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.

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