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June 29, 2005

PUHCA on the Chopping Block -- Wyden Tries to Save this Valuable Law

Our hats are off again to Senator Ron Wyden (D-OR) (click here for previous kudo), who was the only member of the Senate Energy Committee to vote against the current version of the Energy Bill, a version which contains language that would repeal the Public Utlities Holding Company Act (PUHCA). CUB appreciates the fact that Oregon's senior Senator recognizes the importance of the consumer and economic protections of PUHCA.

We recommend the following article to anyone interested in background information about the history and general importance of PUHCA, and what its repeal could mean.

Exponential Enrons Ahead by Kelpie Wilson for truthout.org
Thursday 23 June 2005

One of the least-discussed provisions in the Bush energy bill that has passed the House and is now fast-tracked in the Senate is PUHCA repeal. "Pooka repeal," you say, "what's that?"

The Public Utilities Holding Company Act (PUHCA) is a cornerstone New Deal financial reform signed into law in 1935. It was the biggest battle in FDR's first term. Utilities had become cash cows for power moguls who created complex holding company pyramids for milking ultra-reliable ratepayer income to feed speculative investments. The crash of 1929 knocked these structures flat and took down millions of small investors who had been sold on the reliability of utilities as an investment.

Does any of that sound familiar?

Both the House and Senate versions of the energy bill now contain the PUHCA repeal provision. At the insistence of Democrats, the Senate added in some extra oversight by FERC (Federal Energy Regulatory Commission), but it is a thin reed compared to PUHCA.

Supporters of PUHCA point out that for 50 years, we have had reliable, cheap electric power that has allowed strong economic growth, and that no PUHCA-regulated energy holding company has ever gone bankrupt. Furthermore, it was partial PUHCA repeals in the 1990s that opened the door to Enron, Westar and other energy debacles. To repeal PUHCA now is equivalent to blowing up the barn after the horses have escaped, never mind shutting the barn door.

PUHCA subjects utility finances and operations to strict regulation by the states and federal government. Most importantly, it restricts ownership of utilities to public or private entities that are in the business of producing power, and keeps speculators out. Replacing this kind of control with mere oversight is a joke. It is like trying to rebuild the barn with splinters.

Lynn Hargis is an attorney with a long professional career in power generation, including ten years at FERC. For the past two years, she has held a volunteer position at Public Citizen educating the public about the perils of PUHCA repeal. She says that "it is clearly impossible for a state (or even federal) utility commission, with its limited staff, to review, much less understand and control, the books and records of a huge conglomerate ..." Once PUHCA is gone, she predicts, "there will be a white-hot fury of buying and selling utilities and utility assets - it will be a revival of the 1920s, when three huge companies owned half of all utilities."

There has been a lot of media focus on the $18 billion in tax incentives contained in the Senate energy bill, but almost nothing about PUHCA repeal, even though the latter is by far the greatest prize: according to Lynn Hargis the value of all regulated utilities exceeds one trillion dollars.

Hargis says there will be so much money chasing these utilities that even the venerable public-owned and municipal-owned utilities (PUDs and MUDs) won't be able to hold out.

And get ready to start paying your power bill to Halliburton because some of the companies best positioned to take advantage of this deregulation are oil companies: "The top five oil companies now control 50 percent of US oil production. If they also controlled public utilities, they would be too powerful for any government to regulate," said Hargis.

Also, the impact on renewable energy could be devastating. "If GE owns your utility," Hargis told me, "nothing will be able to stop them from shoving a nuclear plant down your throat. This will kill renewables."

David Sokol is CEO of MidAmerican Energy Holdings Company, a subsidiary of Warren Buffett's Berkshire Hathaway that is now in the process of acquiring PacificCorp, a western utility based in Portland, Oregon. In a 2002 issue of Electric Perspectives, an industry newsletter, Sokol made the case for PUHCA repeal, calling it "the most blatantly out-of-date energy law." In fact, the law as it stands would prevent him from acquiring PacificCorp.

Sokol claims that: "Consumers have saved tens of billion of dollars since Congress began the process of opening wholesale electricity markets to competition 10 years ago." He also argues that by restricting utility ownership, PUHCA is keeping new capital out of the energy industry that is needed for upgrading the electric power transmission grid.

I spoke with Jack Casazza, an electrical engineer who was a Senior VP for an investor-owned utility and who now serves on a task force investigating the power blackout of August 14, 2003. Casazza scoffs at the idea that regulation is keeping needed grid upgrades from happening. "Warren Buffett doesn't know what he's talking about," he said, "and he doesn't have very good technical people. Utilities today have no problem investing in transmission facilities if they are needed and provide economic returns."

On the other hand, grid reliability is an issue of vital concern, and labor is the key. Jim Spellane, communications director for the International Brotherhood of Electrical Workers (IBEW), said that the problem with grid reliability arose with deregulation in the 1990s. "It squeezed things like maintenance and worker training."

Casazza echoed that opinion and said that one significant cause of the 2003 blackout was labor reductions. He wondered how Warren Buffett "would get the 25 percent rates of return he is used to. He can't cut labor, that's already been cut."

The IBEW issued a statement on June 15 praising the Senate Energy Committee for including the new FERC authority in the bill, while recognizing that the greater regulatory powers of PUHCA were still needed. The union had flatly opposed any PUHCA repeal in the past, but Spellane said, "We could see this energy bill has legs. It is going to pass and we want to make sure that the FERC oversight does not get stripped out along the way." House Republicans are against even that minimum amount of consumer protection and Spellane said the IBEW will oppose the final bill if it does not include it.

Senator Ron Wyden was the only member of the Energy Committee who voted against sending the bill to the Senate floor. A top reason given for his dissatisfaction was repeal: "The bill also repeals the Public Utility Holding Company Act (PUHCA) without providing adequate safeguards to prevent captive ratepayers from getting fleeced to support unregulated businesses of utility parent companies."

Jack Casazza is wistful for the utilities of the past. "I'm a believer in capitalism," he said, "and I believe in getting a reasonable return on my investment. But the company I came up in believed that you don't hurt the customer. I have grandchildren and I want to see this country run so they benefit, not so Warren Buffett can put money in his pocket."

Lynn Hargis fears we are headed for another Great Depression. She said, "Not only is it going to be horrible for the whole country, but nobody is even talking about it."

Posted by Oregon CUB at 01:25 PM | Comments (0)

June 28, 2005

Alert CUB Member tips us off to billing cycle problem

It can pay to look closely at those utility bills. At least, that's what one of our Corvallis members is finding. His careful reading of a Pacific Power bill alerted him to the fact that his billing cycle was abnormally long, and that the cost of his electric power went up because of it. He in turn alerted CUB, and we took it very seriously.

As a matter of fact, we did extensive analysis of PacifiCorp (Pacific Power's parent company) billing cycles and came up with some surprising numbers. In 2004, more than 60,000 Pacific Power customers had January bills that were 36 days or longer. This is a problem for a couple of reasons: 1) December and January is the peak load for most of Oregon, when cold weather causes those with electric heat to see their highest electric bills of the year; and 2) the Pacific Power rate structure charges customers one price for the first 500 kilowatt hours used, a higher price for the next 500 kwh, and still a higher price for any usage over 1000 kwh. So a 37-day billing cycle during peak usage months could bump a customer into the highest price for their power, and really increase their bill.

CUB addressed this issue in our current testimony, filed Monday, June 27th, regarding PacifiCorp's current rate case, UE 170. We proposed that the rate blocks be adjusted along with the length of the billing cycle, so that even if that cycle stretches out a week longer than normal, the customer will not be penalized in their power rates. We estimate that, if implemented, this change could save Pacific Power customers $9 million per year.

This rate case is also the first in which CUB directly addresses the issue of phantom taxation. PacifiCorp asked for an increase of 12.5% in rates, or $102 million dollars. We have already negotiated a decrease to $69 million in that figure, and we will ask that a further $49 million be removed from that rate increase. That includes the $15 million in taxes that are currently included in rates but which we know will not be paid. We are also arguing that the profit margin for the company be reduced from 11.12% to 9.5%. We feel that this is reasonable and, taking into account recent tax cuts benefiting investors, will provide a solid rate of return for shareholders.

Each rate case is made up of a multitude of issues, some fairly straightforward and others pretty complex. We appreciate the time and careful attention of the CUB member who provided us with one of the main rate reduction arguments of this particular case. We encourage all CUB members to let us know if you see something on your bill that doesn't make sense. We might be able to use it, as in this case, to save millions of dollars for thousands of people.

Posted by Oregon CUB at 01:11 PM | Comments (0)

June 21, 2005

CUB Legislative Successes

Good news from Salem! House Bill (HB) 3363, the Energy Efficient Appliance Bill, has passed both the Senate and the House. The bill will now go to the Governor's desk for signing. This bill will save Oregon consumers money, approximately $250 million within the first 14 years; and resources, in an amount that has been estimated to include 200 million gallons of water, 1.7 million therms of natural gas, and 75 million kilowatt-hours of electricity -- all of that saved every year! This is the kind of win-win solution that makes CUB happy to represent ratepayers in Salem session after session. Thank you to the CUB members who contacted their elected representatives and urged them to support this bill.

Another piece of good policy CUB helped craft and pass through both the House and Senate is Senate Bill (SB) 983, the Domestic Violence Telecommunications Bill. This bill will help ensure that those leaving an unsafe domestic situation are able to set up phone service in their new homes, which has often presented economic or logistical hurdles. It is important for everyone to have access to a phone in today's world, but especially important for a person who has experienced domestic violence and might need to call for help in the future. SB 983 will provide a necessary basic utility and a little extra peace of mind for those beginning again. The bill was signed into law by Governor Kulongoski on June 9th.

The session is not yet over, and we have hopes regarding a piece of legislation supporting solar energy, the Oregon Community Power bill, and the bill which would reform the practice of utility phantom taxation in Oregon. We will let you know what happens with each.

Posted by Oregon CUB at 09:42 AM | Comments (0)

June 14, 2005

CUB Argues that PGE Hydro Request Is Out of Line

Portland General Electric (PGE) wants you to pay $20 to $30 million next year for this year's low hydro power -- power that you may not have used. This issue is at the heart of CUB's testimony filing last week in PGE's hydro (water power) deferred costs request, UE 165. PGE and Public Utility Commission staff have agreed that customers will have to pay in the future for the value of lost hydro from this year's drought. CUB Executive Director Bob Jenks and Utility Analyst Lowrey Brown argued that this agreement is flawed for the following reasons:

1) The amount of deferred costs PGE is asking for assumes that the company would be paying spot market rates (as if they'd waited until the last minute to purchase power rather than buying it ahead of time) for power they must make up from lost hydro power. They have some advance notice already that this will be a dry summer and can be planning to obtain extra power over a period of months; they will not be forced, as this cost structure would suggest, to make last-minute purchase plans at inflated spot-market prices.
2) This cost adjustment assumes that customers are using the same amount of power as was projected last year when rates were set, whereas actual load on the power supply is down due to a mild winter. As a matter of fact, PGE has joined with Bonneville Power Administration (BPA), CUB, and other regional power organizations calling for people to conserve due to low hydro conditions; however, under this proposal, even if you conserve, they could charge you for some of the power you didn't use. Talk about a shell game -- customers should not have to pay for power that was never used!
3) We don't think this cost adjustment is even legal. Deferred accounting rules (where a company keeps track of unexpected costs to add them into forecasted rates later) only apply to costs actually incurred, not costs simply projected to occur.
4) Finally, the cost deferral they are asking for is much too generous based upon previous cases. The company usually has to "eat" some higher power costs before passing them along to customers. After all, the profits they make are usually justified in terms of the risks they take. By historic standards, the mechanism proposed in the PGE/Staff agreement is ridiculously generous to the company, and not at all fair to ratepayers.

We at CUB do not think customers should be paying the excessive amount requested in this docket for deferred costs due to low hydro. Bob Jenks feels good about the stand we are taking in this case, and confident that our arguments are sound. "Any one of these arguments should be a clear-cut reason for the PUC to rethink this agreement. We hope that by the time they get to our final argument we will have thoroughly convinced them."

We will let you know what the Public Utility Commission decides.

Posted by Oregon CUB at 12:46 PM | Comments (0)

June 10, 2005

Let's Stop Phantom Taxation!

CUB is busy fighting the battle of the hour: making sure that utilities don't collect from ratepayers taxes they aren't going to pay. It isn't fair, it isn't sensible, and we want the practice to end.

Our battlefield is the Oregon State Legislature, where CUB has lent support to Senate Bill 408, which has passed the Senate and will hopefully pass the Oregon House in the next few weeks. SB 408 sets into state law the principle discussed above: The utility will have to earn its profit based on how well it operates the utility, not on how creative its tax accountants are. The bill instructs the PUC to examine whether there is a mismatch between taxes charged to ratepayers and taxes actually get paid. If there is a mismatch, the PUC will create an automatic adjustment mechanism which will more closely align the taxes collected and taxes paid.

Oregonian utility consumers have paid too many dollars into corporate coffers, only to see those dollars never reach the state or federal government they were intended to support. Instead, they have enriched shareholders. For example, PacifiCorp has collected taxes and Scottish Power has pocketed them; this is not small change, since it amounts to about $15 million per year. This may be legal, but it isn't right. The taxes a utility company collects from customers should not be significantly more than the amount that actually reaches the government. It's as simple as that.

PLEASE CALL (503-986-1000) or email (http://www.leg.state.or.us/findlegsltr/) your State Representative today. Tell them to vote YES on SB 408!

Posted by Oregon CUB at 12:41 PM | Comments (0)

June 01, 2005

CUB Adopts Climate Change Resolution

CUB is proud to announce that our Board of Directors has adopted a Climate Change Resolution. As an organization that deals with the regulation of the production of electricity and other energy resources that have been linked to human-influenced climate change, we are happy to have made this step toward incorporating into our work a broader view of what is in customers' and in society's best interest. The Resolution reads as follows:

The CUB Board of Directors is increasingly convinced by the science underlying global climate change and is increasingly concerned about the potential financial, environmental and social impacts of global climate change. Energy production is a significant contributor to greenhouse gas emissions. The impacts of global climate change could be devastating and true costs may be enormous. In analyzing the costs of resource development, CUB will not be constrained by attempts to impute the cost of potential carbon dioxide adders [additional costs that may be added to fuel costs in an attempt to take into account the potential regulatory response to climate change], but may consider the greater costs of global climate change when establishing a position.

CUB supports policies and changes to policies that will reduce Oregon's emissions of greenhouse gases.

So why did we feel this resolution was necessary, and why now? Global climate change may well become the dominant policy and cost driver in the energy industry in the decades to come. The scientific community is nearly unanimous in the opinion that the evidence is strong that most of the warming observed over the last 50 years is attributable to human activities.

Consider the following statements from the Intergovernmental Panel on Climate Change's 2001 report (see link below).