PUC Agrees With CUB: Pacific Power Imprudent in its Investment in Coal
Posted on December 21, 2012 by Gordon Feighner
Tags, Utility Regulation
Yesterday the Oregon Public Utility Commission issued its ruling in Pacific Power’s general rate case. The Commission ordered Pacific Power to reduce 2013 rates by $17 million as a penalty for its imprudent analysis and decision making associated with its ongoing investment at seven coal-fired generation plants. Pacific Power had initially sought to increase its Oregon rates by $41.2 million, or 3.5 percent. The order released yesterday, combined with prior agreements reached between the company, CUB, and other parties, reduced that increase to only $3.7 million, or 0.3 percent.
CUB argued throughout this case that Pacific Power should have compared the cost of these upgrades with alternative generation projects and should have pursued some of the flexibility built into federal and state clean air rules to find a solution that would be cheaper for customers. This is the path that PGE took in 2010 when it agreed to close its Boardman plant 20 years ahead of schedule, saving ratepayers tens of millions of dollars. Instead, Pacific Power considered its investments to be foregone conclusions and conducted a narrow analysis that did not consider other options.
Due to a lack of robust analysis, the Commission was unsure of how to calculate a penalty for Pacific Power’s imprudence. The Commission disallowed 10 percent of Oregon’s share of the costs of the investments—$17 million. The Commission also requires Pacific Power and other utilities to include similar investments in their long-range plans in the future, thereby allowing CUB and the Commission to investigate these types of investments before they are made.
This was a hard fought case for CUB, and we were joined by the Sierra Club in arguing that the company was imprudent. Pacific Power is in the process of investing billions of dollars in its coal fleet to meet the requirements of the federal Clean Air Act. We believed that the analyses the company conducted to justify its investment were flawed. The only alternative to the investments that was considered by Pacific Power was immediate closure of the plants in question, years ahead of any environmental requirements and before the end of their useful lives.
CUB asked the PUC to disallow between $40 and $70 million, but we are happy with the order. According to CUB’s Executive Director, Bob Jenks, “The important issue was that the PUC find Pacific Power imprudent and assess a financial penalty. We agree with the Commission that determining the financial impact of the imprudence on customers is difficult because of the faulty analysis done by the company.”
The PUC order states:
“We further find, however, that Pacific Power failed to act prudently in two areas. First, we are not convinced by Pacific Power’s claims that there were not legitimate alternative courses of action-both in terms of the mix of compliance actions and, particularly, in the timing of those actions-that could have allowed Pacific Power to meet its air quality requirements at a lower cost and risk to the utility’s Oregon ratepayers. The record shows that throughout the period under question, even in response to changing circumstances, Pacific Power did not alter its course of action or consider alternatives of any kind. Second, we find that Pacific Power failed to perform appropriate analyses to determine the cost-effectiveness of the investments. Pacific Power’s contemporaneous cost-effectiveness analyses were demonstrably deficient, and did not demonstrate the rigorous review that a prudent utility should have performed prior to making these significant investments.”
The biggest impact of this will be on a going-forward basis. This case dealt with one year’s investment in 7 plants, but Pacific Power is engaged in a multi-billion investment cycle at 19 coal plants that it owns and operates. The message to the company should be clear. It must make a real effort to ensure that its investments in coal plants are in the financial interests of customers and it must consider a wider range of alternatives, including phasing some units out of operation in the future.
This is a huge victory for CUB and for ratepayers in the region. We couldn’t have done this without the support from our members. Please consider becoming a CUB member today.
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03/31/17 | 0 Comments | PUC Agrees With CUB: Pacific Power Imprudent in its Investment in Coal