February 28, 2008

PGE's Management Cannot Control Costs So They Want to Raise Rates

Yesterday Portland General Electric Co. filed a general rate case, its last one having closed all of 2 weeks ago. Among their requests of the Public Utility Commission is an increase in their profit margin, from 10.1 to 10.75%, which could earn shareholders tens of millions more annually; and a sizable increase for general Operations & Maintenance and Administration & General costs. Altogether, residential customers' rates would jump 9.5% if PGE's request is granted.

We think they're way off base here. First off, the timing is not great. As we said, PGE's most recent general rate case, a yearlong process, has only just recently been completed. Until recently, PGE was filing general rate cases every 4 or 5 years. This aligns reasonably well with the regulatory framework which assures utility companies that their investment of hundreds of millions of dollars in power plants will be recompensed by customers; and assures customers that they will pay a moderate profit margin, and no more, to the company for taking the risk and managing the business well. General rate cases are the forums in which these new investments are examined for prudent management, and then brought into rates. It is unusual to say the least for a company to file general rate cases only one year apart with no large capital investment to provide a reason for the filing.

Secondly, let's look at this large increase in O&M and A&G. For example, there are 130 new staff positions listed in the filing, at a time when PGE should be trimming controllable costs. We have so far found no persuasive driver for this staffing increase. We have already indicated to PGE that we will be going over their proposed cost increases with a fine-toothed comb. And although we have only begun the process of analyzing PGE's rate increase filing, we expect to find a fair amount of unnecessary cost increases in it.

PGE customers have already been hit hard with numerous rate increases due to both investment in new power sources, and the suspension of the Residential Exchange (which had functioned for several decades as a way to share the benefits of the federal hydropower system with customers of investor-owned utilities). PGE customers are going to be facing the same rate increases from higher fossil-fuel costs that the rest of the country is facing, and PGE's continuing investment in new resources (something that was neglected during the 1990s under Enron) will require customers to pay up once more.

Asking for a larger profit margin at this time seems totally inappropriate. Interest rates are falling as the U.S. heads into a recession. Lower interest rates should cause the utilities' borrowing costs to decrease, and this should in turn lower profit margins. For PGE to ask for an increase, when it was only recently reset, is outrageous. In addition, The Oregonian reported on its front page yesterday that not only are gas prices expected to hit $4/gallon in the next year or two, but also (in a separate article) that the average residential electric bill would hit $100 if the PGE increase were to go through.

PGE is not controlling its costs well. Some costs are necessary and we ask only that they be least-cost and prudently incurred. Some of the necessary costs coming onto PGE's books in the near future, but which are not included in this filing, are: 1) new generating power plants; 2) hydro relicensing; 3) clean air costs for Boardman coal-fired plant; and 4) smart meters (which CUB has opposed but the Commission has yet to rule on). These combined projects will cost hundreds of millions of dollars. From CUB's perspective, customers cannot afford to add unnecessary increases on top of the ones which cannot be avoided. We pay PGE a Rate of Return in order to manage the company and our electricity delivery in an efficient manner, and they are failing to do so.

Come on, PGE!

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

January 08, 2008

Our Year Looks Busy -- How About Yours?

As we open up a brand new year, we here at CUB have taken a moment to review the work that we know awaits us in the next 12 months. We share our list of projects with you, our members, so that you are aware of what issues and opportunities will be approaching in 2008.

Legislative and Policy Work

First, we will be present during the Oregon Legislature's February 2008 Session. Although we respect the limited nature of this one-month session, we will be doing the following things, if time permits: 1) we will revisit the bill (which did gain some traction toward the end of the 2007 session) which would require 20% energy reduction in all state buildings by the year 2015; and 2) we will potentially be moving a climate change bill which would require state agencies to evaluate programs and policies in order to achieve the carbon reduction goals outlined in the 2007 Climate Change Bill, HB 3543.

For nearly a decade, CUB has led policy discussions regarding utility structure, regulation, and energy, and much of that has been through its leadership role in the Fair and Clean Energy Coalition (which helped create the Energy Trust of Oregon). We will continue to refine policy and gather major players as we look ahead to the more complete Oregon Legislative Session beginning in January 2009.

We will continue to be a key player in the Western Climate Initiative discussions, an inter- state and province group working to create solutions for global warming pollution reduction. The first meeting of this group in the new year happens this week here in Portland, and CUB's staff attorney, Jason Eisdorfer, will be there. A key goal of the group is to, by this summer, produce a model cap and trade bill, aimed at putting a limit on allowable levels of carbon dioxide emissions.

Because CUB and its sister organization, the CUB Educational Fund, have been increasingly involved in policy development, particularly with regard to energy issues, we have decided to change the name of the CUB Educational Fund to the CUB Policy Center. Same great staff, same high level of commitment and broad experience, same outreach and public education on utility issues, but we feel this is a more accurate name for the way the organizational work load is developing.

Regulatory Work

Where to begin? Well, how about with telecomm? Qwest has filed a request with the Public Utility Commission to remove price caps applying to basic local service, and to deregulate many other commonly used phone services as well (i.e., directory assistance). We are jointly filing a Motion to Dismiss this case later in the week. If the Commission dismisses the Qwest case, we will undoubtedly be fighting Qwest on raising rates in the Legislature again next year. If not, we will continue to fight them at the PUC this year.

Energy efficiency filings have been submitted by Portland General Electric and PacfiCorp, a direct consequence of a provision in the 2007 Renewable Energy Standards allowing the electric utilities to do more cost-effective energy efficiency. PacifiCorp's filing we expect to be approved shortly, while PGE's contains some problematic issues (such as a lost revenue mechanism which would raise customers' rates, and which we believe to be unnecessary).

There are tax dockets open for all the major privately owned utilities subject to the Utility Tax Reform Bill of 2005, SB 408. The first changes in rates resulting from the tax reform will be going into effect this year. PGE customers should receive a rate reduction this summer.

Speaking of PGE, we are battling Oregon's largest single electricity provider on the issue of Advanced Metering machines. PGE wants to spend millions of dollars on meters that do not require human meter readers, and claims that the move will save money down the line. At the same time, they are asking to have customers pick up the rest of the bill on the pilot set of advanced meters they installed near Mt. Hood 4 years ago. CUB cries foul and argues for waiting until the technology is more mature, PGE has less upward pressure on rates, and "smart" appliances are more readily available to work with the advanced meters on evening out peaks in usage.

Another case, questioning whether PGE acted prudently in the case of its long Boardman plant outage in 2005 and 2006, will take some time and will decide who should absorb the money lost while the plant was shut down -- PGE or customers. CUB is trying to make the company pay for its own mistakes.

PGE may also file a general rate case this year, asking for higher rates based on their capital investment costs. We hope not.

There will certainly be the annual power cost rate cases for both PGE and PacifiCorp, in which the companies forecast their 2009 rates based on market prices, hydro conditions, and available generating resources. Idaho Power, serving customers in Eastern Oregon with electricity, will also be involved in a case which will determine the structure used to forecast its variable power cost rates.

The major natural gas companies in Oregon, NW Natural, Avista, and Cascade, have their own variable power cost cases, called PGA (short for Purchased Gas Adjustment) cases. In addition to specific PGA cases for each company, CUB is heavily involved in a more general PGA Investigation, which is reviewing the basic structure of the natural gas rate setting process in Oregon. CUB is arguing in that case for continued sharing of risk between natural gas companies and customers, as opposed to putting all such risk onto customers; and a mechanism which would require the companies to absorb moderate increases in cost, while allowing companies to seek recovery of extraordinary cost increases due to truly unforeseeable circumstances (remember Katrina?).

Last but not least is the issue of the Bonneville Power Administration's distribution of federal hydropower benefits to residents of the Northwest. At issue specifically is the resolution of the disagreement regarding the Residential Exchange, a system which was used until May of 2007 to share the benefits of the BPA system with residential and small farm customers of privately held utilities. An interim agreement signed by BPA contract-signers (mostly publicly-owned utilities) would result in a long-term diminution of benefits to private-utility customers from approximately 16% one year ago to 2% at the end of the 20-year agreement. One consequence of this proposed distribution of benefits would be the shifting of benefits from Oregon to Washington, which has a higher percentage of public power customers. At the same time, BPA has made it nearly impossible for citizens to form a public and get access to cheap federal hydropower that way, leaving a dramatic gap between the rates of public and private utility customers, and leaving BPA on the wrong side of the Northwest Power Act.

CUB has been active in the policy debate surrounding the Residential Exchange and will file as an intervenor in the BPA rate case later this year, during which these issues will be hashed out at greater length, and with buckets of numbers.

We also have to be ready to respond to unexpected rate case filings, and individual member concerns. If another megacorporation comes looking to buy one of our utilities, or if a low-income assistance program needs help to stay on course, CUB will make room on the calendar to do that work as well.

We appreciate the support of our members as we continue in this new year with our consumer advocacy and energy policy agenda. May we stay strong working together in 2008.

Posted by Oregon CUB at 03:27 PM | Comments (0)

December 06, 2007

CUB Opposes Putting All of Natural Gas Purchase Risk onto Customers

The natural gas market has seen some major changes in the past 20 years. From a rapidly awakening generalized concern regarding global warming and the carbon dioxide emissions of fossil fuels, to the more specific and radical price volatility that occurred in the wake of Hurricane Katrina, the price for natural gas has been subject to major changes unknown in previous decades. How utilities purchase natural gas and forecast those costs into customer rates is a matter of (occasionally heated) discussion in a current Public Utility Commission case, UM 1286, the Purchased Gas Adjustment case. The current system was implemented, oh, about 20 years ago, and there are those who say it should be updated for a changing market in a changing world. CUB filed Opening Comments in 1286 this week with our own proposed changes.

Natural gas utilities have traditionally procured their coming year's supply of gas through one of three ways: outright purchase and storage; contracts for guaranteed future delivery (costing whatever the market charges at that future date); or hedged contracts, wherein a third party takes on the financial risk of a significant increase in the future cost of natural gas, but for a fee. These hedging fees can, for a large gas utility over a number of years, run into the millions of dollars. It is the position of the PUC staff that Oregon utilities have been relying on hedging too much.

In the current system, when costs exceed the amount that was forecast -- and charged to customers in rates -- customers pay between 67% and 80% (depending on the utility) of the variation in cost, beginning with the first dollar of variation. This sharing of cost between customers and the company (the shareholders , to be exact) is widely held to be an acceptable way to manage the risks of unforeseen changes in cost in the realm of utility regulation. How and when those costs are shared is the crux of the matter, and it is here that CUB parts company not only with the utilities themselves, but also with PUC staff. Staff suggests that customers should pay for 100% of extra costs, above what was forecast, but with increased regulatory oversight of the purchase process (to trim out some of that aforementioned hedging). We respectfully disagree that this is a good idea.

CUB thinks that natural gas utilities should "have some skin in the game." We want gas utility managers to be worrying about the cost of natural gas; we pay them for their expertise, and we expect them to manage the supply and the cost of that supply more carefully if they know that they will bear a certain percentage of any increased costs. Furthermore, we don't think the company should be able to hand the unforeseen costs over to customers starting with the first dollar.

So CUB came with a three-step process for sharing that is similar to what we've recommended for Oregon's major electric utilities.

1) We start with a review of the utility company's earnings to ascertain whether they are within a "reasonable zone" of their expected earnings. Assuming the utility is allowed a 10% Return on Equity (ROE, aka profit margin), and if they are within 1% of that ROE (9-11% ROE), then no cost variations should be passed along to customers

2) Make sure that a deadband exists around the cost variation, so that the utility is expected to absorb a certain amount of normal changes in cost. This gets rid of the practice of charging customers for the first dollar of unforeseen costs. After all, managing the normal variation of commodity costs is not only an accepted risk of doing business, but is also why we pay the utility an ROE to begin with. The size of the deadband increases with the size of the utility, and is asymmetrical so that the company must absorb twice as much change in additional cost before charging customers as is necessary in decreased costs for a refund to go to customers (after all, it is more likely that costs would go up than down).

3) Finally, where there is extraordinary variation in cost, outside the deadband set for normal variation, customers would share the cost variation at 90%, with the company expected to absorb the other 10%. If costs are down, perhaps due to a warm winter and low demand, then customers would receive 90% of the variation in the form of a refund. Sharing ends when the company has been brought back within its reasonable earnings zone.

CUB feels that this is a good distribution of the risk of volatile gas markets: the company carries the burden of normalized risk, while the broad shoulders of a wide customer base are on hand to share the burden of a truly extraordinary change in gas prices. We certainly hope to see the Commission agree that taking all of the risk away from the utility and placing it on customers is inappropriate; the utility, which has control of gas purchasing, should share the risk of price volatility. 'Cuz that part of the equation isn't going away.

GAS FACTS
In developing our analysis, we studied Oregon's natural gas prices in comparison to the national average and prices in other Western states. Oregon's commodity gas prices were lower than the national average price for natural gas, and with the exception of an atypical year in 2002, lower than most other Western states' prices.

Natural gas is going up in price, partially because the demand for it is rising. Some reasons for increasing demand include: it is cleaner-burning than most other heating options (i.e., oil heat, wood heat, coal-generated electricity); is more efficient to burn directly to heat water for your tea or heat a house than to generate electricity and run it through the grid to your house to do the same; and is increasingly being used to generate electricity, which increases demand on a somewhat limited supply.

All fossil fuels, including natural gas, release carbon dioxide when burned; we appreciate the opportunity provided by NW Natural's Smart Energy program to contribute toward carbon offsets on their customers' gas bills.

Posted by Oregon CUB at 03:49 PM | Comments (1)

November 28, 2007

CUB Monitors Additional Energy Efficiency Investments

Oregon's landmark Renewable Energy Standard, passed earlier this year, contains a provision allowing for additional electric utility revenues to be collected from customers to fund energy efficiency and low-income weatherization programs. PacifiCorp and PGE have just made Advice Filings with the Public Utility Commission; both utilities are requesting permission to make additional investments in energy efficiency, PacifiCorp an additional $8.5 million and PGE an additional $16.7 million. The additional investment is great, since the cheapest, greenest power is the power you don't have to produce.

Both utilities have requested keeping a certain amount of money to facilitate enrollment in energy efficiency programs managed by the Energy Trust of Oregon, and the low-income weatherization programs managed by the State's Community Action Partnership organizations. This makes sense, due to the fact that most customers have regular contact with their utility but don't necessarily know about all the great programs they might be eligible for to save energy. Account managers and customer service representatives at PGE and PacifiCorp can help connect residential and business customers with programs that will both save them money and reduce our overall energy usage. PGE, however, has requested an amount beyond what we feel is necessary to achieve energy efficiency goals.

PGE is asking to retain a greater share of the increased funds for purposes that, we believe, stretch the parameters of the law. PGE plans to spend part of the increased funding on initiatives related to conservation; however, PGE has not explained how these initiatives are cost-effective. For example, PGE is designing a curriculum to teach public school students about energy. While energy education is a laudable activity, PGE provides no analysis that this reduces usage in a cost-effective manner. Just as we opposed the Legislature giving money to OMSI from the 3% "public purpose" funds designated to obtain real energy savings goals, we also object to PGE's lack of focus in this current filing.

Furthermore, PGE claims that a reduction in energy usage cuts into their revenues to pay for fixed costs of the system (i.e., poles and wires), and that the Commission should therefore approve a "lost revenue recovery mechanism" to reimburse them 4 cents for each kilowatt hour (kwh) of power which is not produced due to energy savings (the current price per kwh is about 8 cents). To which our response is a great big "WHOA!" Even assuming that PGE's theory is correct, and that they are losing money due to energy usage reduction, our analysis is that the amount lost would be no more than about 2 cents/kwh.

But we don't believe that PGE's theory is correct. Due to continual load growth (the Oregonian reported just today on a steady stream of people moving to the Portland area - 102,000 last year), we actually think that PGE is not losing money, that those fixed costs are being paid for quite adequately out of customer revenues.

PGE always has the option of filing a rate case to request a rate hike, if they are indeed losing revenues that should be covering fixed costs. That would require analysis of a great many numbers that PGE has not, in this filing, put on the table. We currently have no evidence to support PGE's argument that they need an additional incentive to invest additional money in energy efficiency.

Most importantly, Oregon's Integrated Resource Planning (IRP) process, which occurs through the PUC as well, already requires utilities to make the "least cost" and "least risk" investments. And the rising cost of fossil fuels and inevitability of carbon regulation costs makes energy efficiency more and more cost-effective all the time. This means that Oregon's utilities should be doing more energy efficiency, even without extra incentives (that may or may not be justified).

Utilities have always had a bit of a conflict of interest in doing effective energy efficiency. And our experience throughout much of the 1980s and 1990s was that utilities would often try to maximize the public relations benefit to the company of energy efficiency programs, rather than maximizing the actual energy savings. That's why it was such an important policy step to create an independent non-profit with the mission of getting the biggest bang for the consumer's buck in savings from energy efficiency. The Energy Trust has been averaging a savings of about 25 average megawatts of electricity every year for the past 3 years (and with a lower overhead cost than the utilities used to have to provide the same service). Pretty impressive.

We happily support the utilities upping their investments in these programs that help clean the system and lower rates for everyone. We just want to make sure it's done right.

Posted by Oregon CUB at 04:41 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)

September 26, 2007

CUB Fighting Global Warming on Numerous Fronts

Ten years ago, global warming was a topic that came up for discussion only rarely, and in a controversial way. Today the topic pervades news reports and has affected many aspects of the work that CUB does on behalf of utility customers. Yes, we advocate for clean energy because we want to mitigate the damage to our rapidly changing climate systems, but also, CUB works on global warming issues in various ways so that customers will not be paying the price for bad resource choices on their utility bills.

We filed testimony in a case about 10 days ago, a least cost plan for PacifiCorp, in which we argued strongly against the inclusion of any new pulverized coal in the resource plan: Because the plan is concerned with "least cost," CUB is concerned with what the true cost of coal power will be, and because it involves a number of uncertain components (such as the future costs of carbon regulation on either state or national levels), we conclude that "we are not convinced that the true costs of a new pulverized coal plant have been included in the model." We recommended that the Public Utility Commission not approve the PacifiCorp plan that included new pulverized coal as a part of its resource plan.

Meanwhile, back at the ranch, we are filing today a final round of comments in UM 1302 (as a part of a group that also includes NW Energy Coalition, Renewable Northwest Project, and Ecumenical Ministries of Oregon), which examines how the Commission should integrate the expectation of future carbon regulation into utility resource planning in general. "Planning for risk and uncertainty is a key objective of the Integrated Resource Planning (IRP) process, and a thorough analysis of the risk of future CO2 regulation should be an integral part of any utility's planning. We are, therefore, very pleased with the high level of agreement from all parties in this Docket that a more rigorous analysis of carbon risks is acceptable and necessary..." We then go on to clarify points and disagree with some other parties' changes or interpretation of the details. However, the basic consensus remains: Utilities need to include future carbon regulation as a factor in resource planning, the sooner the better.

Legislatively, we have of course been working for more than a year on the creation and passage of a Renewable Energy Standard that will reduce Oregon greenhouse gas emissions associated with electricity production. The RES did pass the 2007 Oregon Legislature and was signed into law by Governor Kulongoski. Our standard is among the most stringent in the country (so far), requiring 25% renewable energy by the year 2025. The rulemaking at the Public Utility Commission to implement this new law is beginning and CUB is involved in that, too.

Few people would have foreseen that global warming would arise as a major issue in utility customer advocacy a decade ago. Certainly, it was not a topic on many people's agendas back in the late 1980s when the CUB Bear Facts Newsletter ran an article on it: "The summer of 1988 may come to be known as the 'first greenhouse summer,' as many fear this summer's droughts are only the beginning of the environmental disasters global warming could set off. Electric energy production is intimately tied to this problem since electric utilities are the source of about a third of carbon dioxide emissions in the United States. Carbon dioxide is the biggest offender of the handful of 'greenhouse gases.'" The article, by Clay Martin, went on to say, "Measures can be taken now to minimize future warming. The cheapest, fastest and safest of these measures is more efficient energy use... Though greater energy efficiency is the first step in reducing output of greenhouse gases, it won't be enough. Conversion to less carbon-intensive fuels like natural gas will also be necessary." We would add today that renewable sources that emit no greenhouse gases, such as wind, solar, geothermal and perhaps in the future wave power, are all gaining prominence.

However unlikely it was to hear a prime time discussion of global warming 15 or 20 years ago, it has since become quite common. Times change and the issue of global warming has not only become a mainstream political, environmental and economic issue, it has also become a major force in energy discussions and a priority issue for CUB: Protecting the planet by limiting emissions of greenhouse gases is the only way to protect customers from paying high carbon premiums on their utility bills in the coming decade.

Posted by Oregon CUB at 03:59 PM | Comments (0)

August 29, 2007

CUB Files Brief on PGE Plant Forecast

There are days when CUB works on issues related to global warming, the future of energy production, or multibillion dollar corporate mergers. And then there are other days, the days when we filter through the minutiae of an annual power cost update tariff, looking for ways to prevent the company from overcharging customers.

Such was our week this week. We filed on Tuesday our Opening Brief in UE 192, regarding PGE's power cost forecast for its Boardman coal-fired electricity generation plant.

This plant, you may recall, was out of service for approximately 8 months in 2005-2006 due to a cracked rotor on the turbine and the plant operated poorly the rest of those years.

The question in this docket is how many days we forecast the plant to be operational next year. Traditionally, we have looked at the last 4 years of normal operation as a predictor of the next year's performance. In this case, PGE is proposing that we include significant portions of 2005 and 2006 in that 4-year examination of Boardman operation. A forecast based on those years would predict larger numbers of days off-line for the plant in 2008 than normal, which would require PGE to purchase more power in the market for about 6 cents per kwh (as opposed to the 1.5 cents that Boardman's power costs), and would therefore result in higher rates for customers. Because PGE negotiates coal and power contracts on the open market, the exact costs at issue here are confidential, but we believe that using the years 2005 and 2006 in creating the Boardman forecast would increase rates by several million dollars in 2008.

CUB is arguing against including 2005 and 2006 in the 4-year average that would set rates for the plant going forward. We think it's pretty clear that those years were unusual, and, assuming the plant is back to normal operations, as the company claims, shouldn't be repeated. We are suggesting that the years 2001 through 2004 make a better 4-year average of the plant's expected operation under normal conditions.

PGE calls CUB's recommended change in the 4-year average "arbitrary"; we call it just good sense. If you are going to predict for normal operations, you don't base those predictions on very abnormal circumstances.

We know this is not the most exciting news we've ever come to you with. It's not the most exciting work we've ever done either. It's just the nuts and bolts of good consumer advocacy and utility rate-making. It's the kind of detail work that customers cannot do and should not have to. It's why we're here.

Posted by Oregon CUB at 11:27 AM | Comments (0)

May 31, 2007

We need a new system for sharing BPA benefits.

Loss of BPA Benefits Means Rate Increase

When we urge our children to share, whether toys, food, or time, we're teaching a lesson against greed, and one that hasn't been learned by some members of the Northwest power community. Not content with merely being 40% of the Pacific Northwest population receiving 85% of the low-cost hydropower benefits of the Bonneville Power Administration (in Oregon this is about 25% of customers), a very few publicly-owned utility leaders and industrial customers sued for more.

At issue was the Residential Exchange settlement, a process which has given residential and small farm customers of investor-owned utilities a share of the federal hydropower system for almost 30 years. The 9th Circuit Court of Appeals ruled on the suit a few weeks ago in such a way that the Exchange settlement was invalidated. In reaction to the ruling, BPA has suspended the Residential Exchange program and, as a result, 75% of Oregonians are no longer receiving any BPA benefits.

If you are a customer of PGE or PacifiCorp, that includes you, and it means that you can expect to see your rates go up 13-15% next month (Idaho Power customers will see an increase of 6%). According to a statement from the Public Utility Commission yesterday, the average household can expect to pay about $10 more per month (Idaho Power customers, look for an increase of about $6.50).

No Added Value
CUB often fights against rate increases (and usually succeeds in trimming them considerably), but our usual rate increases of 2% or 5% can be linked to a higher market price for fuel, or the investment in a new power generation plant, or even rising personnel costs at the utilities that provide us with electricity. The large increase we are facing as a result of BPA's reaction to the court ruling, however, gives nothing in return (no gains in infrastructure or long-term stability), and is due only to the shortsighted unwillingness of certain industrial customers and public utility leaders to share.

Minority of Publics Fighting Against Fair Allocation
Now, we realize that every group of people has its moderates and its radical extremes, and we don't want to tar everyone with the same brush. Only two publicly-owned utilities, along with industrial customers, opposed a settlement signed by more than 100 other public utilities, as well as investor-owned utilities and advocacy groups such as CUB. It is therefore a relatively small bunch of people who have shifted the economic reality for 75% of Oregonians, who will face large electricity increases of 13% (for most residential customers) to 90% (for some farmers).

Some Publics Also Oppose Sharing with New Publics
A similar group fought the Oregon Community Power bill a few years ago in the 2005 Legislature; the bill would have allowed for the purchase of a private utility by a regional public entity using state bonding authority. Nobody fought the bill harder than advocates of existing public power utilities. They did not stop the fight until the bill was amended to guarantee that the new utility could not exercise its right under federal law to access the lowest cost power from BPA. In other words, existing public power did not want any new public power if it meant sharing the finite benefits of the system.

Likewise, in negotiating a long-term policy with BPA, public power representatives have succeeded in excluding newly created publics from receiving BPA benefits when they form. They currently want new contracts from BPA that will lock out any new public power utility from federal hydropower benefits for 20 years. It is also important to note here that Oregon law prohibits new publics from condemning a utility's generation assets, and so without the access to BPA benefits, it becomes impossible to form a new public utility, effectively closing off the ability of any other Oregonians to ever benefit from the financial advantages of a publicly owned utility.

Many of CUB's members are either customers of public power utilities or strong ideological advocates for public power. CUB believes in public power, too, and has fought for it in tangible ways (for example, we helped write the Oregon Community Power bill). What we cannot support is some publics attempting to block other Oregon customers from receiving the federal hydropower benefits that should rightfully be theirs, whether those customers are public or private or residential or agricultural. And that's exactly what some public utilities have been doing for years -- trying to block others from receiving any BPA benefits. Mine, not yours, not ours -- that's the message they're sending. But this time they may have opened a can of worms they cannot control.

Economic Effects
This issue is not, unfortunately, a small economic matter. The value of BPA power, as measured against market-priced energy, is between $2 and $2.5 billion dollars every year (that figure could rise). So while residential customers of private utilities get $300 million per year in benefits, customers of public utilities are getting 6 times that amount every year. Two facts about BPA power to put the benefits into perspective: BPA's hydropower is currently selling for less than half of the market price of power, so that public power customers can pay $27 a megawatt hour for power that everyone else must pay $60 to buy. These benefits ought, under the law, to be accruing to all residents of the Pacific Northwest; publicly-owned utility customers receive their benefit in the form of cheap power and privately-owned utility customers (at least until recently) in the form of a check figured through the Residential Exchange that reduced their own utility bills.

On top of that, public power customers have had the option to leave BPA and buy power on the market, if the market should ever dip below BPA prices. This unusual situation did occur in the late 1990s, and the desire of industrial customers and some publics to leave was a problem for BPA, who tried to solve it by shifting benefits from IOU customers to industrial customers, in order to induce those businesses to stay. The option to leave your contracted power producer's system would be an expensive option on the market and only adds to the value of what public power customers are already receiving. These are tremendous benefits, and yet these publics and industrial customers are saying it isn't enough.

Oregon Hit Hard
Moreover, private utilities serve about 75% of Oregonians. The suspension of the Exchange translates into a transfer of wealth in the amount of over $100 million per year from residents of Oregon to residents, businesses and industry in Washington State.

This situation has caught the attention of six Northwest Senators, representing Oregon, Washington, and Idaho, who sent a joint letter to BPA Administrator Steve Wright. In it, the Senators said: "Everyone in the region has an interest in reaching a legally sustainable compromise that fulfills the public policy goals of the NWPA and allows BPA to enter into new power supply contracts with public agencies before the current contracts expire. This requires that all stakeholders -- public and private utilities, BPA and consumers, states and public utility commissions -- join together in good faith in an effort to negotiate a mutually agreeable and legally sustainable compromise." CUB welcomes a genuine compromise from all parties which results in a fair allocation of benefits; however, we are committed to going beyond the negotiation table, where we already have spent years, should that become necessary.

Northwest Power Act Demands Sharing
So, despite serious trepidation from politicians and utility leaders alike, it may be time to go back to the source. The source of authority for allocation of BPA Benefits is the Northwest Power Act, which requires that the cheap hydropower sold through BPA be shared with customers throughout the region, public and private. If the Residential Exchange no longer works to effect that sharing, then we may have to ask Congress to look again at the Power Act and devise a way to fairly allocate the benefits of the system. The trepidation is due to a very real risk that other regions will now fight for a piece of the pie. CUB says it may be time to take that risk. After all, the way it stands now, most Oregonians don't have any pie on the table to risk. Somebody else has it all on their plate and is refusing to share. We wouldn't allow that in our families and shouldn't accept it in the debate over the BPA system benefits.

CUB Executive Director Bob Jenks spoke at a PUC hearing and a meeting with the Governor yesterday, saying, "The Federal Power Act requires a sharing of federal hydro resources between publicly-owned utilities and investor-owned. This makes sense, since both groups of customers spent decades helping to support the hydro projects, both by buying output and by protecting this resource for the benefit of Northwestern customers. But as of today, there is no longer any sharing of the federal hydro system." Publicly-owned utilities and industrial customers have become accustomed to thinking of the federal hydropower system managed by BPA as belonging to them alone, and not to the region as a whole. CUB believes this is a flawed perspective, and will no doubt be speaking regularly about a fair allocation of BPA benefits for all Oregon customers, well into the foreseeable future.

What You Can Do
Call your members of Congress. Tell them that the implementation of the Northwest Power Act, which requires a sharing of benefits, is not working. As our federal elected representatives, they need to be working to ensure that the federal hydropower system is fairly allocated and no one left out.

Posted by Oregon CUB at 04:04 PM | Comments (6)

May 16, 2007

PGE tries to neutralize tax law, CUB holds the line.

Oregon utilities were about fit to be tied when the Oregon Legislature passed SB 408 in 2005, prohibiting them from using unregulated or affiliate losses to justify retaining tax payments made by customers. The Legislature said tax payments go to the government or should be refunded to customers. There went millions of dollars of windfall shareholder profits (Enron kept close to $100 million of customer tax payments PER YEAR during its ownership of PGE).

The law is written but the fight for those dollars is far from over, though on a smaller scale. Now the fight is over single-digit millions: $4.8 million to be exact. In UM 1271, PGE has filed an application asking the Public Utility Commission for permission to open a deferred account, offsetting the amount of money they owe customers (again, $4.8 million) on an unregulated business venture gone bad. PGE purchased a gas turbine in 2001, hoping to sell the power it generated on the open market (not to its regulated utility customers), but the plan didn't work out and they sold the turbine in 2006 at a $12 million loss. Now the company wants customers to pay for some of that speculative business loss by allowing the company to retain the tax dollars paid by customers. The case itself may only be worth a few million dollars, but if PGE wins, it would overturn the core purpose of SB 408, putting many more millions of dollars of customers' money at risk.

CUB's Opening Brief in the case had this to say in response to the request: "What PGE is asking for here is extraordinary. While admitting that, under the law, customers are entitled to a refund of the amount of taxes that they overpaid, PGE argues that this refund is unfair and the Commission should violate the law and authorize the Company to establish a deferred account of $4.8 million in order to 'neutralize the tax effect of the loss associated with the sale of the turbine.'"

The Legislature clearly intended that customers no longer subsidize unregulated portions of corporate utility business. The Legislature clearly intended that the law go into effect January 1, 2006, which makes the sale of the turbine fall within the effective time frame of the new law. The Legislature spelled out that utilities could not collect more for taxes than "The utility pays to units of government and that is properly attributed to the regulated operations of the utility." We assume the Legislature would prefer the laws they pass not be "neutralized" out of existence. End of story.

Except that it's not. PGE's most recent argument is that SB 408, at its core, is unconstitutional. We don't think that argument is going to fly either. CUB will submit a Reply Brief tomorrow, responding to issues of constitutionality, etc. We don't mind defending this law -- it's a good law (if we do say so ourselves). We hope the issue will be "neutralized" by the Summer of 2007, when the Commission will decide on the case.

Posted by Oregon CUB at 03:30 PM | Comments (0)

April 26, 2007

CUB Speaks to California Legislators About Utility Tax Fairness

Following the successful passage of SB 408, the 2005 (hotly debated) utility tax reform measure, Oregon has come to be seen as a national leader on the issue of utility taxes and CUB as its resident expert. Along with interviews with reporters from the New York Times and other national media, CUB staff members have also spoken with numerous consumer advocates around the country who are beginning to grapple with similar issues.

Such was the case last week when advocates of a California utility tax reform measure flew CUB Executive Director Bob Jenks to Sacramento for a hearing before the California Legislature on AB 1517, a bill which attempts to align utility taxes paid by customers to those paid by companies to the government.

The groups behind the bill include TURN (a utility watchdog organization similar to CUB), along with the AARP, and the Utility Systems Director of the South San Joaquin Irrigation District. Aligned against the bill were all the big utilities in California, who brought on their behalf what someone described as "the most powerful contract lobbyists in the state" to work against the bill.

"What to me is exciting about this situation in California," said Bob Jenks, "is that we passed our utility tax reform bill here in Oregon only after the debacle with Enron. Now we are hearing from advocates in a number of states that they are using the passage of SB 408 as a springboard to re-examine how utility taxes in their states are calculated. In California, they came to the same conclusion we did here, which was that treating utilities as stand-alones, when they're not, forces customers to pay more than they should."

You may remember from reading CUB's in-depth coverage of the SB 408 battle that utility companies such as PGE under the ownership of Enron, had been passing along customers' tax payments to their parent companies, who then took a tax write-off on unrelated corporate losses. The Oregon utility customers' tax payments wound up lining corporate coffers. Shareholders were benefiting, but nobody else: Customers never got a refund and government entities never got a check.

Again, from Bob: "Part of what I tried to do for the California committee was dispel some myths about the bill that had been created by PG&E (not to be confused with PGE) who suggested that the Legislature in Oregon has created 'substantial financial uncertainty for utilities.' That is simply not the case -- we just closed a popular corporate loophole." As CUB made clear here in Oregon (and Bob testified in California), "Customers should only pay for their reasonable share of consolidated corporate costs whether those costs are for the CEO, the shareholders, or for taxes."

The utility tax reform we helped write and pass in Oregon was fundamentally about fairness, and allocating resources appropriately. We are happy that other states are beginning to address the fairness issue with regard to their own utility taxation, and we're glad that we are able to speak on behalf of fair utility tax laws here and elsewhere.

Posted by Oregon CUB at 03:40 PM | Comments (0)

January 17, 2007

Double Header Victories for Customers and the Environment

CUB had a big week, snowstorm aside. Two hotly contested cases resulted in Orders from the Public Utility Commission and CUB feels good about the outcome of both.

First out of the gate was the Commission's decision on PGE's general rate case. PGE asked for an increased Return on Equity (ROE), or profit margin, of 10.75%; they got a decreased ROE to 10.1%. We feel this is reasonable, the PUC having recognized that the ROE should only be high enough to attract shareholder investment, not high enough to gouge customers.

The other big issue in the case was whether to institute a Power Cost Adjustment (PCA), and if so, what should that look like. PGE suggested a PCA that would have required customers to pay 90% of all costs that went basically even a dollar above the forecast level, and would have returned money to customers if costs were lower than expected (a more unusual turn of events). For CUB, this was a non-starter. Instead, CUB suggested a PCA that includes a deadband, or allowable variation, of about $24 million above cost or $12 million below cost before triggering the PCA process. This represents the normal variation of costs utility shareholders are expected to absorb; managing this normal variation is why we pay the company a profit margin. CUB's PCA also included an earnings deadband that required the change in costs to result in a change of at least 100 basis points to PGE's ROE, or about $16 million, before any change would flow to customers' rates. The Commission chose to adopt CUB's PCA, only changing the sharing band outside the deadband to be 90/10 (customers responsible for 90% of extra costs) rather than CUB's suggested 50/50 sharing split.

The combination of the lower profit margin for PGE and the PCA based on CUB's model will save customers a good deal of money over the next several years (the last general rate case before this one was in 2000-01).

You may remember hearing some media flurry about this case with regard to a Standard & Poor's credit report. That report was used by PGE to support their argument for a PCA. Since CUB and the PUC Staff were supportive of using a PCA as well, although a substantially different version, we don't feel the publicity exposing PGE's influence over the report-writing process had a large impact on the case. It did, however, ensure that CUB will be continuing to monitor utility influence on credit reports and how they are used in the regulatory process.

The Second big decision came yesterday, when the PUC sent out the following announcement:

"Today the Oregon Public Utility Commission rejected PacifiCorp's request to conditionally approve a plan to seek bids to build two coal plants in order to meet growing energy demands. The Commission found that the company failed to justify the need to acquire the amount and type of energy resources sought...

"A coalition of customer groups and others had opposed the plan because it included coal generation.

"In its decision, the Commission declined to resolve issues related to CO2 risk at this time. However, the Commission has opened a separate proceeding to review CO2 risk related to the expected cost, risk and uncertainties of coal resources."

CUB had intervened in this case, along with Northwest Energy Coalition and Renewable Northwest Project, among others, and was leading the fight against the PUC approving any new pulverized coal plants to serve Oregon customers. If approved, these coal plants would have been producing significant amounts of carbon dioxide, a major global warming pollutant, for decades to come, and customers would have been responsible for any future charges due to carbon regulation (such as has been adopted in the European Union).

We are very happy that the Commission has instead directed PacifiCorp to look at filling their energy needs for Oregon using energy efficiency and renewable energy sources. This not only makes sense for filling the needs of the moment, but also, as the Commission noted, gives a few years of breathing room for the utility to investigate the "new" coal technology called IGCC which could eventually allow for carbon sequestration, a much cleaner way to use coal for power production.

This decision highlights the difference in outlook between PacifiCorp's two largest states, Oregon and Utah, and leaves the company in an awkward position. Toward the end of 2006, Utah's Commission directed the company to produce more power, and lots of it, to meet the needs of a quickly growing population and an increase in household usage of electricity. By contrast, Oregon's household usage of electricity is not rising and, overall, the Pacific Northwest philosophy seems more open to conservation and renewables.

However PacifiCorp is able to reconcile these two viewpoints, we are excited to see the Oregon Commission drawing a line at building more traditional coal plants. In our (not so) humble opinion, this is the only sane policy: When you're in a hole, you stop digging; when you're directly threatened by the global climatic shifts associated with the burning of fossil fuels, you stop building coal plants.

A good week, all in all. And the powdery snow and hot chocolate was good, too.

Posted by Oregon CUB at 03:15 PM | Comments (1)

December 06, 2006

Who's really writing the credit reports?

Well, the cat is out of the bag now. PGE's credit bag, that is. Apparently there was more going on than met the eye with a recent credit report written by Standard & Poor's about PGE's credit-worthiness. PGE cited the report's rating of "negative," and has been using the report as ammunition to fight for its requested 8.9 percent rate increase, and also for a power cost adjustment (PCA).

The PCA, about which we've written before, is an extremely important issue in the current rate case, and in other cases in which it's been an issue for the past 5 years. PCAs have the effect of shifting the primary burden of risk in power cost changes off of shareholders and onto customers. This is totally inappropriate, since the utility is being paid a rate of return to manage that risk.

Now it surfaces that PGE might have been able to exercise influence over S&P's credit report by editing the report so that it called for the PUC to implement a PCA, even though the draft report said nothing about a PCA. They then used that report as independent evidence in a rate case asking for a PCA. This not only calls into question the basic integrity of credit reports such as this one, but also makes us wonder if these reports should be included in rate cases at all.

PGE employees apparently had a hand in editing the supposedly independent report, and it appears that the amount of influence exercised by PGE over the final version of the report went beyond the expected level of fact-checking. (Our thanks to Industrial Customers of Northwest Utilities, the party who uncovered the history of the report.) This question of company influence on the report is extremely problematic: third-party reports should not be used to manipulate regulatory outcomes.

Both Willamette Week and the Oregonian made the issue a top story today. On the one hand, we know it's really easy to beat up on PGE in the press. On the other hand, actions like this one make it impossible not to criticize them.

It remains unknown whether this particular irregularity was the result of merely one analyst's poor judgment or whether the problem is more widespread and systemic. Utilities cite credit agency reports in rate cases all the time. PGE says there is nothing wrong with what they did, that it is just business as usual. If that is true -- if collusion is the norm -- then these reports have no value to regulators. Enron is gone, but Wall Street continues to be the center of ethical controversies.

We meet today with a representative of a project to chronicle Oregon ballot measures for the Oregon Historical Society. We will be handing over some materials from the 1984 ballot measure that created CUB. In digging out those materials we came across this ghoulish graphic, used in the Halloween time period of the campaign.

Okay, it's rough and it's dated, but it's still a valid critique (and don't ya love the nose on that guy?). So we'll keep fighting "to protect and defend the regulated arena" as Fred Heutte, a CUB board member, put it. Somebody's got to be a voice for residential ratepayers, particularly in light of questionable credit reports and other tricks of the trade.

Posted by Oregon CUB at 04:33 PM | Comments (0)

October 05, 2006

Who can best shoulder the risk of power cost changes - you or PGE?

If you read the news you may have seen yesterday's Oregonian article entitled, "Extra costs pit PGE, customers." The language is adversarial and the two cases we currently are negotiating with PGE have been, too.

The first, the Boardman case, is PGE's request for deferral of extra costs incurred because their Boardman coal plant was out of service for several months. This outage cost PGE about $43 million in extra power costs, from having to purchase replacement power, and they asked customers to pay all of that. They're now down to asking for about $39 million, or 90%, but CUB has said that this number is out of line with previous expectations of what customers should pay.

The Boardman case shows PGE's desire to shift risk onto customers in a particular way. In a general way, shifting risk has also been one of the thrusts of PGE's general rate case, now being argued before the Public Utility Commission. A little background: Utility rates are set using power cost forecasts of the coming year. The numbers for power costs are provided by the utility, debated by parties to the case (such as CUB), and the final forecast is decided upon in the annual power costs rate case by the Commission. The overall rates for customers (inluding the Company's rate of return) is then set in a general rate case.

In their current general rate case, PGE has requested a power cost adjustment (PCA), in which 90% of all costs higher than those forecast should be paid by customers. This PCA proposal is balanced in the sense that customers would also benefit from the PCA if power costs were lower than forecast, but CUB doesn't support the proposal for several reasons:

1) First and foremost, this PCA would shift the changing costs, the biggest risk of the utility business, onto customers. If we were ever to consider supporting such a change, it would be with the understanding that PGE's rate of return, the profit they earn for managing said risk, should be similarly decreased. Instead, PGE is asking in this same rate case for an increase of their rate of return.

2) Second, this PCA does not adequately reflect the reality of the time lag that exists in rate-making. "Under a PCA, when I use power today," explains CUB Executive Director Bob Jenks, "I don't know what my rate really is. I won't know for 2 years, until there is a true-up of rates with actual costs. The lag-time in ratemaking is why we need someone to bear the risk of changing power costs, and that someone should not be the customer."

3) Third, PGE's proposal has no deadband. Additional costs have almost always been shared between customers and the Company, with the Company absorbing a significant share of the extra costs due to a "deadband," which is figured based upon a percentage of the Company's earnings. The deadband could be likened to the deductible on an insurance policy. If something goes wrong the insurance policy holder pays a percentage out of pocket before the benefits kick in. PGE wants the benefits without the deductible. The Public Utility Commission has set a strong precedent of using deadbands, and PGE has even supported deadbands in the past. CUB believes that a deadband of $35 million is appropriate in the Boardman case (out of total annual revenue of about $1.5 billion for PGE).

Power costs go up and down from year to year and season to season. Hydropower was great in the '90s and has slowed in some recent years (forgive us the pun) to a trickle. Natural gas prices were low during the '90s as well and we all know what direction they seem to be headed. The major problem with trying to shift power cost variation onto customers, with the promise that lower costs will mean lower rates, is that power cost variation is asymmetrical: costs can only go down to near zero, but costs can go up indefinitely, high as the sky, as long as people are willing to pay those unknown future premium costs for power. And let's face it, most households are not as well able to bear the brunt of large changes in power cost as is a large corporate utility.

Power cost variation is the major risk involved in operating a utility. If PGE wishes to continue to earn a profit for managing the risk of the utility, they have to actually manage that risk, accepting the occasional spikes in their cost that accompany other years of windfall. Shareholders make a profit; they also provide a financial buffer when things don't go according to plan. We will never support a ratemaking deal which doesn't understand this trade-off as the baseline.

Posted by Oregon CUB at 02:27 PM | Comments (1)

August 11, 2006

CUB Argues Against Unnecessary Rate Increase for PGE

Wednesday CUB filed our Testimony in Portland General Electric's current General Rate Case.

Rate cases typically take a great deal of time to dissect, digest, and write our arguments in response. This case was no different. Our basic testimony ran 50 pages, with another 25 or so of exhibits. (It was a fine time for our copier to stop collating, but all's well that goes to the Commission well.)

Our basic arguments responded to PGE's sometimes-outrageous requests. We also took it a step further and made some proactive suggestions to improve the ratemaking process and fairness to customers.

Power Cost Adjustments. PGE asked for several power costs adjustment mechanisms that would raise rates if power costs (fuel and wholesale power) were slightly higher than forecasted. This is a significant shift in risk from shareholders onto customers. CUB argued, "If the Company would like a regulatory framework that eliminates uncertainty and risk, then its return on equity should be adjusted to that of Treasury Bills, about 5%." CUB also proposed our own power cost mechanism which would only increase rates in extraordinary circumstances.

Port Westward. PGE asked for approximately an additional $50 million in rates to cover the operation of their new gas-fired plant, Port Westward. Here's the catch: rates go into effect in January 2007 and the plant isn't even expected to be open before March 2007, at the earliest, but it could conceivably be delayed. CUB raised this timing issue, offering conditions to deal with possible delay. We also addressed the lack of adequate conservation planning in PGE's resource plan: "Oregon has a longstanding policy commitment to pursue all cost-effective electricity savings and avoid unnecessary expenditure on generation and grid additions." We used this case, as we do many, to advocate for keeping our focus on long-term energy stability that is as clean and inexpensive as possible, concluding that "it simply makes little sense to evaluate the prudence of a single, large power plant, without determining whether that investment is part of an overall, least-cost, least-risk portfolio."

Advanced Metering. PGE wants the Commission to approve its latest plan for Advanced Metering Infrastructure (so-called "smart" electronic meters that can be read without meter readers walking door to door), costing an additional $3.7 million now and more than $140 million over the next few years. CUB argues that this technology has not been proved cost-effective, and has not been thoroughly investigated even by PGE itself. CUB is concerned that, once the advanced meters were purchased, the Company would then begin pushing time-of-use pricing (where you pay more depending on the time of day that you use power) in order to justify the huge expense. We recommended a much more thorough investigation before approval, saying that we should figure out what we plan to do with this technology first, and then examine whether it makes sense for Oregon.

Rate Design. PGE wants to get rid of "block rates" that reward conservation of electricity (you pay less per kWh for the first block of usage and more for the second). Can you guess what we thought of that? "The Company's proposal to reduce and then eliminate the block structure of the rate design ... means that customers who use more electricity will receive more of the benefit of the federal hydro system than customers who use less. Not only does this provide a lousy conservation incentive, it is also unfair." We recommended retaining the current block rates.

Our utility analyst, Lowrey Brown, who wrote much of the Testimony, said she felt this morning as if she'd been climbing mountains again (once one of her favorite pastimes). This Testimony did feel big -- maybe not Mt. Hood-sized, but sizable nevertheless. We are glad to have it written and out the door.

PGE will have a chance to respond and we will, too. We look forward to getting into Oral Arguments to debate the issues in the Fall. We think our arguments on behalf of simple ratemaking procedures, fair balancing of risks and profits, resource plans that are timely and presented in full context of all generating resources, and of course conservation wherever possible, form a strong philosophy of reasonable ratemaking.

Posted by Oregon CUB at 09:31 AM | Comments (1)

July 20, 2006

Two Big Rate Cases Underway

We've talked to you lately in CUB Online about global warming and the need to purchase renewables, preserving equal access to the internet, and successful reform of utility tax rules. But this week we're back to the basics, the bread and butter of why CUB exists: the utilities want to raise your rates and we're gonna try and stop them.

PGE and PacifiCorp have both filed rate increase requests, both of them highly - shall we say? - optimistic. PacifiCorp wants a 13% increase in rates amounting to about $110 million additional dollars from ratepayers; PGE wants 8.6% or $130 million. Our analysis shows that little or no rate increase should be granted in either case.

Current status is that while we are well underway, we are also far from done in even presenting and hearing arguments in the two rate cases. We have gone through settlement discussions, filed testimony in the general rate case and power cost update rate case for PacifiCorp, and in the power cost update case for PGE. We are working through other intervenors' testimony (such as Industrial Customers of Northwest Utilities) and the testimony of PUC Staff.

One thing we have already deduced, is that if the Commission were to accept all of the proposed adjustments from CUB and from PUC Staff in the PacifiCorp case, the end result would be a rate decrease, rather than any increase at all. We have no reason to think this is going to be the final outcome, but we do think it goes to show how differently the data can be interpreted and how aggressively PacifiCorp uses the data to ask for significant increases.

In the PGE case, other parties have proposed big reductions on power costs, as have we. We proposed 4 adjustments with a minimum reduction of tens of millions of dollars, and we recommended that the PUC seriously consider other parties' adjustments as well. Next, the companies will have the chance to respond to the testimony filed so far.

While it's too early to say that rates won't go up, we do feel that the companies have a ways to go to make a convincing argument that they need higher rates to provide adequate service.

And with temperatures expected to hover around 100 through this weekend, electricity will be at peak demand. In fact, the highest usage of electricity all year could be happening in the next few days, just to keep inside temperatures bearable. All of which helps remind us of why the rates for our electricity need to be kept fair and reasonable.

Posted by Oregon CUB at 11:26 AM | Comments (0)

July 14, 2006

CUB Praises PUC Tax Reform Ruling

The Public Utility Commission today released its Interim Order regarding implementation of the new utility tax law, SB 408. CUB Executive Director Bob Jenks had this to say about the ruling: "The PUC found a simple and elegant compromise to solve a serious problem in ratemaking. We expect that customers will see lower rates as a result."

Although the law has been under discussion in rate cases recently, most notably the Reconsideration of PacifiCorp's last rate case, the Commission has been operating without Permanent Rules on the subject since the law was passed last year. This Order moves the PUC toward Permanent Rules regarding utility taxes, and does so in an effective and fair manner. Though not accepting either the utilities' stand-alone approach to utility taxes (ignoring the income and tax deductions of affiliates in a corporate family), and not embracing CUB's specific approach to determining "properly attributed" taxes, the Commission has proposed a third method of arriving at a fair means of tax attribution.

This method begins with the assumption that customers should not be paying significantly more to utilities than the utility's fair share of the taxes paid to government by the utility's parent company. From the Order: "If amounts collected and amounts paid differ by more than $100,000, SB 408 requires this Commission to direct the public utility to implement a rate schedule ... accounting for the difference."

The question is and has been: When a utility is part of a large conglomerate, how do we "properly attribute" a share of that conglomerate's tax liability to the utility and its customers. The Commission calls this issue "difficult and controversial" and they ain't kidding! For almost a year, CUB, industry groups, the utilities and the Commission themselves have wrangled with the question of how to solve this problem of phantom taxation: taxes paid by customers to a utility, but retained by a consolidated corporate utility due to its tax deductions.

Today's Order solves this issue in a surprisingly simple way. The Commission has decided to treat the taxes as just another expense being incurred at the corporate parent level, and passed on to customers proportionally. As with executive salaries at the parent company (such as when PGE customers were paying part of Ken Lay's salary), the proportional amount paid by Oregon utility customers is figured following a three-factor formula. At the risk of providing too much information, the formula works with factors of the overall corporation's total sales, property, and payroll. The numbers are then divided according to the Oregon utility's portion of the final figure.

It's a less labor-intensive formula than the one CUB had proposed, because it doesn't require as much information from and about the corporation's other affiliates, which makes PUC Staff breathe a sigh of relief. It is a clear rejection of the utility's argument that SB 408 does not require a significant change in the way we charge taxes to customers. Most importantly, it fixes the major problem of customers paying into a tax account, only to see that money diverted to utility shareholders.

We are pleased with the Commission's creativity and diligence in crafting a solution. While we have not seen this methodology until today, and have not fully evaluated it, we do expect that this decision will lead to lower rates because rates will no longer include inflated tax amounts. However, we don't expect the case to be closed on the issue of utility taxes. PacifiCorp, particularly, has shown itself to be tireless in working to undermine tax reform, and we expect them to try to convince the 2007 Legislature to repeal SB 408.

CUB has been a leader in confronting the problem of unfair utility tax practices, and we will continue to work on the issue as it arises, whether at the Public Utility Commission or in the Oregon Legislature. We will also continue to play a role in educating the public and the media about what is often a complicated issue.

If you are pleased to hear about this step forward in the battle for fairer utility bills, please consider making a donation to CUB today. We rely on member support in fighting for lower rates and cleaner energy for Oregon utility customers. We appreciate the feedback from our members, and the financial support that makes our work possible.

Posted by Oregon CUB at 03:09 PM | Comments (2)

July 11, 2006

PUC Upholds Rate Reduction in PacifiCorp Reconsideration

In an important decision today, the Public Utility Commission upheld its earlier decision that SB 408, the utility tax reform law, does change the way that PacifiCorp is allowed to handle inclusion of taxes in customer rates. The law requires that PacifiCorp move away from figuring taxes on a stand-alone basis, pretending as though they were not part of a larger corporate entity. This is exactly the position that CUB has been advocating and we are thrilled with the Commission's ruling.

The Commission first ruled on PacifiCorp's rate increase request last September, when they slashed the rate increase request from 12.5% to 3%. About $26 million of that reduction was due to a tax adjustment proposed by CUB and adopted by the PUC. PacifiCorp filed for Reconsideration of that ruling, which the Commission granted in December 2005. Today's Order is the result of that Reconsideration case. Interestingly enough, the Commission affirmed the principles of SB 408, but stated that the tax adjustment would stand even without SB 408. This is exactly how CUB argued for the tax adjustment last summer, before the bill had even passed the Oregon Legislature.

In the Commission's own words: "In this order, we clarify, but affirm, our application of Senate Bill 408 in this proceeding to reduce the amount of tax expense PacifiCorp may recover in rates ... [W]e adopted an adjustment based on CUB's proposal to reduce PacifiCorp's proposed tax expense by $16.07 million ... this disallowance translates to a $26.6 million revenue requirement decrease." (Public Utility Commission of Oregon Order on Reconsideration of UE 170, 07/10/06.)

CUB formed our argument to reduce tax expense by $16.07 million based upon the "known and measurable" factor of tax deductions that would accrue to PacifiCorp due to a loan made by Scottish Power to PacifiCorp Holdings, Inc. (PHI), PacifiCorp's immediate parent company. The $160 million PHI was paying in interest to pay back the loan was eligible for a tax deduction, and Oregon's share of that deduction came to about $16 million. CUB argued that this tax deduction amount would reduce the taxes that went from PacifiCorp to government, and therefore should not be charged to customers. The Commission agreed with CUB during the first case, and upheld that decision in this Reconsideration, but allowed PacifiCorp to refigure the interest on the loan using changing interest rates. The effect of this refiguring will bring the final tax adjustment savings for Oregon Pacific Power customers to approximately $20 million.

The PUC is expected to issue its decision regarding the Permanent Rules for implementing SB 408 later this week. We believe that this PacifiCorp Reconsideration decision is a good step on the path toward utility tax reform on a long-term basis, and that this is a clear indication that the stand-alone taxation so strongly advocated by utility companies (because they can charge customers for taxes they may or may not wind up paying) is no longer accepted practice for utility companies in Oregon. Good news indeed!

Posted by Oregon CUB at 03:11 PM | Comments (0)

June 09, 2006

Who Pays for the Boardman Outage?

CUB submitted response testimony last week in a case involving a broken coal power plant, PGE's Boardman plant in Eastern Oregon, up near the Washington border. PGE has asked for $50.1 million from customers to cover some of the time the plant was closed. CUB and PUC staff have both responded by saying customers should pay their fair share of the outage, but that we think a fair amount would fall well under $1 million. That's a big difference in numbers. Here is basically what happened.

A turbine rotor crack at Boardman caused the plant to close, or go "off-line," back on Oct. 23, 2005. While replacing the repaired rotor in February of this year, the generator rotor was damaged, causing further delay. The plant finally got going again in late May 2006, having been out for about 5 months. A root cause analysis, determining what was the original cause of the outage, has not been completed. When that is done, it will be used to determine whether PGE's management of the plant was prudent or imprudent, and if it is found that the rotor cracked due to PGE's imprudence, then CUB will argue that customers should pay none of the costs. Until that root cause analysis is done, however, let us tell you about the current case.

PGE filed a deferral on the outage, a request to track the costs associated with having Boardman closed, in order to ask the PUC to approve passing those costs along to customers. Their request would only include costs from the first phase of the outage due to the cracked turbine rotor, from Nov. 18th through Feb. 5th. (Costs for the second phase were not requested, presumably because it was clear that PGE was responsible for the second rotor's breaking, or because inexpensive hydropower during that time kept replacement power costs low.) PGE estimated the cost of this outage at $50.1 million. PUC staff, in their own analysis, thought $42.8 was the correct cost to cover the outage.

This was an unusually long outage, but these things do happen. Power plants go off-line, as PacifiCorp's Hunter coal plant did during the 2001 power crisis, as PGE's Trojan nuclear plant did fairly regularly in its 17-year operation. A certain amount of leeway is built into the Return on Equity, the profit that these corporate utilities are allowed to make under state regulations. We provide a Return on Equity (ROE) to utilities, the amount of which currently runs at about 10% profit on investment, so that utilities are rewarded for the risks associated with their investment in the system. Generally, this ROE is considered ample compensation for the risk of most plant outages and other unexpected costs.

The ROE is a guesstimate based upon forecasts, since no one can really say what the weather and therefore hydropower will be like, or what the actual demand for electricity will be, etc. When costs are low and profits are high, the utility keeps the extra money for its shareholders. When costs are high and profits are lower, the utility should absorb some of the higher cost. Traditionally, a sharing mechanism is often used to ensure that the risks and benefits are not weighted too heavily on either the utility or on customers. This sharing mechanism involves using a "deadband" that includes costs that the company is expected to absorb as part of the normal risk of doing business and making a profit.

PGE is asking for customers to pay 100% of the costs associated with Boardman's outage from 11/18/05-02/05/06. CUB is arguing that this is nonsense. Assuming that PGE's management of the plant has been prudent, customers should pay some of the costs that fall outside the normal cost deadband. But because we believe the deadband is about $42 million, customers' share of costs comes to less than $1 million, not $50 million.

Boardman is a more expensive plant to run, even on good days, than most coal plants. About one third of Oregon's electricity is served by coal, mostly from plants in Utah, Wyoming, or Montana. The power produced in these other Western states is then transmitted to Oregon over the grid as electricity. Boardman, on the other hand, has no nearby source of coal and requires railroad shipments of coal from the Rocky Mountains to be brought in, which is a more expensive proposition. And then Boardman has been the target for criticism based on the air pollution it emits, dirtying the air of "more than 10 protected parks and wilderness areas, including Mount Hood, Mount Rainier and Mount Jefferson..." (Oregonian, 05/23/06).

Finally, there is also the issue of carbon regulation, which we believe to be an inevitable result of global warming, the financial burden of which will fall most heavily on customers consuming coal-based electricity. Boardman was approved in 1975, before CUB's existence, and was built without pollution control technology that was available even at that time. Be assured that CUB will fight to keep any more traditional coal-burning plants from being built in Oregon. And we will make sure customers don't pay any more than they need to on the one we already have.

Posted by Oregon CUB at 11:29 AM | Comments (0)

May 22, 2006

CUB's Work on Tax Fairness Issue Makes News

On Friday we completed and submitted our Response Comments in the Public Utility Commission Rulemaking case on utility tax reform. We were slightly hot under the collar, having just spent months in workshops and other meetings, and having already written one round of Comments regarding said tax reform. This work was in addition to a battle CUB and others led in the Oregon Legislature last year over phantom taxes, a battle that resulted in the passage of SB 408, which was intended to address the gap that often exists between taxes paid to utilities and taxes paid to government.

It was beginning to seem like all this was wasted time, in light of the PUC Staff's decision to embrace a system that looks suspiciously like the one we are trying to move away from -- you know the one, where customers pay taxes to the utility and the utility gets to keep a big chunk of that money for its shareholders. We do note, however, that we were critical of the PUC Staff, not the Commissioners. The Commissioners themselves have the final say on tax rules, and we are hopeful that after reading the comments from all the parties, they will decide that a plan that replicates the status quo is just not acceptable.

The Oregonian was taking note of the process and wrote the following article (slightly abbreviated) on Saturday. We appreciate their taking time to follow this important issue, and hope you enjoy reading up on it.

Citizens' Utility Board blasts PUC in filing: Tax rules - The watchdog group accuses the Public Utility Commission of taking the easy way out

Saturday, May 20, 2006

TED SICKINGER

The Oregonian

The Citizens' Utility Board flayed staff of the Oregon Public Utility Commission on Friday, accusing them of taking the easy way out in a debate over a new utility tax law and siding with utilities at the expense of ratepayers and the law.

The citizens' board made its comments in a filing with the PUC on proposed rules to implement Senate Bill 408. The controversial bill, passed last year by the Legislature, was aimed at forcing utilities to match the taxes they collect from their customers in rates with what they ultimately pay to taxing authorities...

Ratepayer advocates, the utilities and staff at the commission have been wrestling with how to apply the law for more than a year. PUC commissioners are slated to adopt permanent rules this fall, which could mean the difference between hundreds of millions of dollars in rate cuts or utility profits over time.

The citizens board complained in its filing Friday that the rulemaking around the new law has failed because PUC "staff and utilities failed to participate meaningfully, while the customer groups made a one-sided attempt at exploring reasonable middle ground proposals."

The Citizens' Utility Board's reaction was fueled by the PUC staff's backing of a tax accounting proposal submitted by PacifiCorp, which has led the utility industry's fight against the new law.

At its heart, the debate boils down to whether the commission should calculate utilities' tax liabilities as if they were stand-alone companies -- as it has done traditionally -- or take account of their holding company structures and give ratepayers a share of the tax benefits that those entities generate.

Under proposals favored by utilities, and now endorsed by the PUC staff, the commission would essentially stick with the status quo, calculating utilities' tax collections as if they were stand-alone entities. That means they would make refunds to ratepayers only if a utility's holding company pays less in taxes than it collects from ratepayers or the utility enables some additional savings at the holding company.

That would address the problem PGE ratepayers experienced with Enron -- at least partially. But customer groups maintain that SB 408 contemplated a bigger change, not one that could potentially leave ratepayers on the hook for 100 percent of the consolidated tax liability.

In the opinion of the citizens board and the Industrial Customers of Northwest Utilities, ratepayers should only be liable for their fair share of the holding company's tax liability. Since that liability is based on its consolidated net income, they think ratepayers should only have to pay taxes based on their contribution to that consolidated net income.

The debate has been stuck at those poles since last fall, when an administrative law judge asked all parties to participate in a series of workshops and come up with a set of middle ground proposals that the commission could consider.

The board says PUC staff and utilities failed to participate in good faith. PUC staff submitted no proposal. And PacifiCorp's proposal was simply a reworked version of standalone attribution, the board said...

The commission will hold a hearing on the new proposals May 31, and customer groups are likely to set off some fireworks.

"We have before us an opportunity to create a better system," the citizens board wrote in its filing. "Unfortunately, staff and the utilities appear to be quite comfortable dragging the stand-alone attribution methodology out of the La Brea tar pits, hosing it off, and pretending it is something new."

Posted by Oregon CUB at 02:00 PM | Comments (0)

May 17, 2006

Politics Has No Place at the PUC

Almost six years ago to the day, CUB helped to write, and then-Governor John Kitzhaber signed, an Executive Order (No. EO-00-06) that explicitly forbids the Oregon Governor or his/her Staff from interfering with or exerting influence over the PUC decision-making process. Greatly abbreviated, the Order basically states: "WHEREAS, Oregon citizens are best served when the PUC decisions are based on sound policy rather than political favor... THERFORE, IT IS HEREBY ORDERED AND DIRECTED: That the Governor, the governor's staff and executive branch personnel will respect and encourage the commission and professional staff to independently fulfill their statutory and administrative duties..."

That makes sense, doesn't it? However, the temptation always exists, and arises anew every few years, for people to assume that the governor should be doing something more, with regard to some regulatory issue at the PUC (utility taxes comes to mind currently). CUB believes that this kind of gubernatorial influence is a slippery slope and should be avoided, and we would like to share with you why that is.

First, a little history. The late 1970s and early 1980s were a difficult time for utility ratepayers. Back then, the Public Utility Commission in Oregon had only one Commissioner, and that Commissioner was of course appointed by the Governor. A series of decisions were handed down that stirred people's interest and their ire, regarding the Commissioner's ideal role as an independent arbiter of ratemaking, and his actual role which was not living up to the ideal. It was felt that customers' voices were not being heard, and ratemaking was reflecting that.

And so in the mid-80s a few things changed. In 1984, Ballot Measure 3 passed, which created the Citizens' Utility Board of Oregon to be that much-needed voice for residential customers. Then, in 1986, through Ballot Measure 4, the Commission structure was changed so that three Commissioners (rather than only one) were now appointed by the Governor, and jointly handed down the decisions that regulate our utilities. The new PUC had a new emphasis, as well, on public process that discouraged backroom deal-making.

It was important in the early days of the new 3-Commissioner system to send a signal that a new day had dawned. This happened when then-Governor Neil Goldschmidt attempted to intercede with then-Commissioner Ron Eachus on a regulatory matter, off the record. At the very next public PUC meeting, Commissioner Eachus recounted the contact with the Governor's Office, putting it firmly on the record, where all such contacts should remain. It is this spirit of openness that CUB has tried to foster in the regulatory process, since that is how we feel the best decisions are made.

In political processes, the utilities often have more resources to wield undue influence over the outcome. In the PUC process, each party offers arguments that stand or fall based on their own merit, and everyone knows all the arguments being made (for example, here is a copy of CUB's Opening Comments regarding utility taxes). This process is therefore more like an open debate, and less like a slam dunk for those with power and huge economic resources. CUB does not win every argument, or every case, but we do feel that the PUC process as it currently exists is a successful process, because it is transparent.

Some have criticized the current Governor for staying out of the PUC process on utility tax issues. Having seen the dangers of a politicized PUC, we have a different viewpoint. We certainly understand people's desire to see the Governor work for a fairer system, but the truth is that in our experience, when a Governor weighs in, that weight is used far more frequently and vigorously to favor utility interests. Maintaining an open and independent process at the PUC is more important than any one case decision. We appreciate Governor Kulongoski's willingness to recognize and respect the importance of the Executive Order signed by his predecessor protecting that independence, and his willingness to not dive into the debates hotly swirling around the PUC public meeting rooms. We expect that same respect for the principles of Order No. EO-00-06 from whoever holds the Governor's office in the future.

We need openness, not influence; independence, not politics. That is how we achieve "fair, just, and reasonable" utility regulation.

Posted by Oregon CUB at 03:00 PM | Comments (0)

May 05, 2006

Rate Increase Open Houses Happening Around the State

From the Oregon Public Utility Commission:

Customers of Portland General Electric and PacifiCorp are invited to attend a series of Open House events around the state during May to provide comment and obtain information about general rate increase requests.

Open house meetings are very informal; people can come and go as they please, take information, ask questions, and make comments for the record. Members of Commission Staff, PGE, PacifiCorp, and customer groups will be available to answer questions from the public during these events.

DATE: Wednesday, May 10, 2006 (PacifiCorp)
TIME: 6:30 p.m. - 7:30 p.m.
PLACE: Anna Maria Creekside Retirement Resort Courtyard Hall
822 Golf View Drive
Medford, OR 97504

DATE: Wednesday, May 17, 2006 (PGE)
TIME: 6:30 - 7:30 p.m.
PLACE: Chemeketa Community College Gymnasium
4000 Lancaster Drive
Salem, Oregon 97305

DATE: Monday, May 22, 2006 (PacifiCorp)
TIME: 6:30 p.m. - 7:30 p.m.
PLACE: National Guard Armory Drill Floor
875 SW Simpson Avenue
Bend, OR 97702

DATE: Wednesday, May 24, 2006 (PGE and PacifiCorp)
TIME: 6:30 p.m. - 7:30 p.m.
PLACE: Ambridge Event Center Morrison Room
300 N.E. Multnomah St.
Portland, OR 97232

Posted by Oregon CUB at 01:45 PM | Comments (0)

May 04, 2006

PGE Tax Refund Coming to Customers

A four-page notice has gone out to Multnomah County customers of Portland General Electric, saying that the class action lawsuit on their behalf has been settled. The case was regarding money PGE collected for the Multnomah County Business Income Tax ("Tax"), but "that were above what PGE or its parent company ended up owing and paying in Tax to Multnomah County." The settlement states that PGE will pay $10 million, most of the money going to those people who purchased electricity service from PGE between 1999 and 2005, and who were therefore paying the Tax on their PGE bills.

The notice says, "Current customers of PGE (as of January 18, 2006) may be eligible for a credit on their electric bills, and they do not need to submit claims." So, if you are currently a PGE customer and were a PGE customer throughout some or all of the time period in question (1999-2005) you don't need to do a thing. Your credit will show up automatically on your bill, in an amount between a few dollars or up to about $17, depending on the length of time you have been a customer of PGE.

If you no longer live in the PGE service territory, but did at some time between 1999 and 2005, and would like to receive a refund, you can fill out the Former PGE Customer Claim Form that is attached to the back of your notice, or you can call 888-279-4337.

If you wish to opt out of the settlement, in hopes of going after PGE yourself in court, you may do that by sending a notice to PGE Class Action Processing, PO Box 3775, Portland, OR 97208-3775. The deadline for all objections and exclusions from the class is June 28, 2006, exactly one month before the date of the final hearing in this case, which will be held on July 28, 2006.

This lawsuit was filed by the Utility Reform Project and among the plaintiffs named as representing the class of customers was Sid Lezak, former U.S. Attorney for Oregon (read a tribute from the Oregonian here). His participation in this case was one of his final projects in a long and impressive life of activism on a number of fronts. He died April 24th at the age of 81.

Posted by Oregon CUB at 03:36 PM | Comments (0)

March 24, 2006

Rates Going Through the Roof in Deregulated States

Thank goodness we're not paying Maryland's electric bills here in Oregon. Due to deregulation of the electricity industry, Maryland ratepayers are expected to see a 72% increase in their electricity bills this summer, when a temporary price cap disappears. According to the Baltimore Sun on 03/22/06, "The 72 percent rate hike scheduled to take place July 1 would cost residential consumers of BGE $750 million -- an average of $740 a year for the company's more than 1 million customers in Maryland." Those customers will be at the mercy of the market, and -- contrary to what the deregulation proponents claimed -- the market has gone up, not down.

Customers of Pacific Power here in Oregon are currently paying a little over $.06 per kilowatt hour (kWh) for electricity, Portland General Electric customers about $.08. Maryland customers could be paying as much as $.15/kWh by year's end.

This result is consistent with what we're seeing in other states such as Pennsylvania who deregulated their system and sold off their generation facilities. The free market philosophy suggested that giving the customers more choice and the electricity-generating companies more latitude would result in a better deal for customers. It hasn't exactly worked out that way.

Temporary price caps implemented during the transition to a deregulated system were supposed to make way for prices lowered by the competition of the free market. Instead, "caps that are expiring now are 'coming off at a time when the wholesale market is way out of line with what had been expected. The real question is whether this is going to get better or not.'" Associated Press on AOL 03/08/06. And "in Montana, higher rates have led to a move to scrap the deregulation plan that originally was viewed as an avenue to cheaper electricity."

This could have been happening here in Oregon, quite easily. As one of its first acts after buying PGE in 1997, Enron proposed a radical deregulation scheme for Oregon. CUB built a coalition of Oregon's environmental, low-income, and other consumer advocacy organizations to fight Enron's plan, and we succeeded. This happened only a few years before the West Coast Energy Crisis, and it has been said that by redirecting Enron's push for change toward a restructuring plan that gave industrial customers some of the flexibility they wanted, while still retaining rate regulation for residential customers, we saved ratepayers an estimated one billion dollars. In addition, we won critical energy efficiency and renewable programs, and programs that protect low-income Oregonians' access to service. Oregon wound up with a system that not only looked better on paper, but has actually functioned more successfully in the real world.

So thank goodness and thank the CUB members who supported that work: Oregonians may see modest increases in electricity rates as fuel costs go up, but we aren't sitting around trying to cut $750 out of next year's budget, knowing it will have to go to pay our electricity bill. That's a success story.

Addendum: Here is a nice blog piece from Slacktivist about a similar situation with deregulation in Delaware.

Posted by Oregon CUB at 01:49 PM | Comments (0)

March 16, 2006

PGE Files Rate Case - CUB Gears Up to Fight

PGE filed a rate case with the PUC yesterday, hoping to attain a rate increase of $143 overall, an 8.5% increase in residential customers' rates. This rate case will set rates going forward from January 2007. CUB is disappointed but not surprised by this rate filing. We believe PGE would be wiser to wait on asking for increased money from customers, but we don't set the timing of these cases - that is up to the company.

The details of PGE's arguments are not known to us yet, since we have not yet started wading through the thousands of pages of the filing itself. What we do know is that PGE believes it isn't making enough money, and has asked the PUC to give it a profit margin of 10.75% rather than the 10% that has been given in recent cases. We aren't sure why they feel, particularly at this moment with the news full of Enron trials and disputes between PGE and the City of Portland, it is appropriate to ask for this higher rate of return. However, we will undoubtedly find out more as the case progresses.

Public perception aside, we also believe the case, from the standpoint of its contents, is poorly timed. Much of the impetus behind the case seems to stem from PGE's desire to set up a mechanism to automatically enter their new power plant at Port Westward into rates, as soon as it comes on line. A couple of problems arise for CUB on this issue: this rate case goes into effect in January of next year but Port Westward is not expected to be operational until March or April at the earliest; also, it is quite possible that Port Westward's opening might not occur until the summer or fall of 2007, and other costs associated with running it might well have changed by then. CUB believes that the time to add a power plant into rates is after that plant opens, which makes much of the content of this filing premature.

PGE's rates are already among the highest in the Pacific Northwest and we are not convinced any rate hike is currently justified. Furthermore, because we know the impact that a rate increase could have on customers, we are going to go through this filing with a fine-tooth comb and question every cost. As we said earlier, it is not for CUB to set the timing of these rate cases. We simply respond to the cases as they are filed, taking in our toolkit of ratemaking experience and concern for customers' financial well-being. We will be taking apart this case and putting it back together again in arguments before the PUC that will hopefully result in a much different rate case outcome than the one PGE has requested. The standard, after all, is "fair, just, and reasonable" rates, and not a penny more.

Posted by Oregon CUB at 01:50 PM | Comments (0)

February 24, 2006

Pacific Power Files for Rate Increase AGAIN!

Don't look now, but Pacific Power (under their corporate name PacifiCorp) is looking to raise your rates again. But didn't we just get done talking about UE 170, their last rate case, you may ask? After a yearlong investigation of their rates and costs, the Commission gave a decision only 5 months ago which resulted in a 3% increase (down from 12% requested). As a matter of fact that rate case is still open, since Pacific Power filed a Motion for Reconsideration of the Public Utility Commission's decision.

Amazingly enough, this is not an unusual situation. Since Pacific Power was purchased by Scottish Power in 1997, they have been very aggressive about seeking rate increases. The newest filed rate case, which we just received in the mail today, makes the 7th Pacific Power rate proceeding in 7 years. No other utility files rate cases at this accelerated pace.

In the past 6 case decisions, the Commission has granted Pacific Power an average of 28% of the rate increase they requested. Why is that number so low? They have tended to exaggerate their need for a rate increase, which is decided based upon costs. For example, in the current rate case filing, Pacific Power is asking for an additional $112 million, or a 13% overall increase in rates. For residential customers, this would come to a 10.8% increase.

Two issues stand out immediately for CUB, not even having fully read the filing. 1) Pacific Power wants the PUC to raise their return on equity (ROE) or profit margin up from 10% to 11.5%, a sizeable jump. 2) Pacific Power wants the PUC to reinstate the $26 million in tax costs, removed from their last requested rate increase under the aegis of SB 408 (which requires utility taxes collected to roughly match taxes paid). Hmmmm.

Pacific Power does have relatively low electricity rates in a nationwide comparison. This is because their generation assets are mostly low-cost coal, low-cost hydropower, and some natural gas generation. And while it's true that natural gas prices spiked after the Gulf Coast Hurricanes last summer, those prices have been consistently dropping until now prices are at about $7 per MMBTU, half of the spiked price of $14.

This filing begins a process in which CUB plans to expend a huge amount of energy and resources in tracking and analyzing the actual costs, such as those mentioned above, of Pacific Power's electricity generation and purchase. We will write hundreds of data requests, wade through thousands of pages of Pacific Power information, will produce at least two rounds of testimony, undergo cross-examination, attend hearings, file a Brief, and make oral argument. This is an intensive process but it's a necessary process. As we've shown in the last 6 filings, such an effort pays off by reducing rate increases by millions and millions of dollars.

We're not sure any rate increase is warranted, with the last Pacific Power rate case still pending. But we'll meet them on the playing field. Again. And we'll make sure that whatever fraction of this requested rate increase they may win, is justified.

Posted by Oregon CUB at 11:02 AM | Comments (0)

November 10, 2005

Small Cases Can Have Large Consequences

CUB occasionally works on really big cases at the Oregon Public Utility Commission (OPUC), cases that make the front page of local newspapers, cases that affect the region's economy and environment and thousands of people's utility service. And then there are the other cases, cases that will never be front page news, cases that affect a smaller percentage of the population, but which we consider to still be very important because the effects might be substantially greater in those affected people's lives.

Recently we filed testimony in one of those latter types of cases, AR 500. The primary issue is whether to approve a system of advanced metering infrastructure (AMI), a way of connecting the meters at PGE customers' houses to a system that can "read" the electricity usage without the company having to send round an employee to read the meter in person. This primary issue is still being debated, and CUB is reserving judgment, saying in our Comments (filed jointly with the Community Action Directors of Oregon) that the "benefits and cost effectiveness of AMI… will need to be demonstrated in future OPUC dockets."

The secondary issue within this case was whether to allow PGE to disconnect a customer for non-payment, without having spoken to an adult at the residence, but having only left phone messages. A decision on this issue was easier for CUB to reach: "We oppose eliminating the requirement for a site visit in cases of impending disconnection of utility service where the utility has not reached the customer or another adult at the residence by phone… A telephone message will not suffice."

No one should be surprised with a shutoff. We don't feel that it's appropriate for PGE to be able to turn off the electrical power to your house or apartment without making sure someone there knows about it beforehand. Really, our opposition to this request feels like the least we can do, and we feel that a final site visit is the least PGE can do.

Why is this so important?

First, because we know that shutoffs present huge difficulties in terms of instituting new service, and in just getting through the day without power.

Second, because we know that only about two thirds of PGE's machine-operated calls make it through to a person. That leaves one third without phone contact! That number seems high, but the poor among us tend to move more often, may perhaps be working multiple jobs and rarely home, and often live without a phone (a recent survey of Oregon Food Bank basket recipients showed that 21% of those people had no phone service).

Third, because it's the right thing to do. Face-to-face notice of disconnection is not an outrageous thing to ask of a basic utility service provider. To again use the words of our Comments, "[W]e do not find the requirement for a single final site visit in the case of an impending disconnection… to be onerous."

Millions of people in this country are living in poverty. That number has increased in the past year. CUB takes seriously its mission to protect residential customers – all of them; and while, thankfully, most of the people we represent will never face disconnection, we know that for those who will have to deal with a shutoff, it is a major problem. Hopefully, the PUC will agree with our arguments and deny PGE the requested change.

Posted by Oregon CUB at 12:04 PM | Comments (0)

October 20, 2005

PacifiCorp Files Tax Return that Doesn't Add Up

Utilities in Oregon filed tax reports with the Public Utility Commission on Friday, a direct result of the passage of the Utility Tax Reform Bill, SB 408. The PUC has put together temporary rules based upon the tax reform law that should help assure utility customers that they are not overpaying their utilities for taxes that never reach state and federal government coffers.

However, there's a glitch. As reported in yesterday's Oregonian, PacifiCorp (dba Pacific Power) has filed a report which "did not comply with the temporary rules." By choosing a significantly different set of parameters for its tax figures, PacifiCorp was able to reach a number implying that it is customers who will owe more money, rather than the other way around. CUB Executive Director Bob Jenks called the tax report filed by PacifiCorp "meaningless."

Here's why:

1) The Public Utility Commission of Oregon regulates Oregon investor-owned-utilities (IOUs) -- the utilities don't regulate the Commission. We feel that it is inappropriate for PacifiCorp to choose not to comply with a clear set of rules set down by the Commission. Bob Jenks said, "In all the years I've been at CUB, I have never seen a utility simply not follow a Commission order." Based on PacifiCorp's own description of the parameters they used in the letter accompanying their tax report, those parameters do not match what the Commission ordered.

2) It is not clear at this time what methodology PacifiCorp used to reach the numbers they did, because no one has seen the process they used, outside the Company and Commission staff. We need to see the numbers and the process they used in order to adequately understand and critique the end result. However, CUB did an extensive analysis of PacifiCorp finances in their recent rate case which led to the Commission reducing PacifiCorp's rate increase by more than $16 million to account for over-collection of taxes. We are having trouble reconciling the numbers in that case with the numbers presented Friday.

3) The suggestion in PacifiCorp's report that customers paid $11 million less for taxes than their parent company paid, should not lead customers to believe that they will be paying $11 million more in rates in the future. We believe that PacifiCorp's interpretation is at odds with the Commission's order and the intent of the law. Once CUB and other consumer advocates have had a chance to view the numbers, we think that the numbers will show that tax payments made by customers to the utility were clearly greater than the money paid by the utility to government.

We think PacifiCorp's actions are inappropriate. We will work to make sure that PacifiCorp complies with the Commission's orders, to ensure that parties will get to review the data that underlies public assertions, and to establish permanent rules regarding taxes in rates that will serve customers well.

Posted by Oregon CUB at 10:05 AM | Comments (0)

September 29, 2005

PacifiCorp rate case decision good for customers

Great news for Pacific Power customers! The PUC yesterday accepted CUB's recommendation to stop the over-collection of taxes by the utility (and its parent company, PacifiCorp) in their upcoming year's rates. This change in PUC precedent chopped $16 million off the company's proposed rate increase and made the final increase, at $26 million or 3.2%, a fraction of their original request of $102 million or 12%. According to PUC Chairman Lee Beyer, "The tax amounts included in PacifiCorp's rates are a better estimate of what PacifiCorp will actually pay to governments."

CUB fought hard on the tax issue, both during this rate case and in the Legislature for SB408, the Utility Tax Reform Bill, on which the Commission based part of their decision. We are particularly pleased in light of the recent removal of the electric power surcharge customers had been paying since the 2001 energy crisis. With that surcharge removed, and even counting the 3.2% increase, Pacific Power customers can still expect their electric bills to be lower this winter than last winter.

Bob Jenks was quoted in the Oregonian today regarding this decision, saying, "This is a sign we have fundamentally changed the way we collect taxes in rates, and it will result in lower rates for customers." (Read full article here.)

The PUC decision also accepted CUB's proposal to change the billing structure for Pacific Power's residential customers. As we reported in CUB Online on June 28th, (See Alert CUB Member tips us off to billing cycle problem) the company overcharged customers in the winter by extending the billing periods. This practice will now be eliminated.

If your electric company is Pacific Power, now would be a great time to give them a call (800-769-3717) and change some of your power over to a renewable power option. Rates are reasonable, and you will have the satisfaction of contributing to an increasing market for sustainable power options that will put Oregon on the right course for the future.

Posted by Oregon CUB at 12:59 PM | Comments (0)

August 16, 2005

PacifiCorp Rate Case Coming to a Close

Pacificorp is Oregon's 2nd largest electric utility, and under Scottish Power's ownership, has been Oregon's most aggressive utility with filing for rate increases. UE 170, Pacificorp's current rate case, which will decide rates starting in October of this year, is wrapping up after months of work (CUB has put in close to 500 hours, with 2 rounds of expert testimony, settlement conferences, a hearing, three rounds of legal briefs, and oral argument just yesterday).

PacifiCorp, which ratepayers know by its operating name, Pacific Power, has asked for a $102 million increase, or about 12% above current rates. During settlement conferences, CUB and other customer groups were able to successfully knock off about half of the requested increase, down to $50 million. Two main issues remain to be decided:

1) Taxes: First and foremost is the question of whether the Commission will decide to set rates by looking at interest deductions likely to be filed by PacifiCorp's holding company (PacifiCorp Holdings, Inc.), or whether to set rates "blindly" without taking into account known tax loopholes. Depending on how the Commission decides the tax issue, $15 million will either stay in the pockets of ratepayers or will go to enrich the shareholders of PHI.

2) RVM: Large industrial customers have more freedom than residential customers when it comes to choosing a power source. They can obtain "direct access" to the power they need, choosing to side-step their local utility provider and buy e