On March 25, 2015, the Washington Utilities and Transportation Commission (Washington Commission) denied PacifiCorp’s $27.2 million (8.5% average) rate increase, and instead authorized the utility to increase rates $9.6 million (3.0% average). In reducing PacifiCorp’s proposed rate increase, the Washington Commission rejected a number of PacifiCorp’s efforts to re-litigate issues from the utility’s last general rate case that are currently being appealed to the Washington courts, denied recovery of deferred costs, and ordered the utility to file a power cost adjustment mechanism.
The Washington Commission’s order expressed frustration with PacifiCorp over a number of controversial issues that have repeatedly been addressed past rate cases. Since 2003, PacifiCorp has filed nine Washington general rate cases with eight resulting in rate increases. In December 2013, the Washington Commission granted PacifiCorp a rate increase, but rejected a number of the utility’s key proposals, including its proposed cost of capital, its power cost adjustment mechanism, and many changes in its inter-state cost allocation methodology. PacifiCorp operates in six states, five of which allocate the utility’s costs among themselves according to a common methodology. Washington uses its own methodology, which does not allocate most of the costs of PacifiCorp’s generation resources in its Rocky Mountain Power service territory to Washington customers. Washington’s methodology also allocates of the cost of Qualifying Facilities (QFs) under the Public Utility Regulatory Policies Act to each state, which means that Washington only pays for the costs of QFs located in Washington. The Washington Commission rejected PacifiCorp’s proposal to allocate the costs California and Oregon QFs to Washington customers. PacifiCorp subsequently appealed the Washington Commission’s December 2013 order, and attempted to re-litigate these issues in its 2014 general rate case.
The Washington Commission again disallowed PacifiCorp’s proposed cost of capital and changes to QF cost allocation. The Washington Commission also rejected a number of other PacifiCorp proposals on the recovery of costs, including how to account for general employee wage increases, insurance expense, end of rate period rate base, post-test period cost increases, depreciation costs, and other cost escalations. The Washington Commission also did not accept the utility’s renewable energy cost tracking mechanism, a number of power cost deferral adjustments, and increases to the residential basic charge. PacifiCorp was directed to file a power cost adjustment mechanism that must comply with past Washington precedent.
A key tension underlying a number of issues was the use of the appropriate test period or test year. When setting rates, utility commissions typically start with a twelve-month test period that is used to calculate a utility’s revenue requirement. The purpose is to estimate utility operations and costs when rates are in place. Historic test periods look backward at the utility’s actual past costs while future test periods use a forward looking estimate of the utility’s costs. When costs are increasing, utilities prefer to use future test periods. Washington uses a combination of historic and future test periods, and the Washington Commission rejected a number of PacifiCorp proposals to move closer to a future test period.
Overall, the Washington Commission strongly rebuked PacifiCorp for re-raising arguments it recently lost and failing to abide by its precedent. Given that the Washington Commission rejected PacifiCorp’s proposal to more quickly recover its costs, the utility is likely to file a new rate case in Washington soon.
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.
