On October 12, 2017, PacifiCorp’s stranded cost tariff was rejected by the Washington Utilities and Transportation Commission (Washington Commission). PacifiCorp proposed a tariff that would broadly charge departing customers removal costs as well as impose a significant exit fee to recover its alleged stranded costs. The Washington Commission’s order agreed in principle that customers that leave the utility’s service should pay for both removal costs necessary for their disconnection and stranded costs, but rejected PacifiCorp’s specific tariff concluding that stranded costs should be calculated on a case-by-case basis.
In a portion of its Washington service territory, PacifiCorp has been in direct competition with Columbia Rural Electric Association (CREA). Because there are no statutory exclusive service territories in Washington, utilities have the opportunity to compete with each other for customers. PacifiCorp has slowly lost customers to CREA for over a decade, and has sought to impose both removal and stranded costs on those departing customers. After a number of litigated proceedings at the Washington Commission, PacifiCorp currently can charge customers that elect to take service from CREA the net removal costs associated with distribution connections that must be removed for safety and operational purposes.
PacifiCorp proposed to change its “net removal tariff’ to include more costs as well as impose a significant stranded cost fee on departing customers. Under PacifiCorp’s initial proposal, residential customers who permanently disconnect from PacifiCorp would pay a flat fee of $6,153.6, and non-residential customers would pay an exit fee equal to 4.5 times the customer’s annual revenue.
The Washington Commission rejected PacifiCorp’s specific changes, but agreed in principle that customers requesting a permanent disconnection should pay for stranded costs and the net book value of any facilities that must be removed for safety or operational reasons. The Washington Commission explained that customers should pay for stranded costs because of the “regulatory compact,” which is “that utilities have an obligation to provide all customers in their territory with safe and reliable service in return for the regulator’s promise to set rates that will compensate the utility for the costs incurred to meet that obligation.” While the Washington legislature has not granted exclusive service territories, PacifiCorp is required to plan to serve its customers, which the Commission stated results in the utility incurring costs that departing customers should pay for.
The Commission ultimately concluded that PacifiCorp had not met its burden to justify that its proposed “revenue multiplier” stranded cost calculation was reasonable, and ordered that stranded costs be set on a case-by-case basis. This will likely be a contentious process. The Commission provided some guidance and procedural steps for the calculation of stranded costs, including timely processing, review of cost estimates, and the requirement that the impacts on conservation and low-income customers be considered.
Disclaimer
These materials are intended to as informational and are not to be considered legal advice or legal opinion, nor do they create a lawyer-client relationship. Information included about previous case results does not assure a similar future result.
