On March 15, 2016, the Oregon Public Utility Commission (Oregon Commission) approved an increase to Avista Corporation’s (Avista) revenue requirement by $4,460,000, representing a 4.9% rate increase. The Oregon Commission resolved a number of other important issues, including the Energy Trust of Oregon (ETO) taking over the utility’s energy efficiency program, a revenue-per-customer decoupling mechanism, a new capital structure and return on equity, the prudence of certain capital additions, and recovery of pension, medical, bonuses and other costs.
On May 1, 2015, Avista requested a general rate increase for its Oregon retail customers of $8,557,000 (8% of its annual revenues). The parties resolved many of the issues through mutual agreement. One significant agreed to change is transferring Avista’s energy efficiency programs to the ETO. The ETO is a private non-profit that manages energy efficiency programs for many Oregon utilities. Originally, the ETO ran PacifiCorp and Portland General Electric Company’s conservation and energy efficiency programs, but then added Northwest Natural Gas and Cascade Natural Gas. As an independent party, the ETO was created to manage energy efficiency programs because investor owned utilities were seen as having a disincentive to invest in energy efficiency because they wanted customers to increase rather than reduce their usage.
The Commission adopted compromise positions on capital structure and return on equity. Investor owned utilities obtain capital for making investments with a combination of debt and equity. The specific ratio of debt and equity is called a capital structure and must be approved by a regulatory body. Avista proposed a capital structure based on 50% debt and 50% equity, while Staff and ratepayers proposed a lower percentage of equity. As equity is more expensive, a larger amount of equity in the capital structure results in higher customer rates. The Oregon Commission agreed with Avista, and adopted a 50/50 equity/debt capital structure. Regulatory commissions also approve the specific return that an investor owned utility is authorized to earn. Avista proposed a 9.9% return on equity, while Staff and ratepayer advocates proposed lower returns (around 9.2 to 9.35%). The Oregon Commission adopted a 9.4% return on equity, which was a slight reduction from Avista’s last approved 9.5% return on equity.
The Oregon Commission rejected Staff and ratepayers challenges the timing and prudence of some of Avista’s $47.6 million in plant investments. The Oregon Commission also rejected efforts to disallow the costs of certain employee bonuses and medical costs, but adopted proposals to lower the utility’s operations, maintenance, and pension costs.
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.
