Rate Case Update: CUB Pushes Back on NW Natural’s Proposed 12% Rate Hike
Posted on April 22, 2022 by Amelia Lamb
Tags, Energy
On Friday April 22, CUB submitted analysis to regulators showing that NW Natural is not justified in seeking a 12 percent residential bill increase. This rate hike would be on top of November 2021’s increase of 13 percent. If approved, customers would see an overall 25 percent increase over 12 months, amid a global pandemic.
NW Natural’s proposal hinges on shouldering customers with significant costs and risks to make more profit for its shareholders and executives, while asking customers to pay for potentially unnecessary expansion of natural gas pipelines and fund a campaign to promote gas.
Customers Should Not Be Subsidizing NW Natural Shareholders
Lower profit margins, not higher. In our initial blog report on this case, CUB criticized NW Natural’s proposal to increase its profit margin. The utility wants to raise its profit margin by $1 million per year. CUB’s analysis has shown that NW Natural’s profit margin is already too high. CUB is recommending cutting shareholder profits by $2 million per year.
No customer-funded executive bonuses. CUB also initially reported that NW Natural was requesting millions of dollars to pay for executive and employee bonuses. These bonuses offer rewards for corporate financial performance that mainly benefit shareholders. Oregon has historically required that executive bonuses be funded by shareholders, not customers. CUB is urging regulators to uphold that policy here.
No customer-funded stock benefits. NW Natural also offers a stock purchase plan to its employees at a 15 percent discount. The discount is paid for by customers, but it provides no real benefit to them. Instead, it benefits the utility’s bottom line by turning employees into shareholders. CUB is fighting for customers to stop paying for this shareholder benefit.
Customers Should Not Be Subsidizing NW Natural’s Growth
NW Natural is planning to add over 137,000 new customers to its system between now and 2035. To achieve this lofty goal, the utility is asking customers to pay for advertising and market research promoting gas service.
Less money for advertising, not more. Regulators typically allow customers to pay for limited advertising that focuses on utility services and programs – things like payment options, bill assistance, and energy efficiency programs. Customers are not supposed to pay for promoting gas sales or attempts to improve NW Natural’s corporate image. But NW Natural is using customers’ money for just that purpose. This is inappropriate, especially amid growing concerns about the gas industry’s climate emissions. CUB is asking for NW Natural’s advertising budget to be reduced.
End subsidies for adding new customers. The growth that NW Natural is forecasting for its customer base also comes with huge costs. The company is set to spend $28 million annually to add 10,000 customers each year for the next 13 years. Existing customers pay for expanding NW Natural’s business through a subsidy called a “line extension allowance.” This subsidy is often paid to building developers, encouraging new homes to be built with gas. CUB is asking for the line extension allowance to be phased out.
Growing the gas system is a risk for existing customers. It is not in the interest of customers for the gas system to continue growing. Under Oregon’s carbon reduction programs, NW Natural must reduce its carbon emissions. As more customers are added, it becomes much harder and more expensive to reduce emissions. While the cost of lowering emissions grows over the next 20 years, many customers who can leave the expensive gas system will move to cleaner, cheaper electric options. As wealthier gas customers electrify, NW Natural’s remaining customers will be left paying for a system with rising costs.
Customers Should Not Be Subsidizing NW Natural’s Business Model
End inequitable customer deposits. CUB is challenging NW Natural’s longstanding practice of charging deposits to new customers. As rates increase year after year, deposit fees climb upward as well. Deposits contribute to housing insecurity and do nothing to improve service.
Temporary rules instated in the first year of the pandemic halted the charging of deposits for all Oregon utilities, but utilities are poised to resume charging deposits in October. Portland General Electric has agreed to end its practice of charging deposits and Cascade Natural Gas has not charged deposits for several years. CUB is calling to end NW Natural’s inequitable deposit policy.
Shareholders should be responsible for risky investments. NW Natural is also investing in renewable natural gas to comply with climate regulations. These new investments come with considerable costs and risks. Renewable gas is three to six times more expensive than fossil gas. And because it involves a new way of doing business for the utility, it also involves more cost volatility.
NW Natural is used to buying gas on the market and then building pipes to transport it. To sell renewable gas, it will instead have to partner with producers to manufacture the gas. This new way of doing business for NW Natural makes the cost and supply of the gas uncertain and riskier. The utility is asking that all of the risk flow solely to customers with shareholders fully protected. If this is granted, shareholders will earn more money. Customers, on the other hand, will cover those added earnings while taking on more risk. CUB is fighting to move more of this risk to shareholders.
Customers Should Have a Voice
CUB is expecting a hard fight on many of these issues. We are committed to ensuring that NW Natural customers are only charged for utility costs that are in their consumer interest. Stay tuned to the CUB Blog for further updates.
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03/28/24 | 2 Comments | Rate Case Update: CUB Pushes Back on NW Natural’s Proposed 12% Rate Hike