On April 27, 2016, the Washington Court of Appeals (Court) affirmed the Washington Utilities and Transportation Commission’s (Washington Commission) order in PacifiCorp’s 2013 general rate case. The Court affirmed the Washington Commission’s conclusions: 1) refusing to change the company’s cost allocation methodology; and 2) approving a hypothetical capital structure rather than the utility’s actual capital structure.
The Washington Commission issued a final order in PacifiCorp’s 2013 general rate case authorizing the utility to increase rates about $16.7 million or 5.5%, which was lower than the $42.8 million or 14% requested. In an unusual move, PacifiCorp appealed the Washington Commission’s decision.
The Court rejected PacifiCorp’s challenge to the Washington Commission’s refusal to accept PacifiCorp’s proposed revisions to its West Control Area interjurisdictional cost allocation methodology. PacifiCorp operates in six states, and its costs must be allocated to its customers in each state. All of PacifiCorp’s states, except Washington, use similar cost allocation methodologies. Washington uses a cost allocation methodology called the West Control Area. The details are complex, but the Washington Commission’s method essentially treats PacifiCorp as if it operates as two different utilities (one utility serving California, Oregon, and Washington, and a second utility serving Idaho, Utah, and Wyoming). PacifiCorp successfully convinced the Washington Commission to adopt the West Control Area method in a previous case, but proposed to change it in its 2013 rate case. Specifically, PacifiCorp proposed to include the costs of Oregon and California power purchase contracts in Washington rates. The Court rejected PacifiCorp’s argument that federal law required the Washington Commission to allow these costs to be recovered from Washington customers.
The Court also rejected PacifiCorp’s argument that the Washington Commission should have accepted a revision to PacifiCorp’s capital structure used by the Commission in rate-making, specifically the equity component in the debt-to-equity ratio. Utilities are entitled to an opportunity, but not a guarantee, to earn a reasonable return on their investments that are used to serve customers. PacifiCorp argued that it should be allowed to earn higher returns than the Washington Commission allowed. The Court explained that the Washington “Commission has broad generalized powers in making rate-setting decisions, including substantial discretion in selecting the appropriate rate-making methodology” and this discretion was not set aside because there was not a clear showing of abuse.
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.
