PGE, Pacific Power Request Large Rate Hikes

Over the last couple of weeks, Portland General Electric and Pacific Power have requested a series of rate increases that would raise PGE’s residential rates by about 9% and Pacific Power’s by about 20%. While both utilities claim that these rate increases are necessary because the utilities have made new investments in power plants and other equipment, a quick review of the filings shows that there are other reasons also at play. These reasons range from requests to increase profit margins to requests that would shift more of the costs of each system onto the shoulders of residential customers.

PGE:

PGE’s rate hike is approximately 9% for residential customers, but it could be a precursor to significantly higher rates in the future. PGE is asking that certain costs be taken out of general rates and placed into automatic adjustment clauses.  This would mean that in the future, if there were cost increases, rates would be automatically increased without the ability of CUB and other intervenors to examine PGE’s profits or other costs. The specific categories of expenses that PGE wants to move to automatic adjustments include environmental cleanup, pensions, information technology, and storm response. In addition, PGE is asking that most of the risk of variation in power costs (fuel, and purchased electricity), which is currently shared between utility shareholders and customers, instead be placed almost entirely on customers.

Traditionally, rates are set using a forecast of future costs. Once rates are set, it is recognized that some costs will be forecast too high and some too low, but utilities are responsible for managing their business within the rates that were set. What PGE is proposing is a radical shift from that tradition. Under PGE’s proposal, rates will still be set using a forecast of future costs. However, if and when costs vary from the forecast, the rates will be automatically adjusted so that customers are the ones who pick up the difference between the actual costs and the forecasted costs.

CUB strongly opposes PGE’s approach to regulation. Utilities are the only entities that can manage and control their costs, and utility officials are well-compensated for managing those costs. Utility shareholders are paid a return on their investment in PGE, taking a risk on PGE’s management’s ability to manage the business. If all the risk is placed on customers, what are we paying PGE to manage? For what risk are shareholders being compensated? That PGE is asking for higher profit margins to compensate their management and shareholders for taking on less risk adds insult to injury.

One issue CUB will take a close look at is PGE’s smart meters. When PGE put them on the sides of their customers’ homes they provided everyone with a letter that claimed the meters would reduce costs by $18.5 million per year. While this sounded like a great deal, the meters themselves cost more than $130 million, which offsets most of the expected savings. In their last rate case in 2008-09, PGE claimed that the smart meter investment was the primary activity that PGE was undertaking to reduce its costs. In their new rate filing, PGE is asking that the investment in the new meters be added to rates, but the savings from the new metering system is only $16.5 million per year.  CUB is unsure whether the savings from the meters will be adequate to offset the cost of the new meters PGE is buying, and CUB will therefore be looking closely at this issue to determine whether there is any benefit to customers at all from these smart meters.

Pacific Power:

Pacific Power is seeking a 20% increase in rates. Pacific Power claims the rate increase is a result of its $470 million of new investment in power plants and new transmission. But the company is also asking for a significant increase in its profit margin. Why?

CUB recognizes that Pacific Power has made several new investments into its system. CUB is concerned, however, about the timing of the new investments which will be completed at the same time, necessitating a request for a very large increase in customer rates.

One of the major investments included in this filing is a substantial interest in the company’s Dave Johnston coal plant. According to Pacific Power, this investment will reduce pollution and allow the plant to operate for additional years. With the problems we face from climate change and the calls to phase out coal facilities, it is not clear that such an investment is a wise one. That said, PacifiCorp is making a large new investment in wind and transmission (which will get the wind energy to its system).  It may be asking too much to have customers build a new, clean utility system, while at the same time continuing to invest in the old, dirty system. And if we must set priorities on what customers can afford to pay for, it is hard to argue that upgrading coal plants and running them for additional years is the top priority.

CUB is also concerned that the rate hike reflects a shift in the amount of costs that are assigned to residential customers. This is because, under the proposed filing, costs that had previously been paid by large commercial or industrial customers may now be assigned to residential customers.

The Oregon Economy:

Both of these cases are being filed while Oregon’s economy is at its worst point in decades. Many customers of these utilities are unemployed or underemployed. Many households are finding it difficult to pay their bills, including their utility bills. The economics of many households is not “business as usual,” and utilities should not be acting as if they are magically divorced from the economy. At a time like this, we must demand that our utilities do everything they can to minimize rate increases and to help customers through this difficult time. Both of these utility rate filings suggest that Oregon utilities do not understand the need to minimize rate increases during a recession.

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