PGE’s Management Cannot Control Costs So They Want to Raise Rates
Posted on February 28, 2008 by oregoncub
Tags, Utility Regulation
Yesterday Portland General Electric Co. filed a general rate case, its last one having closed all of 2 weeks ago. Among their requests of the Public Utility Commission is an increase in their profit margin, from 10.1 to 10.75%, which could earn shareholders tens of millions more annually; and a sizable increase for general Operations & Maintenance and Administration & General costs. Altogether, residential customers’ rates would jump 9.5% if PGE’s request is granted.
We think they’re way off base here. First off, the timing is not great. As we said, PGE’s most recent general rate case, a yearlong process, has only just recently been completed. Until recently, PGE was filing general rate cases every 4 or 5 years. This aligns reasonably well with the regulatory framework which assures utility companies that their investment of hundreds of millions of dollars in power plants will be recompensed by customers; and assures customers that they will pay a moderate profit margin, and no more, to the company for taking the risk and managing the business well. General rate cases are the forums in which these new investments are examined for prudent management, and then brought into rates. It is unusual to say the least for a company to file general rate cases only one year apart with no large capital investment to provide a reason for the filing.
Secondly, let’s look at this large increase in O&M and A&G. For example, there are 130 new staff positions listed in the filing, at a time when PGE should be trimming controllable costs. We have so far found no persuasive driver for this staffing increase. We have already indicated to PGE that we will be going over their proposed cost increases with a fine-toothed comb. And although we have only begun the process of analyzing PGE’s rate increase filing, we expect to find a fair amount of unnecessary cost increases in it.
PGE customers have already been hit hard with numerous rate increases due to both investment in new power sources, and the suspension of the Residential Exchange (which had functioned for several decades as a way to share the benefits of the federal hydropower system with customers of investor-owned utilities). PGE customers are going to be facing the same rate increases from higher fossil-fuel costs that the rest of the country is facing, and PGE’s continuing investment in new resources (something that was neglected during the 1990s under Enron) will require customers to pay up once more.
Asking for a larger profit margin at this time seems totally inappropriate. Interest rates are falling as the U.S. heads into a recession. Lower interest rates should cause the utilities’ borrowing costs to decrease, and this should in turn lower profit margins. For PGE to ask for an increase, when it was only recently reset, is outrageous. In addition, The Oregonian reported on its front page yesterday that not only are gas prices expected to hit $4/gallon in the next year or two, but also (in a separate article) that the average residential electric bill would hit $100 if the PGE increase were to go through.
PGE is not controlling its costs well. Some costs are necessary and we ask only that they be least-cost and prudently incurred. Some of the necessary costs coming onto PGE’s books in the near future, but which are not included in this filing, are: 1) new generating power plants; 2) hydro relicensing; 3) clean air costs for Boardman coal-fired plant; and 4) smart meters (which CUB has opposed but the Commission has yet to rule on). These combined projects will cost hundreds of millions of dollars. From CUB’s perspective, customers cannot afford to add unnecessary increases on top of the ones which cannot be avoided. We pay PGE a Rate of Return in order to manage the company and our electricity delivery in an efficient manner, and they are failing to do so.
To keep up with CUB, like us on Facebook and follow us on Twitter!
03/10/17 | 0 Comments | PGE’s Management Cannot Control Costs So They Want to Raise Rates