Vantage Report cited "Seattle City Light’s generally defensive response to issues, a less than enthusiastic response to improvement initiatives, a tendency to dismiss criticism and attack its source, even when such criticism appears to have at least some merit, and a bent towards explaining away past problems as opposed to learning from them" (pg. 96). Vantage also notes, however, the challenges inherent in addressing issues of this type and recognizes the Superintendent's stated desire to address this problem. Recent statements from the incumbent have not, though, reported any focused and measurable effort to revise the way Seattle City Light seeks and makes use of commentary and advice from responsible observers and outside experts.

Communication with City Council and the Public: Of all the problems cited by Vantage Consulting, this one concerns us the most. The Superintendent states in his response letter contained in the Vantage Report "It’s my job to present our leadership with options, the best information and to press my view of what is best. After the debate, however, their decision becomes my direction and I respect it, and I implement it. It’s not appropriate for the superintendent to go around the CEO (the Mayor) and his board (the Council) and complain about their decisions." While the Superintendent’s letter on the Vantage audit does indeed describe an appropriate understanding of one facet of the Superintendent's role, it does not, in our view, describe what has often happened.

By contrast with this vision, we have observed practices that devalue "best information," neither generating it nor presenting it to the Council. In addition, Seattle City Light has failed to respond to some Council information requests and has failed to provide Council decision makers with a clear statement of the utility’s needs while key decisions were being discussed. Too often during the tenure of the incumbent, the utility’s response when serious problems arise or serious questions are raised appears to offer the public, and the questioners, comforting reassurances rather than forthcoming evidence of detailed analysis that allows the community to understand, influence and ultimately accept the actions that are necessary.

Accordingly the Municipal League is urging that the City Council not reconfirm the present Superintendent, but instead bring in new leadership so that this downward spiral of falling confidence and expectations can be reversed.

Regardless of the person chosen to lead the utility, the League believes that it essential for the Council to set well-defined goals for the Superintendent to pursue in order to restore reasonable rates for customers and good fiscal health for the utility. These goals must be accompanied by a defined set of performance measures so there is no confusion over whether goals have been met.

Further, the Council should engage Vantage Consulting to conduct another review and deliver a follow-up report within a reasonable time after the reconfirmation decision is made. Vantage should be asked to report on whether the utility is making substantial headway towards restoring its low rates, solid credit standing and fiscal health for the benefit of the ratepayers. The consultants should also be asked how well the Council, Mayor, and City Light executives are doing at meeting their several responsibilities for overseeing and managing the utility.

The Municipal League will be following future developments at Seattle City Light with great interest. Should the present governance structure not be adequate to resolve the utility’s serious problems, we will at the appropriate time urge new consideration to alternative structures including the one recommended by some members of the Mayor’s City Light Review Committee.

The Municipal League has, along with others, subjected Seattle City Light to intensive scrutiny for many months. Our concerns began with questions about rising debt, lowered credit ratings, and markedly higher electrical rates for City Light customers. As noted, our review and the reports of other observers have led to broader concerns. The responses from the incumbent, in contrast, have suggested that the problems can be addressed with current management and a continuation of current management practices. This response is inadequate, especially in light of the importance that electricity rates have for Seattle’s cost of living and the local economy.

For all the above reasons, we urge you not to reconfirm this Superintendent, but to clear the way for fresh leadership with a strong and clear vision to lead the utility to lower rates, renewed financial stability, improved customer responsiveness, and continuing operating reliability.