A RESOLUTION relating to the City Light Department; adopting a 2013-2018 Strategic Plan for the City Light Department and endorsing a six-year rate path required to support the Strategic Plan.

WHEREAS, the City Light Department ("City Light") is the 10th largest public utility in the nation, serving more than 400,000 customer accounts, and providing safe, affordable and reliable electricity to its customers; and

WHEREAS, City Light faces a number of uncertain challenges that include meeting power resource requirements, maintaining aging infrastructure, addressing an aging workforce, and achieving new operational efficiencies; and is at a pivotal moment to determine which investments are needed to continue to meet the expectations of City Light's current and future customers; and

WHEREAS, City Light seeks to provide rate predictability and stability in future rates, and to avoid the pattern of volatile rate adjustments that has characterized the last decade; and

WHEREAS, in consultation with the Mayor and the City Council, City Light initiated the Strategic Planning process in 2010 to provide more transparency and accountability for decision-making within City Light; and

WHEREAS, the City Light Review Panel, representing City Light ratepayers, was established by Ordinance 123256 and was tasked to review the Strategic Plan during the two-year period of the Strategic Plan's development; and

WHEREAS, the Strategic Planning process included extensive public outreach, including stakeholder meetings, public meetings, non-English speaking outreach, online surveys, advertising, media, and direct mail; and

WHEREAS, the resulting Strategic Plan is a package of investments to achieve additional operational efficiencies, maintain current service levels, improve reliability, strengthen City Light's workforce, and support job growth and economic development in the region; and

WHEREAS, the City Council has reviewed the Strategic Plan, the associated six-year rate path, the recommendation of the Review Panel, and the results of public outreach; NOW, THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE, THE MAYOR CONCURRING, THAT:

Section 1. The City Council adopts City Light's proposed 2013-2018 Strategic Plan (the "Strategic Plan"), a copy of which is attached as Attachment A and incorporated by reference.

Section 2. To achieve the goals of the Strategic Plan, an average system rate increase of 4.7% per year is anticipated over the period of 2013-2018.

Section 3. The City Council requests that City Light prepare the 2013-2014 Proposed Budget in support of the Strategic Plan.

Section 4. The City Council requests that City Light prepare the 2013-2014 Rate Proposal in support of the Strategic Plan.

Section 5. City Light will review and update the Strategic Plan every two years, adding two years to the Strategic Plan and re-evaluating the subsequent six-year rate path. The next review and adjustment of the Strategic Plan will be finalized in 2014 and will encompass the years 20152020.

Section 6. By the end of 2012, City Light will propose a reporting framework to the Council to track progress in achieving the goals of the Strategic Plan. The proposal should include milestones and deliverables, and special attention should be given to achievement of the $18 million in efficiencies.

Adopted by the City Council the ____ day of ____________________, 2012, and signed by me in open session in authentication of its adoption this________ day

of ______________________, 2012.

_________________________________

President ___________of the City Council

THE MAYOR CONCURRING:

_________________________________

Michael McGinn, Mayor

Filed by me this ____ day of ________________________, 2012.

____________________________________

Monica Martinez Simmons, City Clerk

(Seal)

Attachment A: Seattle City Light 2013-2018 Strategic Plan

Attachment B: Appendix 1 -Financial Baseline

Attachment C: Appendix 2 -Strategic Investments Summary

Attachment D: Appendix 3 -Outreach Summary

Attachment E: Appendix 4 -Review Panel Recommendations Letter

Paula J. Laschober/Calvin Chow/Tony Kilduff SCL 2013-2018 Strategic Plan RES June 26, 2012 Version 7

Attachment A: Seattle City Light 2013-2018 Strategic Plan

Attachment B: Appendix 1 -Financial Baseline

Attachment C: Appendix 2 -Strategic Investments Summary

Attachment D: Appendix 3 -Outreach Summary

Strategic Plan Categories of Interest by Stakeholder Group

	Key Customers (16)	Business Group (88)	Environmental (22)	Emerald Cities (20)	Hospital/ Large Institutions (12)	Public Forums -two (55)	Municipal Customers(11)
Finance & Rates
* Rate predictability	√	√			√		√
* Too much debt						√
* Rates to promote economic development	√						√
* Rates to promote energy efficiency (focus on low bill not low rates)		√	√	√		√
* Improve communications with customers in advance of major financial decisions	√
Conservation / Environment
* Conservation as an objective		√	√	√		√
* Conservation incentives need to make economic sense (long and short term)					√		√
* A focus on climate change initiatives			√				√
* Promote District and Distributed energy			√
Reliability/System/Resources
* System reliability		√			√ (and redundancy)	√	√
* Infrastructure investments						√	√
* Improve outage communications	√
* Review of I-937 challenges	√	√		√
* Diversify Fuel Mix Portfolio						√	√
Workforce
* Address workforce challenges	√	√					√
* Address workforce safety	√					√
Efficiency & Other
* Use a longer term planning horizon		√		√			√
* Employ technology to enhance efficiency		√					√
* Invest in a fiber optic network							√

Online Survey Results (note: 81 total responses)

Highest priority: Provide reliable, safe, cost-effective electric service to customers

* 89% of the respondents are City Light Customers; 60% have been customers for more than 10 years

* Overwhelmingly, aging infrastructure was the greatest challenge customers felt City Light faced (53%); the next highest responses were: keeping rates as low as possible while preserving system reliability (23%); and up-grading electric meters to allow "time of use" billing (22%)

* In ranking the importance of various utility attributes, respondents ranked the following either "more" or "most" important:

Provide greater rate predictability: 31%

Anticipate and exceed customer service expectations: 61%

Promote environmental stewardship: 62%

Balance multiple policy goals in rate design (affordability; recover costs, etc.): 66%

Ensure a safe work environment: 65%

Attract/train/retain a high performance workforce: 65%

Provide reliable, safe, cost-effective electric service: 85%

Maintain a stable, cost-effective, environmentally response power supply: 73%

Incorporate technology to meet future customer needs: 69%

Improve communication about and support for City Light's strategic priorities: 37%

Implement best practices in business processes and technology: 60%

Ensure fiscal strength: 68%

* Only 9% have attended a strategic plan forum and 46% said that they would be likely to attend

* 59% of the respondents are male; 75% are between the ages of 35 and 64; the distribution of respondents was spread across our service territory. Forty-five percent said that they wanted to receive more information about the strategic plan process and several gave us their contact information.

Outreach Summary

Seattle City Light Strategic Plan

Second Phase -February -April 2012

Seattle City Light began an extensive outreach effort to engage customers and stakeholders in a discussion about the proposed sixyear strategic plan. This is a summary of the various methods used to reach interested individuals and organizations. An earlier report on the first phase of the strategic plan outreach is included in the Appendix to the plan.

Direct Mail Postcard To all 408,000 customers with an invitation to

a public meeting and to take the online survey

40,000 postcards to small/med business customers

Stakeholder Meetings Chamber of Commerce -Feb. 23

(Approximately 125 attending) Key Customers -March 12

Environmental community -March 19

Brown Bag -Great Cities -March 22

Neighborhood businesses -March 28

Burien City Council -April 2

Lake Forest Park City Council -April 12

Shoreline City Council -December, 2011

Public Meetings Northgate Community Center

(Approximately 130 attending) The Gathering Place -NewHolly

Five non-English outreach meetings Vietnamese, Chinese, Hispanic, Ethiopian, Somali

(Total of 70 participants)

Online Survey 1236 respondents

Email comments 95 comments

Six letters Environmental community and large institutions/

hospitals

Advertising Comcast -360,000 impressions

2.39% "click thru" to watch ad (7200 individuals)

Media/Social Media 3800 visits to strategic plan home page

Press release, blog, Twitter, Facebook about the plan,

public meetings, and survey

Outreach Summary

Seattle City Light Strategic Plan

Second Phase -February -April 2012

RESULTS

Stakeholder Group	Key Comments	Number of Participants
Chamber of Commerce	What is being done to improve efficiencies identified in UMS study? Will the plan address governance? Will the plan include rate design? Does plan address critical infrastructure needs/reliability?	15
Key Customers	How are infrastructure needs addressed in the pathways? What new conservation programs are being considered? Can AMI be delayed/can you opt out?	20
Environmental Community	More solar in the preferred plan. Have you factored in the possible limit to conservation opportunities. Conservation is essential -should be considered a resource. Delay AMI Nothing in plan about transmission efficiencies. Does plan take into consideration increased use of electric vehicles?	27
CM O'Brien Brown Bag -Great Cities	Does plan consider variable rates? Does plan anticipate increased electric vehicle? Does plan include urban design considerations for the new substation?	10
Neighborhood Business	Is streetlighting a part of the plan? Does plan identify who will pay for the new meters with AMI? How are you addressing the need for more skilled workers?	3

Public Forum	Key Questions/Comments	Number of Participants
NewHolly -The Gathering Place	Can't afford increased rates. Do all rate payers pay for the new substation? Does the plan include nuclear power? Can the plan put more people to work? How will you replace retiring workers?	45
Public Forum	Key Questions/Comments	Number of Participants
Northgate Community Center	Concerns about AMI cost and practicality When is the pay-back on LED streetlights? Will rates go down after six years with all of these efficiencies? Do commercial customers pay different rates than residential customers? Do we pay more for renewable energy sources?	85
Non-English Speaking Groups: Vietnamese Chinese Hispanic Ethiopian Somali	Concerned about rate increases. Want more information on how to save energy in languages other than English.	70 (total)

Online Comments	Key Comments	95 Comments Received*
	More renewable energy investments	13
	Increase infrastructure investments/reliability	10
	Don't raise rates	10
	Rates should be increased to make needed investments	10
	No investment in Automated Meter Infrastructure	7
	Improve efficiency	6
	Increase conservation/energy efficiency	6
	Don't invest in nuclear power	6
	Correct labor inefficiencies	5
	Underground all power lines	5
	No more investments in solar/wind	4
	Create a sliding scale/time of use rate	4
	Invest in more LEDs	3
	City Light provides great service/ affordable rates	3
	Invest in tidal energy	1
	Don't invest in fiber optics	1
	Control invasive vegetation	1
	Do something about the governance structure	1

*Some had more than one comment; several comments were received about the survey contents or explaining their survey answers

Online Survey Results	Topic	1236 Respondents (98% residential)
Ranking of Pathways	New efficiencies Pathway #2	63% (Good/Very good ranking)
	Strategic Initiatives Pathway #3	51% (Good/Very good ranking)
	Bolder Environmental Pathway #5	50% (highest number of negative responses however)
How they would spend $100	Ways to minimize the rate increase	$26.30
	Invest in more renewable energy	$19.50
	Increased efficiencies to improve utility performance using technology investments	$14.40
	Invest to improve reliability	$11.10
	Invest to increase conservation	$11.00
Rating City Light's overall performance	Good/Very Good	80% of respondents
	Neutral	15%

Paula J. Laschober SCL 2013 2018 Strategic Plan RES Att D: App 3 May 8, 2012 Version 1 46 Attachment D: Appendix 3 SCL 2013-2018 Strategic Plan Resolution Outreach Summary

Attachment E: Appendix 4 -Review Panel Recommendations Letter

Seattle City Light Review Panel

c/o K. Kinney Seattle City Light

P.O. Box 34023 Seattle WA 98124-4023

CLRPquestions@seattle.gov

April 30, 2012

Honorable Mayor McGinn

The City of Seattle

600 Fourth Avenue

PO Box 94749

Seattle, WA 98124-4749

Dear Mayor McGinn:

As members of the City Light Review Panel, we are pleased to convey to you our endorsement of the Preferred Path in the Seattle City Light 2013-2018 Strategic Plan, as presented in the February 2012 public outreach draft document. We refer below to this draft document as the "Strategic Plan," understanding that you are now considering what to transmit to the City Council for its action. We believe that of the five paths presented in the Utility's Strategic Plan, the Preferred Path is the most appropriate alterative for City Light to pursue over the next six years.

The Strategic Planning Process

As previously conveyed in our letter of February 16, 2012, we are very pleased with the process that has been used to develop the Utility's Strategic Plan, and Panel's advisory role in that process. The effort has been time-intensive and thorough. We have met 32 times as a Panel over the course of two years, discussing and advising the Utility's senior leadership with respect to the Strategic Plan. The Utility has been highly responsive to our questions and suggestions, and there has been a high level of engagement by the Panel members throughout the effort. The process has had good integrity and transparency. In addition, the process has included two extensive rounds of public input, through which we heard from hundreds of the Utility's customers.

Rates: The "Baseline" Analysis and the Preferred Path

The Strategic Planning process incorporates two foundational analyses: (1) an assessment of City Light's strengths, weaknesses, opportunities and challenges; and (2) a "Baseline" analysis of the costs to maintain the current level of service and reliability, including meeting mandates and completing projects and efficiency efforts already underway. The Baseline projects that an average annual rate increase of 4.1% per year over each of the next six years will be necessary. We believe the Baseline analysis reflects a credible, thorough assessment of the likely costs the Utility will incur to maintain current service levels, address mandates and complete ongoing projects and efficiency efforts. The Baseline is built on a series of assumptions: we find these assumptions to be reasonable but note they could change over the planning period (20132018).

The Preferred Path prescribes a series of investments, efficiencies and actions that are additive to the Baseline, and which will in total result in an annual average electricity rate increase estimated at 4.7% per year in each of the next six years. While any rate increase is challenging for residents and businesses alike, in our view the most prudent path is to maintain current service levels and undertake the additional key investments and efficiencies outlined in the Preferred Path. Among the key investments are:

* a new substation in the north downtown area and an automated metering investment --both of which support overall system reliability;

* investment in workforce safety and in the Utility's ability to attract, train and retain a high quality workforce -both are critical in terms of basic operations and to address an impending wave of retirements (half the Utility's workforce is eligible to retire in the next five years);

* programs and tools that will improve effectiveness and efficiency -many investments targeting outdated, legacy technologies; and

* continued leadership in environmental stewardship.

Additional comments regarding some specific investment proposals are provided below, including the importance of rate predictability and avoiding rate spikes. In terms of the rate impact of the Preferred Path, we note that the industrial sector representative on the Panel, Matt Lyons, while supporting many aspects of the Strategic Plan, believes that increasing rates 31 percent over the next six years as called for in the Preferred Path will hit all rate payers, and particularly manufacturing and industrial businesses, very hard and he therefore does not support those proposed rate increases.

Driving Towards More Efficiencies: The Importance of Continued Benchmarking and City Support for More Flexibility in Labor Policies

We strongly endorse the importance of continuing to benchmark the performance of City Light against its national peers-and to take steps to achieve parity with its peers in efficiency of operations and quality of service delivery. City Light is the 10th largest public utility in the nation. It operates in a national market---in terms of purchasing power (including renewable energy), and in terms of competing to attract and retain highly skilled staff. In other words, the Utility has a national peer group against which to benchmark itself. It is also important to track performance against internally-set performance targets. We are in agreement that City Light:

* Is making a solid effort in the area of securing efficiencies and has proposed to do what it reasonably can in this area over the Planning Period; and

* Should continue to examine and identify the drivers that are causing its performance and efficiency in some areas to be below its peer group average.

The City and the Utility should be commended for commissioning the national firm of UMS to develop a benchmarking study for City Light in 2011---and for developing a specific plan to follow up on the recommendations in that report. The Utility has identified 19 projects it plans to pursue in order to generate operating efficiencies that will reduce Baseline costs by $18million within three years. These projects were selected based on general direction provided by the UMS Report. The Panel encourages City Light to be as transparent as possible about how the $18M in savings will be achieved. The Panel intends to track the Utility's success in implementing the proposed efficiencies. The Utility indicates that of these 19 efficiency projects, seven will require changes in existing labor contracts and/or personnel rules. It is important that the Mayor and City Council support the Utility's need for flexibility in new labor contracts and personnel system rules in order to be able to implement greater levels of operational efficiency. The Panel supports continued benchmarking in the future.

Endorsement of Key Strategic Plan Objectives : The Strategic Plan outlines four key strategic objectives, which the Panel endorses as the appropriate foundational pillars for the planning period:

1. Improve customer experience and rate predictability

2. Increase workforce performance and safety practices

3. Enhance organizational performance

4. Continue conservation and environmental stewardship leadership.

We offer comments below organized, as in the Strategic Plan, around these four key objectives.

Objective 1: Improve Customer Experience and Rate Predictability

We support the major investment in the North Downtown Substation that is included in the Preferred Path: this project supports system-wide reliability. We heard strong support during the Strategic Plan outreach as to the importance of reliable electric power.

We also strongly support the goal of rate predictability and changes to Net Wholesale Revenue calculation. When rates need to increase, this should be implemented on as steady a basis as possible, with significant advance notice wherever possible. Establishing the Rate Stabilization Account was an important first step in this regard. Adopting a six-year strategic Plan is the next step. And, we are persuaded that it is now time to re-examine the methodology for setting the Net Wholesale Revenue assumptions that go into building the Utility's budget. The more accurate these assumptions are, the more accurate the budget will be and the smoother rates will be. It does appear to us that more conservative assumptions around supply and market price assumptions about wholesale revenue are warranted.

We support actions that minimize the need for rate surcharges. The Panel supports taking actions to reduce the likelihood of rate surcharges--including temporarily lengthening debt term, undertaking additional refinancing, and assessing the timing of major projects-while maintaining the Utility's bond rating. We feel such steps are appropriate in light of the current economic and financial environment. The Panel would like to revisit this issue over time to see if there are other ways to achieve this policy goal. Again, it is important to acknowledge that any rate increases are challenging for residents and businesses alike, and avoiding rate volatility is a critical part of addressing this issue for the Utility's customers.

The Panel is generally comfortable with pursuing the Advanced Metering Infrastructure (AMI) investment in 2015 , or later if necessary, to ensure that the Customer Information System (CIS) and Meter Data Management Systems are first solidly in place to support the AMI technology. The Utility needs to carefully design the rollout for AMI: outreach and education needs to be very well executed in order to address concerns that have surfaced in other communities. The Panel will seek to closely track this project as it proceeds, and has requested the Utility report to us at key milestone points. It should be noted that the customer meters now in place are not digital, and are no longer manufactured. They will all have to be replaced, most sooner than later. In this sense, there is not a lot of choice in pursuing as least that aspect of the AMI project. Based on information provided to us, the trend nationally is towards implementing these systems, and City Light is lagging in pursuing this project. In sum, at some point in the future, the Utility will need this capacity, which serves as the foundation for future smart grid investments.

Objective 2: Increase Workforce Performance and Safety Practices.

Taking steps to improve workforce safety is a very important action item, for employees and the community. The Preferred Path includes a relatively small financial investment in workforce safety, but it is an investment we believe is absolutely necessary. As noted in the Strategic Plan, City's Light's reported injury record is nearly twice the national average. This is a serious issue that the Panel believes must be addressed.

The Utility should be allowed to implement policies and practices that enable it to better compete in the national market for needed staff expertise and to meet the objectives of the Strategic Plan. The Utility has mapped out an important initiative with respect to attracting and retaining a qualified workforce---at all levels of the organization. We endorse this effort and we further recommend the City should, as requested by the Utility, adopt a compensation philosophy that allows City Light to better attract professional staff. This means providing City Light with flexibility to develop compensation and classification requirements to meet its needs. As noted, the Utility operates in a national market, competing with other utilities regionally and nationally to attract and retain highly skilled staff. We are told that nearly a third of the City Light leadership and subject matter expert positions are paid between 10-40% less than their industry peers, without taking into account cost-of-living differentials which make the pay gap even greater. In addition, over half the utility's workforce will be eligible to retire in the next five years. City Light's employee age profile is common to utilities across the country. Without a competitive compensation, training and retention program, City Light will be illequipped to meet the impending wave of retirements and attract the necessary personnel. Additionally, we recommend the Utility be more involved in discussions with labor partners, to help insure the Utility can meet the objectives of the Strategic Plan. The Utility must address these human resource challenges in order to position itself for success.

Objective 3: Enhance Organizational Performance.

Benchmarking and efficiencies are central to this effort and have been discussed above. The Panel acknowledges and supports the importance of the other initiatives within the Preferred Path that will improve organizational performance. Many of these are technology and systems upgrades---ranging from completing the Utility's "IT Roadmap," to undertaking a comprehensive performance-based reporting effort, to project management quality improvement, to entering into internal service agreements with City central service departments. To become a high performing organization, the Utility must be given an opportunity to improve the tools available to it, and be encouraged to focus on delivering the most efficient, effective service possible.

Objective 4: Continue Conservation and Environmental Stewardship Leadership.

The Utility is carbon neutral and has an aggressive conservation and energy efficiency program in place. By endorsing the Preferred Path, we are acknowledging the value of the aggressive energy efficiency program included in the Baseline. The Utility's Integrated Resource Plan supports these efficiency acquisitions as the most prudent approach to meeting the Utility's future power needs and mitigating risk from uncertainty in water resources. This approach makes good business sense and should be continued.

Consideration of Other Alternatives in the Strategic Plan

We are supporting the Preferred Path in lieu of Alternate Paths 4 (More Aggressive Reliability Investments) and 5 (Bolder Environmental Initiatives). While both Alternative Paths include some worthy proposals, we believe the highest priority items are those included in the Preferred Path. The Utility will have a very full plate to be able to successfully move ahead on these items, and our endorsement of the Preferred Path reflects our desire that the City and the Utility focus on accomplishing the Preferred Path in the next six years.

The Panel's Work Ahead

For the remainder of 2012, the Panel will focus on rate design and cost allocation. We also will work with the Utility to develop means through which we can track the Utility's progress in implementing the Strategic Plan. Also, while we hope that our own efforts provide an important new level of oversight to the Utility, we will consider whether there are other governance-related matters that should be part of City Light's strategic planning framework.

Acknowledgements

We thank Superintendent Carrasco and the Utility's executive team for their many hours of dedicated effort and leadership in the strategic planning effort. We also thank the City Councilmembers, their staff, and the Mayor's Office for their participation and input throughout the process.

In closing, we believe that implementing the Preferred Path will place City Light in a much stronger position to serve its customers in the years ahead and will improve the efficiency of City Light's operations. We cannot overstate the importance of a longer-term approach to oversight of the Utility. Adopting a six-year strategic plan, and providing oversight and support of the Utility's work over that time to achieve specific objectives within prescribed rate limits will be a major step forward for the

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Utility and its customers. We encourage your support for the Preferred Path.

Sincerely,

City Light Review Panel

Stan Price, Co-Chair Panel Position 3: Non-Profit Energy Efficiency Advocate		Eugene Wasserman, Co-Chair Panel Position 8: At-Large Customer
David Allen Panel Position 5: Commercial Customer	Tom Lienesch Panel Position 1: Economist		Matt Lyons Panel Position 6: Industrial Customer
Julia M. Ryan Panel Position 2: Financial Analyst (Position 4 Currently Vacant)	Sue Selman Panel Position 7: Low-Income Customer Representative		Debbie Tarry Panel Position 9: Suburban Franchise Customer

cc: Seattle City Councilmembers

Jorge Carrasco, Superintendent, Seattle City Light

Paula Laschober SCL 2013 2018 Strategic Plan RES Att E App 4 May 8, 2012 Version 1

9 Attachment E: Appendix 4 to SCL 2013-2018 Strategic Plan Resolution Review Panel Recommendations Letter Paula J. Laschober/Calvin Chow SCL 2013 2018 Strategic Plan RES May 8, 2012 Version 1

Page 1 of 6 Attachment 3: Recommendation of the Review Panel to Mayor Michael McGinn