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July 31, 2008

Plug-in Vehicles in the News

We've written in the past several CUB Online issues about rising natural gas wholesale markets, and the general increase in fossil fuel prices. Others have noted that as gasoline prices have gone up, and stayed well above $4 per gallon, Americans have begun driving less and shifted their automobile-buying patterns: Hummers are out, economy cars are in. And the cars currently getting some of the best gas mileage are the hybrid gasoline/electric models. Well, hybrids are in the news recently, and CUB has a few thoughts to share on the topic.

First off, the Oregonian announced today that a special committee advising Oregon Gov. Ted Kulongoski on transportation issues will suggest that state tax credits for hybrids such as the Toyota Prius be phased out. The credits were meant to help establish the market for the new technology, and so it makes sense that as the market becomes secure (with almost 1% of Oregon cars now being hybrids), that the tax credit go the way of all good things. That leaves room for a tax credit on the next generation of fuel-efficient vehicles, which are the plug-ins. These hybrid vehicles can be plugged into a regular electrical outlet and charged up, going as far as 10 miles without any gasoline usage and getting up to 100 mpg.

These plug-in vehicles were featured in another article in this week's Oregonian, describing a newly installed charging station for plug-in vehicles at the PGE headquarters in downtown Portland (other stations in the metro area are planned). Currently, only a few cars in the entire nation have plug-in capability, but the next few years should see more of them come onto the streets as manufacturers such as Toyota refine the prototype, and customers have access to these extremely fuel-efficient vehicles. Once these vehicles are available for purchase, owners will be able to simply plug them into a regular power outlet at their home for a few hours, and GO (at a vastly reduced cost).

CUB thinks this is great, and certainly a necessary shift for a nation that is becoming increasingly serious about reducing its global warming pollution, as well as its gasoline expense. We have just one cautionary principle to offer about plug-in hybrid vehicles: In order to really be cost-effective and environmentally beneficial, these vehicles need to be charged overnight. Each one should come with a so-called smart chip which enables the cars, when plugged in at the owner's house, to start the charging process when electric demand is down, and surplus electricity is available (usually at night).

Why is this so important? Well, if we charge our plug-in vehicles when usage is high, at "peak" times such as the daytime and early evening, then it adds to the peak electricity usage, requires the production of electricity from coal or natural gas plants to meet the increase in demand, and drives up the cost of electricity for everyone. In this scenario, you have shifted the carbon emissions burden from the transportation sector to the utility sector and while you are reducing it, you are still relying on fossil fuel for your power (with attendant carbon dioxide pollution and volatility of markets), and you have lowered your gasoline bill but raised your electric bill. However, if we can arrange for the charge time to be at night when usage is many times lower, and when excess wind and hydropower energy is available, you have a truly beneficial situation: lower emissions, lower costs, fully charged car by the time you need to leave in the morning.

If these smart chips are installed in the vehicle (or the dishwasher or the clothes dryer) at the time of manufacture, the cost is minimal, adding merely a few dollars perhaps to the cost of production. If added by the retailer, the cost of adding the chip is magnified by about 10. Waiting to add the smart chip after the customer has purchased the product magnifies the cost yet again, so that it becomes an expense of perhaps well over $100. This is one area where planning really reaps big rewards.

So we acknowledge PGE's action in taking this first step to bring plug-in hybrid technology to Oregon. However, we would like to make clear that from our perspective, this daytime, workplace charging model (like the soon-to-be-expired hybrid tax credit) is for transition purposes only. Daytime charging of thousands of plug-in vehicles would overload our electricity system and raise our rates. We can afford to charge up a small number of hybrid electric vehicles during peak electricity hours as the market emerges, and numbers of these plug-ins are still relatively small. But even before we reach a tipping point, where the market for plug-ins really takes off, we need to be aware that the model of daytime charging is a faulty one. Smart chips and night charges will bring the plug-ins into their own.

Posted by Oregon CUB at 04:31 PM | Comments (7)

July 25, 2008

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 at 02:50 PM | Comments (2)

July 17, 2008

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.

What is CUB's role? Just as with the recent notice of rising electricity prices, we can work to make sure the utilities control their discretionary spending, and enforce efficient operations management. We pore over thousands of pages of documents in every general rate case, looking for evidence that the utilities are being as cost-effective as possible. We have already called on NW Natural to take a look at all of its operations, searching for discretionary costs that can be reduced or delayed that will allow them to offset some of these costs. We also are going to be talking to these gas utilities about liberalizing their credit and shut-off policies, so that Oregon families can stay warm when it's cold outside. That also helps the rest of us, because shut-offs raise the price of utility service for everyone.

What can you do? Here's a short list:

* Energy Audit - We cannot overstate how great it is to have the Energy Trust as a resource in Oregon to help homeowners lower their energy usage and cut those utility bills. Energy audit providers will have a waiting list once the weather turns cold, so call now 503-493-8888.

* Equal Pay Plan - Call your gas utility and ask them about an equal pay plan that will divide your heating costs up more equally throughout the year.

* Low-Income Weatherization Assistance -- available through the Oregon Department of Housing and Community Services at 503-986-2000.

* Low-Income Bill Payment Assistance -- also available through the Oregon Department of Housing and Community Services, again at 503-986-2000.

* General Weatherization Assistance - one of the core mission goals of the Community Energy Project.