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Stop PSE Fom Raising Rates Without Public Opinion

 

Did you know that PSE is currently trying to slam a 6% rate increase through the UTC without public or professional input/comment?

Give your opinion at the open meeting—Thursday, May 16th, 6 p.m.
1300 S Evergreen Park Dr SW, Olympia; Richard Hemstad Building

By John Pearce 

Background on the current PSE Proceedings before the Washington Utilities and Transportation Commission (WUTC):

There are three different cases, composed of five different “dockets” that have been consolidated into one proceeding.

First, there is the TransAlta proceeding, Docket UE-121373. Puget Sound Energy (PSE) agreed to buy power from the TransAlta coal power plant in Centralia through 2025.  This is allowed by the legislation crammed through by PSE and TransAlta, with help from Sierra Club and NW Energy Coalition.  The theory was that this would lead to the closing of the coal plant.  Not so as discussed below.

Second, there is the “decoupling” proceeding, Dockets UE-121697 (electric) and UG-121705 (gas).  These would create a mechanism by which PSE would be assured of a defined amount of revenue regardless of power sales.  It is intended to make the company more receptive to energy conservation and customer installation of solar (both of which cause sales to go down). 

Third, there is the “expedited rate filing” or “attrition” proceeding, Dockets UE-130137 and UG-130138.  This would allow Puget to raise rates once a year with a very short review process to account for inflation in labor and specific improvements made to its system, rather than going through the full year-long rate case process.

Each of these three cases is controversial on a stand-alone basis.  The “multiparty proposal” now before the WUTC combines them into a guano stew.

TransAlta Coal Plant

PSE agreed to buy 380 MW of power at a fixed price from the TransAlta coal plant in Centralia.  Under the legislation, PSE is entitled to a “profit” on this, even though purchased power is normally flowed through at cost. Utilities earn a profit on their investment in “plants” like poles, wires, transformers, and power plants. Not on their “operating expenses” like labor, fuel, or purchased power.

The TransAlta contract is controversial for many reasons:

First, many believe that if the legislation had not passed, TransAlta would have shut it down by now, and the legislation is keeping it alive. 

Second, PSE has no ability to “turn the plant down” to save fuel when there is lots of hydro or wind power; it pays a fixed price 24 hours a day, 7 days a week, 365 days a year. 
Third, TransAlta DOES have the option to turn it down when it can buy power cheaper.  So, when spring runoff occurs, TransAlta can buy cheap power and re-sell it to PSE at the higher contract price.  Without this contract, PSE could buy the cheap power and would be required to share the savings with customers under their “power cost adjustment” mechanism.

Finally, it’s a contract for “coal transition power.”  Many of us want PSE to stop buying coal power.

PSE filed this contract for approval last fall.The WUTC eventually approved it, but gave PSE only about half of the “bonus” profit it wanted. PSE filed for “reconsideration” and has been trying to politically influence the WUTC. 

Decoupling:

The decoupling case is an effort by the Natural Resources Defense Council (NDRC) to change how utility rates are set in order to reduce utility incentives to sell more power.  NRDC is a member of the NW Energy Coalition, and the NRDC Energy Project Co-Director is the witness in this case.

Normally, utility rates are set in a rate case, allowing recovery of the utility’s operating expenses plus a return on its capital investment.  This sum, called the “revenue requirement” is divided by the sales to calculate the rate.  The rate stays constant until the WUTC changes it.  But if sales go up, the utility gets more revenue (and, normally, more profit).  If sales go down, revenues decline.  This makes utilities resistant to energy conservation and customer renewables. 

Decoupling changes the formula.  The Commission would set an allowed “revenue per customer” level for PSE.  Each month, as the number of customers goes up, the allowed revenue would increase. Once a year, they would compare the “allowed” revenue to the “actual” revenue, and allow PSE to surcharge (or credit) the difference, depending on whether sales had been higher or lower.  This removes the sales incentive.  It still leaves a cost control incentive, because if PSE can reduce expenses (like, maybe, pay their executives less money, or gut their employee health insurance) then PSE would make more profit. 

PSE originally objected to decoupling, because they said that their costs were rising, and the only way to keep their profits solid was to either file rate cases every year or increase sales.  They literally testified that increased sales for electric vehicle charging was an important part of their business plan, and decoupling would take away that opportunity to increase their revenues.

PSE originally filed an approach to decoupling that solved their problem, but it created different problems.  Eventually they settled on the current proposal, that lets the “revenue per customer” rise at 3%/year (electric) and 2.2%/year (gas).  These are based on historical trends in their rates.

Attrition:

PSE proposed an expedited rate filing mechanism, better known as an Attrition Adjustment, which would let them raise rates in a simpler fashion than a rate case. The general idea is that SOME costs are going up, and everybody knows they are going up, so why should they have go through a long complicated rate case to get the money? The opposition position is that some costs are going down, and these should be offset against those that are going up. 

The Deal:
The multiparty proposal of PSE, Commission Staff, and NW Energy Coalition is to roll these together.

a)     PSE drops its request for reconsideration of the TransAlta decision, and accepts half as much bonus as they asked for.

b)    The decoupling mechanism is approved, with a built in 3% per year increase for electricity (6% this year, then 3% a year after that).

c)     Because they are getting 3% per year, PSE drops its request for a separate attrition mechanism.

What’s Wrong With This?

a)     The TransAlta deal is wrong!  PSE should be moving toward supplying Washington ratepayers with renewable energy. Instead, they are more dependent on coal.  Further, the agreement with the Governor to close the plant in 2025 is only “triggered” if TransAlta signs 500 MW of long-term contracts, and the PSE contract is only for 380 MW.  If there are no more contracts, then TransAlta is under no obligation to close the plant. Keeping PSE from stopping the plant when cheaper power is available means TransAlta gets more profit, ratepayers pay more cost, and Puget gets a bonus profit without a corresponding profit.

b)    The decoupling deal is OK, but the 3%/year (electric) and 2.2%/year (gas) rate increases means rates will go up every year with no detailed review of whether it is justified. 
It’s a stew of coal and assorted guano that tastes just as bad combined as the separate ingredients do individually.

Who are the Players?

PSE is a private utility that makes profit for its Australian shareholder, Macquarie Infrastructure Partners, Inc.

WUTC Staff is the analytical part of the agency.  It is separate from the Commissioners, who are the judicial part.  There is very limited interaction between them when a “case” is being put together.

NW Energy Coalition is made up of over 100 public interest, environmental, low-income advocacy, labor, clean energy business, and utilities that work together implementing a clean energy agenda.  In this case, they are being led along by one of their members, the Natural Resources Defense Council.  Their membership has not endorsed their position in this case.

Public Counsel is a branch of the Attorney General’s office that represents the public.  They have opposed the TransAlta contract (mostly on cost to ratepayer grounds), are skeptical of decoupling, and oppose attrition adjustments that only consider things that are going up in cost without analyzing everything to see what is going down.
Industrial Customers of NW Utilities and NW Industrial Gas Users represent Boeing, Weyerhaeuser, and the like.They have are opposed to all three proposals.
Kroger is QFC and Fred Meyer grocery chains.They are lightly involved.

Energy Project is a group that represents low-income ratepayers.They are skeptical of all three parts of this.

What Should People Say?

1)    The TransAlta deal costs too much.  PSE has to pay the coal power price even when cheaper power is available from hydro and wind.  Ratepayers pay more, and PSE and TransAlta shareholders get the money. 

2)    There is no guarantee the TransAlta plant will shut down, and without that guarantee, the entire basis of the legislation is being evaded.

3)    The TransAlta deal makes PSE more dependent on coal.  They should be investing in wind, solar, geothermal, tidal power, wave power, and energy efficiency instead.

4)    A 3% rate increase per year is unjustified.  In 2012, PSE earned more than its allowed return, sharply up from 2011.  The big reason is that the cost of borrowing has come down, PSE has refinanced a lot of its debt at lower interest rates, and that brings costs down.  The 3% annual increase does not consider this.

5)    It was all negotiated in secret.  The WUTC should NOT allow its staff to have secret meetings with PSE.  The public should be allowed to participate.

It’s being rushed through the approval process. The WUTC needs to really examine the underlying basis for the proposed 3% per year increases, independent of the TransAlta and decoupling pieces. 

They are cramming it down in a very quick proceeding, without giving Public Counsel and the industrial customers time for adequate analysis by experts who can then testify in front of the UTC.

We must bring sunshine to these backroom dealings.  Attend the May 16th public comment meeting at 6 p.m. at the Washington Utilities and Transportation Commission offices: Richard Hemstad Building, 1300 S Evergreen Park Drive SW, Olympia.  Tell the UTC what you think about their secret negotiations and this outrageous “deal”.

 

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