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October 29, 2007

Qwest files for phone rate deregulation

Qwest is at it again. Unsuccessful in attempts to move through a plan to deregulate rates (and therefore raise them) for basic phone service on the Governor's Telecommunications Task Force of 2006, and in the Oregon Legislative Session of 2007 (note earlier mention of SB 2621), Qwest has now filed a case with the Public Utility Commission trying to do the same thing. We've looked it over, and it isn't pretty.

Qwest has filed a case with the PUC asking to raise the rate of basic local phone service and erase the price caps on many other additional phone services, as well. Their argument about needing more revenue lacks strength since basic telephone service is a declining cost industry, and has been for several years. Also, although Qwest may have been prohibited from raising their prices for most local services for several years, customers have seen increases on their phone bills, due to the FCC moving more of the costs of the national phone network onto subscribers' local phone service bills.

Qwest's filing would allow them to opt out of their current system of price cap regulation, which they chose out of a range of possible options in 1999, when Senate Bill 622 created the model of price cap regulation for Oregon under which Qwest has been operating. There was an assumption by those involved in the passage of SB 622 that the price cap regulation was a fairly permanent status change, and that only another legislative change would allow a change in that status.

Other options include traditional rate regulation based on the utility's rate of return (generally utilities earn about 10% above their rate of investment; this is the regulation PGE and PacifiCorp operate under); complete deregulation of services, dependent on the utility proving to the Commission that sufficient competition in providing those services exists to ensure a fair market; and an alternative form of regulation, which allows the PUC to set prices without regard to rate of return on investment. Whether Qwest can legally opt out of their current price cap regulation is a primary issue, as far as CUB is concerned.

Qwest is seeking price deregulation under a statute that allows the Commission to set prices without examining a utility's profit. A fundamental question, however, is whether this is legal. The Commission uses its regulatory power to set prices; can it use the same power to deregulate and not set prices? We are skeptical.

What is at stake is, of course, a great deal of customer money, and while the burden of increased rates would fall on every one of Qwest's customers, those hardest hit would be those with the least income who have only a single basic phone line. Those customers would see a $2/month increase sometime in the first 4 years, and then unlimited increases after that. All other phone services would be immediately eligible for unspecified (and uncapped) levels of price increase, including directory assistance, caller id, call waiting, unlisted numbers, and other optional phone services. (Voice mail service has been deregulated for some time and DSL service has never yet been regulated.) So, just for starters, Qwest could earn an extra $2 million per month on basic phone service, with greater increases from these additional phone services, and any increases they add to basic after the 4-year period is up.

What they have offered in return is a $1 million investment in network infrastructure in places that might not have been cost-effective (they say) to build in. And up to an additional $1 million for high speed connections for Oregon K-12 schools -- no base level of investment is guaranteed. We don't mean to be uncharitable ourselves, but do want to point out that a very small surcharge of less than 10 cents per month on existing basic service phone lines in Oregon for one year would give the same million dollars for schools, while Qwest would be pocketing at least an extra $1.9 million per month (or $1.90 per month per line) forever! When they were negotiating SB 622 eight years ago Qwest offered $120 million in network investments; it seems to us their negotiation offers have slipped somewhat.

One of the rationales Qwest gives for the attempt to raise local service rates is that they are subject to competition. We aren't disputing the increased competition in the telecomm world. But most of the competition comes from wireless phone services, which offers an increase in portability and convenience, which this filing doesn't address; and from the bundling of basic phone services with options such as cable television and internet, DSL, or wireless together on one bill (Qwest's main competitor in these fields is Comcast), and Qwest is quite capable of competitive bundling without this filing.

We're not impressed with the arguments put forth in Qwest's filing and we're not impressed with their going over well-traveled ground either, repackaging previous failed efforts to deregulate prices. But Qwest has successfully pursued this kind of rate deregulation in other states, and so CUB will file a response that attempts to keep Qwest's hand out of the proverbial cookie jar, once again.

Posted by Oregon CUB at 03:18 PM | Comments (0)

October 17, 2007

Utility Tax Filings Show Tax Reform Is Working

Do utilities get to keep customers' tax payments, or do they have to pass that money along to government? This was the heart of the issue for CUB when we began writing and then advocating for passage of SB 408 back in the 2005 legislative session. Feathers were definitely ruffled after it became apparent that former PGE-owner Enron had collected hundreds of millions of dollars in taxes and then kept that money, using tax reductions at the parent company rather than passing it along to government.

The good people of Oregon were not amused. It became a rallying cry to get rid of so-called "phantom taxation" and CUB was at the head of the crowd. So we passed SB 408, the utility tax reform law, and this week we saw the first full tax filings of our major privately held utilities affected by the law, on earnings in the year 2006. The numbers vary, but the results for PGE, PacifiCorp, NW Natural, and Avista (which serves customers of Southern and Eastern Oregon with natural gas) show that the tax reform is working just as it was intended.

Under SB 408, a utility company will always pay the lesser of its share of the tax liability of the consolidated corporate entity, or its own stand-alone tax bill. The Oregonian story which ran on Monday describes SB 408 this way: "The law requires utilities to reconcile the taxes they collect from customers as part of monthly utility bills with what the utility ultimately pays to taxing authorities, then surcharge or refund the difference."

PGE will be issuing a refund to customers of $37 million (about 2% of one year's rates) collected during the year 2006 (which includes time that this large Oregon electricity provider was still owned by Enron). Avista customers will see a refund of about $1.1 million. Both amounts indicate that the tax amounts that were forecast were offset by tax deductions at the corporate level. The money was collected by the utilities in rates, and will now be refunded in rates.

Two of the utilities filing, PacifiCorp and NW Natural, show that their actual taxes for 2006 will require a surcharge to customers, each of them for different reasons. PacifiCorp has generated a lot of press saying that the surcharge they will be adding to customers' bills, of about $27 million, is a good reason to look at the tax reform law again, but the truth is that PacifiCorp has fought against tax reform harder than anyone, from the very beginning. They may not like the utility tax reform law, but it's not because it's not working just as it should.

In 2006, PacifiCorp was owned by Scottish Power under a holding company structure, and the rates set for that year included a rate adjustment to subtract the tax reduction that was then being used by PacifiCorp's holding company. CUB had argued in a 2005 rate case that this $26 million expected tax reduction (later changed to $21 million) should be taken out of the rate increase PacifiCorp sought for 2006 rates, and the Commission agreed. PacifiCorp has since been sold to MidAmerican Holdings Co., a part of the vast corporate conglomerate Berkshire Hathaway. Without the Scottish Power holding company tax reduction, PacifiCorp's stand-alone tax obligation is $27 million more than was forecast for the year 2006; therefore, that is the amount that will appear as a surcharge to customers. It is a fair amount, almost the same amount that was taken out of rates in the rate case for 2006, and - most importantly - customers can be assured that all of that money is going to government coffers, not company coffers.

The NW Natural filing shows that customers can expect a small surcharge of $1.7 million for the taxes due in 2006. This situation results from higher-than-expected profits for the year, which means under-forecasted taxes. Under the current law, when a utility's profits are higher than forecast, the utility has increased tax liability and it gets to surcharge that amount to customers. When a utility's profits are lower than forecasted, it pays less in taxes, and refunds that amount to customers. Utilities have protested this aspect of the utility tax reform law, calling it a "double whammy." This is the only aspect of the successful utility tax reform law which CUB is open to changing. We think there is room to smooth out any difficulties due to the double whammy, as long as we keep the core of the law - ensuring that large conglomerate companies are not taking taxes paid by Oregon utility customers and retaining that money rather than passing it on to the government. Conglomerate companies often have a great many tax deductions and loopholes. When these are used to reduce the tax liability of a utility, then customers should not be required to pay that "phantom tax" liability.

This is the first time that meaningful tax filings have been available since the passage of SB 408, so we still have a lot of work to do. Each filing will be reviewed by CUB and by the Oregon Public Utility Commission. The proof will be in the numbers.

Posted by Oregon CUB at 03:13 PM | Comments (1)

October 03, 2007

CUB Helps Redesign Energy Efficiency Program

Sometimes it takes a few years to work the kinks out of a new program, and it looks as though the OLIEE Program (Oregon Low-Income Energy Efficiency Program) will now be able to hit its stride. The OLIEE Program was first negotiated in a regulatory agreement under the aegis of the Public Utility Commission back in 2002 to help low-income natural gas customers weatherize their homes and make gains in energy efficiency. The public purpose funds that pay for the OLIEE project are collected in bills by NW Natural from natural gas ratepayers, and services are delivered primarily by the social service agencies that make up the Community Action Partnership of Oregon or CAPO (formerly known as Community Action Directors of Oregon).

In order to receive weatherization from the community action agencies, a household must be at or below 60% of the state median income level. Last year, 300 houses across Oregon had their homes weatherized under OLIEE, and that's nothing to sneeze at. But the consensus among those who started the program and monitor it, a group that includes CUB, NW Natural and CAPO, was that we could do better.

There were difficulties with the process, such as the fact that the agencies that managed the program were required to front the money for weatherization and energy efficiency projects from their limited budgets, receiving reimbursement after a process that could last several months. Also, the program was intended to mirror the highly effective weatherization and energy efficiency projects for electricity customers, but did not, which made the two programs more difficult to juggle.

So, about a year ago, conversations began around what could be done to redesign the program for maximum effectiveness. Sitting at the table were the original program designers, along with individual service agencies such as Clackamas County Social Services, Lane County Human Services Commission, and the Community Action Agency of Marion and Polk Counties. And after many rounds of negotiation, the new OLIEE Program was rolled out September 1st, a 3-year pilot program that aims to serve 400 households this year, 525 next year, and 600 the following year. How to achieve these increases in numbers? The answer is pretty simple.

First, the program will begin to mirror more fully the weatherization and energy efficiency programs for electricity customers. This removes layers of complexity from the process and allows agency staff to administer weatherization programs that do not differ significantly from one another. Second, the funds for the weatherization/energy efficiency projects will be paid upfront, allowing agencies to both streamline the process and solidify their financial basis. Finally, the revamped guidelines will allow agencies to pursue a "whole house approach" that takes into account health and safety measures that might undermine the weatherization steps being taken. For example, under the old guidelines tasks were compartmentalized, and a weatherization project might consist of insulating under the roof and within the walls, but a hole in a window or an ill-hung door letting in cold air would have to be paid for with other funds, increasing the program's complexity and time required. Under the new guidelines, the house as a whole is evaluated and weatherized, achieving the intended energy savings with less wasted time.

The benefit to the families and individuals, many of them elderly, who receive benefits under OLIEE are obvious. Natural gas prices have increased along with the rest of the fossil fuel market and low-income Oregonians whose homes are weatherized will potentially avoid shut-offs in cases of severe financial distress, will save hundreds -- perhaps thousands -- of dollars on their gas bills, and be more comfortable besides. The value doesn't stop there, though; increasing the number of homes in our region who can reduce their energy usage also reduces demand on the system as a whole, keeping rates down.

Whether we're talking about global warming, rising rates, or diminishing oil and gas supplies, there are many good reasons to make sure that our use of fossil fuels is as efficient as it possibly can be, and the revamped OLIEE program takes us several steps in that direction. Remember: energy efficiency is the cheapest way to "acquire" new energy. Successful energy efficiency is a win for everybody.

Posted by Oregon CUB at 09:48 AM | Comments (0)