State regulators approve increase to NW Natural customer rates

Source: UTC, October 21, 2019

State regulators today approved an all-party partial settlement increasing NW Natural customer rates.

The three-member commission approved an agreement that increases NW Natural’s natural gas annual revenues by $5.1 million (or 7.8%)—less than the $8.3 million (or 12.6%) the company originally requested. The general rate increase is the first for the company in more than 10 years.

The commission’s approval of the agreement also allows approximately $2.5 million in over collected taxes to go back to customers in one year, a refund that coincides with the commission’s direction to utilities in response to the 2017 Tax Cuts and Jobs Act. Approximately $2.1 million will be returned as a one-time rebate to customers spread over a year, while the remaining $400,000 will be returned to customers as the first annual installment of an IRS-mandated schedule to return approximately $14.6 million in additional deferred tax benefits.

Under the rates approved today, including the $2.5 million tax refund, the average residential customer using 57 therms a month would pay $1.81 more, for an average monthly bill of $50.74.

These changes take effect Nov. 1.

The commission also authorized NW Natural to earn a 7.16% overall rate of return, instead of the 7.63% rate of return the company originally requested.

In today’s order, Chair David Danner and Commissioner Ann Rendahl rejected a second partial settlement that would have allowed the company to establish a five-year “decoupling” mechanism in order to recover costs associated with new customer hook-ups. Decoupling is a mechanism that removes the company’s financial disincentive to invest in conservation and energy efficiency by ensuring that the company recovers differences in revenue due to changes in customer usage. Decoupling allows a utility to recover fixed costs separately from the volume of its gas sales, so that company revenue is determined on a per-customer basis.

The commission found, given the company’s significant annual growth in new customers, that the proposed decoupling mechanism resulted primarily in recovering the incremental costs associated with adding new gas customers to its system, and less in addressing lower customer usage due to conservation and energy efficiency. The commission found that the partial agreement on decoupling was not in the public interest and would likely result in shifting costs between new and existing customers.

“Decoupling is a flexible tool, but it is not an all-encompassing remedy for all cost-recovery ills,” the commission stated.

Commissioner Jay Balasbas dissented with his colleagues on the decoupling issue, arguing that decoupling is a practical method of cost recovery that isn’t limited to revenue recovery due to increased conservation or energy efficiency.

“The 2010 policy statement on decoupling clearly allows for the mechanism to help a company recover lost revenues between general rate cases due to lower sales from any source,” Commissioner Balasbas stated in his dissent. “Today’s decision also sends the wrong signal about how the commission plans to use new statutorily authorized flexible ratemaking tools obtained from the 2019 legislature.”

The commission received four comments on NW Natural’s proposed rate increase, all opposed.

In December 2018, NW Natural filed a rate request with the commission for an $8.3 million, or 12.6%, overall rate increase. NW Natural’s last general rate increase was in 2008.

In May, NW Natural and commission energy staff, the Public Counsel Unit of the Attorney General’s Office, the Alliance of Western Energy Consumers, and The Energy Project reached the all-party partial settlement agreement. Commission energy staff, NW Natural, the Alliance of Western Energy Consumers, and The Energy Project signed the rejected decoupling agreement.

Portland-based NW Natural provides natural gas service to about 84,200 residential, commercial, and industrial customers in Southwest Washington.

The UTC is the state agency that regulates private, investor-owned electric and natural gas utilities in Washington. It is the commission’s responsibility to ensure regulated companies provide safe and reliable service to customers at reasonable rates, while allowing them the opportunity to earn a fair profit.

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