Regulation 101: Part 3

For the final installment of our Regulation 101 blog series, we’re finishing up our discussion about the types of dockets that CUB generally works on every year. In Part II of the Regulation 101 blog series, we talked about general rate cases, IRPs, administrative rulemakings, and deferrals. This week, we’re talking about annual rate adjustment filings that the IOUs make each year. Some of those types of filings are discussed below.

Power Cost Adjustments for Electric Utilities—PGE, Pacific Power, and Idaho Power:

Under Oregon’s regulatory system, utilities are permitted to recover their reasonably-incurred costs, including power costs, based on certain forecasts and projections. With regard to power costs, each year the electric utilities forecast their net variable power costs (NVPC) in their respective Annual Power Cost Update Mechanisms; the electric IOUs have various names for their respective mechanisms (i.e., TAM, PCAM, AUT, and APCU), but the general concepts are the same. NVPC includes costs like fuel and purchased power, but excludes the capital costs associated with the power plants themselves. For each utility, the process begins by filing testimony that includes a forecast for NVPC and the tariff sheets to recover those forecasted costs from ratepayers. After the parties have evaluated the case and participated in the docket as needed, the Commission may approve the tariff sheets and rates go into effect. The utility must manage its costs within the revenue generated by these rates, as it is not guaranteed cost recovery.

Later in the year, the utility must update its filing—sort of true-up after the fact. Because it is impossible to accurately forecast the cost of fuel and purchased power, each year the update looks back and compares actual costs to projected costs. The utility and its shareholders are expected to absorb some of the normal variation (both positive and negative) that happens between rate cases before the rest of that risk is shifted to customers. However, it is recognized that in some years, when fuel prices escalate rapidly or hydro conditions are poor, the difference between forecast and actual costs is beyond the normal risk variation the Company is expected to bear. In these cases, customers are required to share this variation with the utility.

Purchased Gas Adjustments for Natural Gas Utilities - NW Natural, Cascade, and Avista:

Each local distribution company (LDC) purchases gas for delivery to its core customers. The cost of this gas is passed directly on to customers and is therefore not intended to be a source of profit for the utility. To recover the costs of this purchased gas, the Commission established a Purchased Gas Adjustment mechanism, or PGA. The PGA provides for a pass through to customers of actual, prudently-incurred costs of natural gas purchases, subject to an earnings test and sharing provisions.

A percentage of any variance between the utility’s forecasted gas cost (called the Weighted Average Cost of Gas or WACOG) is included in its rates and its actual gas cost is absorbed by the utility, with the remainder of the variance being absorbed by customers; this is simply called a sharing mechanism. In order to determine the appropriate amount of sharing between customers and shareholders, the Commission conducts an earnings review for each gas utility every spring. As with electric utilities, the sharing is subject to an earnings test somewhat similar to the one we described in Part II of this series.

This blog series more or less sums up the types of cases that CUB works on each year. Thanks for bearing with us while we explained all of the gritty technical stuff that we do every day. If we have failed to answer any of your questions, please do not hesitate to contact us through our website. As you can see, we have a lot of different kinds of dockets to work on each year, and it keeps us very busy! Because of this, the support of our members is essential. Please donate to CUB if you can.

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