Regulation in Oregon 101, Part II

In our last Regulation 101 blog, you may recall that we gave a general background on how cases work before the Oregon Public Utility Commission (OPUC). This week, we’re going to start talking about some of the dockets that CUB works on most often. We’ll finish up our docket-types list in Part III of our Regulation 101 blog series.

General Rate Case (GRC): A general rate case is the major regulatory proceeding for Oregon’s Investor-Owned Utilities (IOUs) and provides an opportunity and responsibility for the OPUC to perform an exhaustive examination of the utility’s operations and costs, such as revenues, expenses, and investments, in order to determine what the appropriate revenue requirement should be. A revenue requirement is essentially the “cash” required for a utility to properly operate and maintain its system and meet its financial obligations, and provides a basis for determining the amount of revenue that must be collected in rates. Generally speaking, the utility’s requested revenue requirement is on the conservative side (meaning higher) than the customer groups (including CUB) and OPUC Staff think is appropriate. It is the Commission’s job to ensure that the final revenue requirement determination is fair to both the Company and its customers. There is no statutory requirement for how often a utility must file a general rate case, and the decision to file is often based on several factors. Some utilities file often, almost yearly or every other year, while others stay out for much longer periods of time.

Integrated Resource Plan (IRP): In 1989, the Commission decided to adopt least-cost planning for all energy utilities in Oregon. Least-cost planning is an approach to utility planning that requires consideration of all known resources for meeting the utility’s load, including those that focus on the generation and purchase of power(the supply side) and those that focus on conservation and load management (the demand side). Utilities are required to formulate a plan with significant public involvement, and the plan must evaluate all resources on a consistent and comparable basis. The primary goal of the plan is to identify resources that are least-cost and least-risk to both the utility and its ratepayers, as well as consistent with the long-run public interest and Oregon’s energy policy. Even before a plan is filed with the Commission, CUB and other stakeholders (Commission Staff, other non-profits interested in energy policy, and trade associations for the big industrial and commercial interests in the state) often work with the utilities to formulate the array of scenarios that will be considered for the final plan. This public process also allows the Commission to ask its own questions and to request further and deeper analysis if it thinks there are holes or inconsistencies in the plan. Once the plan is officially submitted to the Commission, stakeholders submit comments and recommend that the Commission either acknowledge or not acknowledge the plan.

Utilities are required to file IRPs within two years of the Commission’s last IRP order, or as otherwise directed by the Commission.

Administrative Rules (AR): AR dockets are rulemaking dockets. The Commission’s rules are both procedural and substantive in nature. This means that some of the rules govern Commission process and procedure and others pertain to the substance of the laws which must be applied by the Commission in making its rulings. Unlike the “judicial” or “contested case” proceedings discussed in the introduction, these proceedings are quasi-legislative in nature. Within the context of the OPUC, quasi-legislative means that interested parties do not need to file a petition to intervene (or in CUB’s case, a Notice of Intervention) to participate in the rulemaking proceedings. Rulemaking proceedings can be requested by anyone who wants the Commission to adopt a new rule or to amend or repeal an existing rule. Interested parties then participate in workshops (if any are scheduled) and by filing written comments and/or making oral comments at a rulemaking hearing. The Commission then chooses to either adopt or not adopt the proposed rule, amendment, or repeal.

Deferrals: Deferred accounting provides a means to address utility expenses or revenues outside of the utility’s general rate case proceeding. As a bit of background, utilities are generally prohibited from incorporating past expenses and revenues in setting future rates—this is called retroactive ratemaking. The Oregon legislature created an exception to the prohibition against retroactive ratemaking by passing legislation that provides the OPUC with the authority to consider past costs and revenues in future rates in limited circumstances. In short, the deferred accounting exception allows a utility to capture and track costs and revenues without passing them on to customers until a later time, as authorized by the Commission. When a utility files a deferral, it begins tracking a discrete expense or revenue.

In exercising its discretion to permit a utility to engage in deferred accounting for ratemaking purposes, the Commission has outlined several principles it will use as a guide in its decision-making process. The OPUC looks to the type of event that caused the request for deferral and the magnitude of the event’s effect. Generally, risks that are reasonably predictable and quantifiable are not appropriate for deferral unless the magnitude of the financial impact of the event on the utility is substantial.

The Commission’s approval of a party’s request for deferred accounting does not mean that the deferred amounts will automatically be incorporated into rates during a later ratemaking proceeding (called amortization). Generally, before that can happen, the utility is subject to an earnings test. An earnings test allows the Commission to evaluate whether a utility’s rates were at a sufficient level to cover the utility’s costs and allow it to earn its authorized return; if the current rates allowed those things, the utility has been fairly compensated and is not entitled to additional revenues by amortizing the deferred account. This is true even if the particular cost at issue was greater than what was forecast in rates. Deferrals can, in theory, lead to rate reductions or rate increases, but in practice deferrals are a one-sided regulatory tool, almost always used to raise rates. This is because the utility will always be in a better position to identify costs that are going up, and customer groups (who do not have access to utility costs outside of a rate case) will always find it difficult to identify costs that are going down.

We’ll talk about the last set of cases that we generally find ourselves working on each year (annual rate adjustments) in the final installment of this blog. If we have failed to answer any of your questions, please do not hesitate to contact us through our website. The support of our members is essential, so please donate to CUB if you can.

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