Not As Taxing: NW Natural Rate Case
Posted on April 27, 2018 by Will Gehrke
Tags, Energy
In its latest rate case, filed last December, NW Natural sought a 9.04 percent increase in rates for residential customers. That value was lowered after the passage of the 2017 Tax Act, which reduced the corporate income tax rate from 35 percent to 21 percent. Since corporate income tax is traditionally paid by customers, the reduction of NW Natural’s corporate income tax rate resulted in a decrease in the company’s initially proposed rate increase, down to 6 percent. However, there is still room to reduce the proposed increase further.
In its opening testimony, CUB has raised a number of issues such as costly advertising expense, employee bonuses, and the company’s inflated return on equity.
In this rate case, NW Natural is seeking to collect from customers expenses related to television and online adverting. CUB contends that the advertisements have not been effective at reaching customers, particularly the online content. NW Natural’s online videos only have a view count in the low hundreds. Additionally, NW Natural is a regulated monopoly, which means it does not compete with other natural gas companies for customers. CUB is skeptical of the need for advertising in a regulated environment.
NW Natural is asking for customers to pay for employee bonuses. CUB opposes this request. Historically, customers and NW Natural have shared the cost of employee bonuses. Some employee bonuses are tied to safety and customer service metrics, which benefit customers. Other bonuses are tied to NW Natural’s stock earnings, which benefit shareholders. NW Natural’s proposal is problematic because it does not furnish shared benefits with shared costs.
Under cost of service regulation, utilities are allowed to recover prudently incurred costs from rate payers. The utility is allowed to earn a profit on its rate-base, determined by the Return On Equity (ROE). Investor-owned utilities historically have had a lower ROE, and lower risk, than non-regulated utilities. Additionally, natural gas utilities such as NW Natural generally have lower risk than electric utilities. CUB believes that NW Natural’s proposed ROE number provides too much value to shareholders.
In the coming months, CUB is going to continue to push back on these aspects of NW Natural’s rate increase through workshops, testimony and settlement conferences. We will continue to seek low, just, and reasonable rates for customers, both in this rate case with NW Natural and in the rest of our work. Stay tuned for updates!
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04/27/18 | 0 Comments | Not As Taxing: NW Natural Rate Case