Puget Sound Energy seeks rate tied to wholesale prices

The Associated Press

OLYMPIA — Puget Sound Energy proposed long-term increases in its electricity and natural gas rates Tuesday, along with a new rate structure that would tie customers’ bills to changes in the wholesale price of power.

The electrical power increase of 16.5 percent would cost the average residential customer $8.99 more per month, partly offset by a subsidy from the Bonneville Power Administration, the company said. The average wintertime bill is now $63.46.

Natural gas bills would go up 14.5 percent, although that would be partly offset by the expiration of a current surcharge. The average monthly bill would increase $2, to $74.

Together, the increases would boost Puget Sound Energy’s revenue by about $314 million per year. The company contends the difference between its electrical rate revenue and its power costs causes $625,000 in losses every day.

The current rate structure was established when the company was formed in the 1997 merger of Puget Sound Power &Light Co. and Washington Energy Co. and expires Dec. 31.

"It’s never something you look forward to, to announce an increase," said Gary Swofford, the utility’s vice president. "It can be boiled down really to one element, and that is the increase in our power supply cost."

In recent months, the Washington Utilities and Transportation Commission twice rejected Puget Sound Energy’s bid for an emergency rate increase to cover losses suffered in the volatile power market in recent months.

Commissioners said the company hadn’t offered enough evidence it was in financial trouble.

The new proposal to the commission is for a long-term change in rates, known as a rate case. Months of investigation and public hearings loom before the commission rules, probably around October 2002, said Marilyn Meehan, the commission’s spokeswoman.

Swofford said the company also plans to propose a temporary rate increase that would stay in effect until the rate case is settled. The amount of that increase hasn’t been decided, he said.

The longer-term proposal drew immediate fire from consumer advocates, who said it offers little benefit for ratepayers in exchange for a big rate hike.

"It’s a dramatic shift in risk to Puget’s customers," said Simon Ffitch, q public counsel in Attorney General Christine Gregoire’s office. "It shifts the risk of market volatility and shifts the risk of managing the company’s resources onto its customers."

Under the plan, nearly all of Puget Sound Energy’s 900,000-plus residential customers would pay according to time-of-use pricing — a system that charges three different rates at different times of the day, Swofford said.

About 300,000 customers are using that system, which is designed to encourage people to shift their electricity use to off-peak hours. Power costs more during peak periods in the morning and early evening, less during the middle of the day, and even less during the late evening and early morning.

Within that time-of-use system, customers could choose between a yearly fixed rate structure and a variable system.

Under the variable plan, electrical rates could change hourly with the market price of electricity. Swofford said that would further encourage customers to cut back during peak periods and lower costs for everyone.

"Our customers can now begin to see the real price of the electricity," Swofford said. "We can avoid wasteful use of energy. If you can’t see those prices, you can’t respond to those prices."

Ffitch argued that the change would explode the traditional role of the regulated utility: to provide reliable, affordable power in exchange for a monopoly and a reasonable return.

"Rates are set to be permanent," Ffitch said. "Customers know what to expect."

The system allows a utility higher profits when costs are low, but expects the company to weather periods of high prices. Without that system, utilities would have little incentive to keep power costs low because they could simply pass on any increases to ratepayers, Ffitch said.

About 80 percent of Puget Sound Energy’s costs are fixed, Swofford said. Under the variable system, another 10 percent would change monthly with medium-term costs such as the natural gas the company burns in its turbines. The final 10 percent could change daily or even hourly with the spot price of power.

Customers could also choose a plan that fixed their rates for a year at a time for a slightly higher price — money the company would use to insulate itself against big jumps in the wholesale price of power.

"You’ll be able to pay a little bit more to be able to provide certainty that your rates are not going to change over a year’s time," Swofford said.

Either system would at least partly bypass the utilities commission, which now must sign off on any rate change, another issue that troubles ratepayer advocates.

"You’ve got the same old monopoly and there’s no check on whether those decisions are being made prudently or not if they’re simply just passing them through," said Sara Patton, executive director of the Northwest Energy Coalition.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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