CUB Challenges Avista’s Unfair Rate Proposal

Avista is the natural gas company that serves customers in parts of Southern and Eastern Oregon, as well as Washington and Idaho. At a time when natural gas prices are at an all-time low, Avista is proposing to raise rates for residential and small business customers by 8.9%, while simultaneously cutting rates for large industrial customers by 7%. CUB is vigorously challenging this unfair proposal.

When customers receive gas from their gas company, (in Oregon: NW Natural, Cascade, or Avista,) they are paying for several things. Customers receive the actual quantity (commodity) of gas (like propane fill or gasoline at the pump), measured in therms, but they also get the functionality of a pipeline and storage system, support by company personnel, and all of the other resources required to get the gas from the well in the Rockies (for example) to the customer’s burner tip on their stove in Oregon. At a time when oil is below $50 a barrel and natural gas is cheaper than ever, increasing costs in the Company’s infrastructure, and their impact in driving large rate increases, are confusing to customers. These trends are also concerning to CUB.

CUB’s analysis shows that some of Avista’s increased costs come from investments made directly to serve industrial customers. For example, Avista is upgrading a gate station (a gate station can best be thought of as the off-ramp from the big interstate pipelines) in eastern Oregon at a cost of $1.6 million. It is clear that the need for this investment at this time was driven by a single industrial customer. Yet Avista wants to recoup this cost from residential and small commercial customers.

Avista’s rate increase is being driven by new investments in its gas distribution system (if the gas transportation system is the national highway, then the distribution system for the gas company is the network of surface roads). Some of this investment is caused by faulty pipes that need to be replaced and some is due to industrial growth as the economy continues to recover. Yet even while this is happening, households continue to feel the squeeze of depressed income. 

In a decade of conservation, where residential customers and their appliances use less gas, how can this decreased usage be reconciled with 7-9% growth rates? The gas company has several types of customers, served by the same system infrastructure: residential, commercial, industrial, and transportation customers. The bulk of Avista’s system growth is new and expanding industrial customers. But rather than isolate the costs of serving this industrial load and charging industrial customers, Avista is proposing to cut industrial rates while raising residential rates.

It would seem that this paradox could be rectified by identifying which customers are benefiting from the new investments, and charging them accordingly. However, as far as the faulty pipes that are being replaced, Avista is unable to tell us which customers are served by these pipes, making this strategy untenable.

Instead, to justify the increased burden on residential customers, Avista points to an incremental cost-of-service study, claiming it demonstrates that residential and small commercial customers do not fully pay the costs associated with their service. However, Avista’s study is flawed. It is based on an analysis of what it would cost in today’s dollars to build an entirely new distribution system. But since residential appliances continue to become more efficient, this new system is oversized for the actual demand that customers put on the system. In other words, the study does not predict the costs of a distribution system necessary to serve customers who are using current household technologies. And again, because Avista cannot say where customers are located on the system, it cannot tell us who is causing the need for investment in particular elements of the distribution system.

In addition, Avista does not treat its customers in all three states equally. Avista takes a different approach in Washington and Idaho, where it proposes to spread the costs of new investments across all types of customers.

CUB is recommending that the Public Utility Commission reject Avista’s proposal. CUB is fighting against inappropriate spending and the inappropriate placement of costs on residential customers. As an alternative, CUB is proposing that Avista spread the rate increase across all customer classes.

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