Utah Ratepayers Association
Education and Lobbying for Ratepayers of Utility-type Services with Limited or No Alternatives
How Changes in Utah Law
Have Benefited the Utilities
2003's Senate Bill 61 Has Already Cost Utah Ratepayers More than $300 Million
That Number is Growing by as Much as $82 Million a Year, and Could Soon be Growing by up to $198 Million a Year
During the 2003 General Session of the Legislature, Senator John Valentine (R-Orem, then Senate Majority Whip, now Senate President) sponsored Senate Bill 61.
It was supported before the Senate Transportation, Public Utilities and Technology Standing Committee by Jeff Larsen, PacifiCorp Vice-President; Chuck Greenhawt, Questar Business Development Manager; and Jerry Fenn, then attorney for the Utah Rural Telephone Association, now Utah President of Qwest.
The Bill was opposed by Gary Dodge, attorney for the Utah Association of Energy Users (a consortium of industrial and large commercial customers); Dee Jay Hammon, Chairman, and Roger Ball, Director, of the Utah Committee of Consumer Services; and Claire Geddes, Director of Utah Legislative Watch. (Roger Ball and Claire Geddes are now governors of the Utah Ratepayers Association.)
The Bill passed the Senate by 25 votes to 0, with 4 senators absent, and the House by 73 votes to 0, with 2 representatives absent. Governor Mike Leavitt signed it on 19 March 2003.
If you'd like to read the bill, click on this link: http://www.le.state.ut.us/~2003/bills/sbillenr/sb0061.pdf.
The Bill contained two significant provisions
One Provision in Senate Bill 61 May Have Cost Us More Than $300 Million
Senate Bill 61 greatly strengthened the encouragement to state regulatory agencies to negotiate privately with the utilities and jointly recommend agreed rate increases to the Commission.
Previously, utility requests for rate increases were treated in a more arm's-length manner, with regulatory agencies offering comprehensive and objective testimony in open and public Commission hearings.
For example, in 1999, PacifiCorp asked for a rate increase of $67 million per year. Some of the multitude of elements were agreed, but others were strongly argued before the Commission, which awarded the utility just $17 million.
In 2001, PacifiCorp asked for a further increase of $141 million. Again, many parts of the request were vigorously contested, and the Commission approved only $40.6 million.
On average in these hard-fought cases, rates increased by just under 28% of the amounts the utility had asked for.
But then Senate Bill 61 took effect.
On 15 May 2003, PacifiCorp asked for an increase of $125 million. After private negotiations, the regulatory agencies joined with the Company to recommend rates go up by $65 million, a 52% boost. The PacifiCorp negotiators couldn't believe their luck! The Commission ordered the increase into effect from 1 April 2004 - All Fools Day!
In 2004, the requested increase was $111 million. After more negotiations closed to public view, the agencies and utility jointly recommended a $51 million rate hike.
And after a 2006 application for a $194 million increase, back-room dealings resulted in a $115 million black-box settlement.
Commission approval of these three pacts resulted in PacifiCorp getting an average of almost 54% of the amounts it had requested.
On 17 December 2007, PacifiCorp asked for an increase of $161.2M. This application was hotly contested in many hearings. Eventually, the Commission ordered an increase of $39.4M with effect from 13 August 2008, just 24% of the Company's request.
That brought the average of contested increases to just over 26%.
There's no way of knowing for certain what the outcomes would have been without Senate Bill 61.
But we can estimate the cost to ratepayers of the average 54% increase from the 3 most recent negotiated increases compared with the average 26% in the 3 contested cases.
The answer is that, from 1 April 2004 to 12 August 2008, ratepayers may have paid $309 million more for electricity from PacifiCorp than they would if regulation had remained a more public process.
Another Provision in Senate Bill 61 Has Cost Utah Ratepayers an Additional $35 Million
This change in Utah law allows the Public Service Commission to set rates based upon estimated future utility expenses. Previously, the custom had been to base rates on actual costs incurred in the recent past.
On 7 March 2006, PacifiCorp asked for a rate increase of $194 million a year based on estimates of future expenses. One of the utility's estimates was that a new natural gas fuelled generation plant would start producing electricity in May 2007. The plant, called Lakeside, is located at the old Geneva Steel Plant just west of Orem
The Commission authorized $85 million in increased rates with effect from 11 December 2006, and said PacifiCorp could start collecting an additional $30 million annually for Lakeside from 1 June 2007.
Under the law before Senate Bill 61, PacifiCorp would have had to wait until after Lakeside started producing electricity to get a rate increase to pay for it. That probably means the utility wouldn't have been able to collect the $30 million until about August 2008.
So on 1 June 2007, Senate Bill 61 started costing Utah ratepayers $30 million a year more than they would have paid under the law as it stood previously. By August 2008, PacifiCorp will have collected more than an additional $35 million, thanks to Senate Bill 61.
Ironically, Lakeside didn't actually come into operation until 6 September 2007. So the utility collected at least $8 million during June, July and August 2007 - before Lakeside produced any electricity - that it would never have received under previous law.
[Explanatory Note: Utah ratepayers use much more electricity, and their aggregate rates are higher, in the months of June, July and August than in the autumn, spring or winter. So the additional amount collected from Utah ratepayers since 1 June 2007, and the $8 million that would not have been charged under previous law, are very low estimates.]
Starting in August 2008 the Same Provision Could Cost Utah Ratepayers $116 Million A Year More
In December 2007 - just in time for Christmas - PacifiCorp and Questar asked the Commission to increase their rates with effect from August 2008, based upon estimates of their investments, expenses and revenues for the period July 2008 to June 2009
PacifiCorp, aka Rocky Mountain Power, wanted an extra $161.2 million. But for Senate Bill 61, the most it would have asked for is $72 million. Questar wanted an extra $27 million. But for Senate Bill 61, it wouldn't have been seeking an increase at all.
On 14 February 2008, the Commission told PacifiCorp to re-apply using a January to December 2008 estimates. The Company revised its request downwards to $99.8M, of which $27.6M was attributable to the use of estimates rather than actual historic figures.
Senate Bill 61 could cost PacifiCorp ratepayers $89 million a year going forward.
Senate Bill 61 could cost Questar ratepayers $27 million a year from now on.
The total annual cost to Utah ratepayers of Senate Bill 61 could be as high as $116 million starting in August 2008.
There have been other examples, and more are on the way. We'll add details soon.
Added: 2 February 2008