Natural Gas Companies Trying to Shift Risk onto Customers

NW Natural, Cascade and Avista Natural Gas Companies have been working with the PUC Staff to craft a new mechanism for passing through the purchase cost of natural gas to customers. The proposed mechanism is complicated and unwieldy, with 6 different possible formats, and allows each company to choose a new format every year. But what CUB really objects to, in Direct Testimony filed today, is the fact that the proposed mechanism would shift the risk of higher gas costs onto customers, while also shifting benefits from customers onto the company. Sort of a lose/lose situation for customers.

As it now works, costs are forecast on November 1st for the upcoming year, and any difference in cost between the forecast and the actual costs is shared between customers and the company (customers bear the risk or receive the benefit of 67% of the difference for NW Natural and Cascade, 90% for Avista). While it is not unheard of for natural gas costs to be less than forecast, we are seeing a trend of increasing natural gas costs that has consumers tightening their belts, and gas companies seeking to shed all risk.

How much of the cost of natural gas purchase is passed along to customers has always been an issue to be wrangled with. It is clear that PUC Staff and the gas companies would like to see 100% pass-through of gas costs. CUB believes that a small percentage of sharing from the company's shareholders is appropriate, since they are being paid a rate of return to manage the company and secure the lowest possible cost. If they have no incentive to prudently and skillfully manage gas purchases, why would they bother, and why should we pay them? However, we were really stunned to find, after 2 weeks of studying the proposal, that this mechanism could actually force customers to pay more than 100% of any natural gas purchase cost that exceeds the forecasted cost. Customers could be absorbing more than their share of any upcoming increases in natural gas costs (and we know they're coming), and that just isn't right.

CUB also argued that customers should receive the full benefit of NW Natural's storage capacity, including the financial benefit of using gas from that storage when costs are down. Customers paid to build and manage the storage, and we should reap the full benefit. However, the mechanism as proposed would allow NW Natural to reap a "reward" for using gas from storage; unfortunately, that reward would come out of customers' pockets. Again, this change is unfair, and we argued strongly against it in our testimony.

The crowning irony of the situation is that this convoluted, time-consuming, and patently unfair proposal process has not been proved necessary. NW Natural has done a very fine job, according to outside consultants, of managing its gas storage and purchasing, and its credit rating is strong. The system for managing gas purchases in Oregon has been working and CUB believes that adopting the proposed mechanism will seriously weaken the system as it now stands.

We made our argument, and will continue to push for a fair allocation of risk, up until the case closes and the Commission comes to a decision. We hope that Commissioners remain fully cognizant at every step of the decision-making process of the financial stress customers are already going to be bearing from rising fossil fuel prices, particularly - you guessed it - natural gas.

Posted by Oregon CUB on July 25, 2008. Permanent link to this article. | Comments (0)

Natural Gas Utilities Forecast Increase in Prices; CUB Will Work to Mitigate Impact

The Public Utility Commission hosted a public hearing Tuesday on gas prices, which are going up, in a "significant" to "steep" increase kind of way. NW Natural customers will be hardest hit with a 35-40% increase. Cascade Natural Gas customers will see 15-20% increases. And Avista's customers are looking at an increase of 10-15%. The commodity increase from the wholesale natural gas market is similar for all 3 major Oregon gas utilities; however, differences in storage history and capability, hedging strategy, resource amortization, and the institution or retirement of Commission-imposed refunds on utility rates make up the difference.

These are power cost adjustment cases, not general rate cases, and the costs have not been filed, so the opportunities for CUB to challenge the increases are unknown. Commission Chair Lee Beyer cited figures suggesting a Pacific Northwest natural gas spot market increase of around 70% from last winter to this coming winter. For the most part, utility regulation allows fuel costs to be passed along to customers. We wrote about this last month in our blog, "Energy Market Sees High Prices Across the Board." Wholesale gas prices are at record levels and there is little doubt we will face higher bills next winter, though until we see the details of the filing, we cannot conclude that the utility forecasts are accurate.

But there are things that we can do as a consumer advocacy organization, and that you as smart consumers can do, to mitigate the fuel cost increase.

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Posted by Oregon CUB on July 17, 2008. Permanent link to this article. | Comments (0)

CUB Files Testimony in PGE Rate Case, Calls for 1% Reduction in Costs

Yesterday CUB filed testimony in the current Portland General Electric rate case, a case that we have determined, after months of poring over data requests and the Company's filing, ought never to have been filed in the first place.

For starters, it's not as if PGE is suffering financially; in fact, they are earning above their authorized rate of return (ROR), which the Commission set last year at 10.1%. There are no new large capital investments, the most common reason for filing a general rate case. PGE has added up a bunch of smaller costs into a rate case, and asked for an increase in customers' rates of about 9%. (Note: in a separate docket dealing only with fuel and power costs, we expect PGE to announce a new large rate hike tomorrow.)

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Posted by Oregon CUB on July 10, 2008. Permanent link to this article. | Comments (3)

CUB Protects Basic Local Service in Qwest Settlement

Qwest has been trying to deregulate phone service in Oregon for quite a while. You may recall a bill to that effect in last year's Legislative Session. Then last fall they filed a case with the PUC asking for deregulation and the ability to raise rates. CUB has been working defense on this issue for some years now, working to keep land-line phone service protected for those who rely on it, and we've recently reached a settlement.

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Posted by Oregon CUB on June 26, 2008. Permanent link to this article. | Comments (2)

Energy Market Sees High Prices Across the Board

It's summer (almost) and the natural gas furnaces around Oregon have been idling (almost) as temperatures reach (almost) 70 degrees on a regular basis. Normally, Oregon's largest natural gas provider, NW Natural, would be purchasing gas to store for the winter. As stated by Bloomberg.com, "Utilities and large industrial consumers typically stockpile gas during the U.S. summer for use during the peak winter demand period." But across the nation, gas utilities are buying and storing less gas than normal, because the cost of natural gas is not at a normal level.

Everyone knows that the price of oil (recently at nearly $140/barrel) and the price of gasoline ($4 and up) have been rising quickly. But a look at the wholesale natural gas market shows how much the price of natural gas has also increased.

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Posted by Oregon CUB on June 18, 2008. Permanent link to this article. | Comments (0)