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News Release
 
Trojan Nuclear Plant FACT SHEET
 
October 22, 1999 (1999-045)
 
Contacts: Ron Eachus, Chairman, 503 378-6611; Roger Hamilton, Commissioner 503 378-6611; Joan H. Smith, Commissioner, 503 378-6611; Lee Sparling, Administrator, Electric and Natural Gas Division, 503 378-6137; Ron Karten, Public Information Officer, 503 378-8962
 
Salem, Ore. – The 1999 Legislature passed HB 3220, which explicitly allows the Commission to permit return "on" as well as return "of" investment in prematurely retired utility plant when the Commission finds the retirement is in the public interest. The bill’s intent was to clarify existing law under which the Commission believed it already had authority to allow both return "of" and return "on" investment. The legislation applied retroactively to previous PUC orders ,so it appears to moot current Supreme Court consideration of an appeal of a 1995 PGE rate case in which the PUC allowed PGE to keep in rates 87% of its investment in the Trojan nuclear plant, closed in 1993.
 
A petition is being circulated to put repeal of HB 3220 on the ballot. The PUC took no position on the legislation and has no position on the potential ballot measure. However, during the course of public debate on the issue of cost recovery for Trojan, we anticipate there will be many claims about the impact on customers and many inquiries from the press to the Commission about what customers are actually paying for Trojan. To help answer these questions and to provide a brief history of the issue, the following is a basic fact sheet that may be helpful as you follow the debate on the issue. It is intended to provide a quick reference of basic information related to Trojan costs in rates and to the effect of HB 3220 and any subsequent court decisions.
 
There is a tendency to lump all Trojan costs together in arguments over cost recovery and its impact. However, costs are not treated the same and not all costs are at issue. In reporting on the issue and ratepayer impacts, there are a few key points to keep in mind:
  1. Repeal of HB 3220 does not prevent recovery of Trojan costs. Repeal will let the Supreme Court continue with the appeal of the PUC order and determine whether or not the previous law allowed return "of" investment.

  2. The Court of Appeals did not prohibit recovery of all Trojan costs. It decided the PUC could allow recovery "of" the investment, but not recovery "on" investment.

  3. HB 3220 does not address all Trojan costs. The Operation and Maintenance, Property Tax, and Decommissioning costs are ongoing expenses and are not affected by HB 3220 or the court case.

  4. The underlying principle of both the previous law and HB 3220 was to provide an incentive for utilities to prematurely retire uneconomic facilities, rather than continue to use them until they are fully depreciated.
 
The Commission encourages those with questions to contact us at 503 378-8962.
 
Why was the Trojan nuclear plant closed?
In 1991, the PUC instructed PGE to do an extensive analysis of the Trojan plant as part of its required Least-Cost Planning process. The analysis indicated that it was cheaper to close the plant and replace it with new power than it was to run the plant. Future projections indicated the variable cost of continued plant operation was higher than both the fixed and variable costs of replacement power. In other words, even if ratepayers would continue to pay for the fixed costs of the Trojan investment, it would cost less to replace the power from Trojan than to continue to run it. The company closed the plant in 1993.
What did the PUC decide in 1995?
In the 1995 rate case, the PUC determined that it was in the public interest to close the plant, but that PGE was entitled to only 87% recovery of its remaining investment. To avoid rate shock associated with recovering all the costs at once, the Commission decided to spread the costs over the intended remaining life of the plant. Consequently, it also concluded that it should allow interest on the recoverable amount.
What did HB 3220 do?
The PUC decision in the 1995 rate case was based on the Commission’s interpretation that existing law allowed both recovery "of" and "on" investment in Trojan. The order was appealed by several parties. The Court of Appeals concluded existing statutes did not allow return "on" investment and the issue subsequently was taken under review by the Oregon Supreme Court. HB 3220 amended existing law to make it clear that return "on" investment was allowed and applied it retroactively to previous PUC decisions, including those related to Trojan. The PUC was neutral on the bill.
What impact would repeal HB 3220 have on customer bills?
If repealed, the Supreme Court would proceed with the appeal of the PUC order and decide whether the Commission correctly interpreted the law as it existed prior to HB 3220. If the Supreme Court upholds the PUC decision, then the repeal of HB 3220 would have no effect on customer bills. If the Supreme Court upholds the Court of Appeals decision, the PUC estimates the effect on residential customer bills could be an average reduction of $1.90/month (See Table 3) plus any refunds that the court may order for return "on" investment that PGE has already received since the 1995 order. However, rate reductions from disallowance of a return on PGE’s remaining investment in Trojan could be offset by faster return of the investment.
TABLE 1: What Trojan costs are currently in rates?
1996 Rate Case Revenue Requirement
($Millions)
% of Total Revenue Requirement
Return on Investment*
$28.6
3.0%
Return of Investment
$30.3
3.1%
Total related to HB 3220
$58.9
6.1%
Operation and Maintenance, Property Taxes
$12.6
1.3%
Decommissioning
$14.5
1.5%
Total
$86.0
8.9%
 
*This is the amount the Court of Appeals determined should not be included in rates.
 
 NOTE: The amount to be recovered from customers is declining each year as the remaining plant balance goes down. In PGE’s next general rate case, the adjusted collection amounts will also reflect true-ups for actual collections to date. 
 
TABLE 2: How much are
Trojan costs in 1999?
1999 Revenue Requirement
($Millions)
Return on Investment*
$21.9
Return of Investment
$25.2
Total related to HB 3220
$47.1
Operation and Maintenance, and
Property Taxes
$8.4
Decommissioning
$14.1
Total
$69.6

*This is the amount the Court of Appeals determined should not be included in rates. 

 
TABLE 3: What is the cost on residential ratepayers’ bills?
Average Residential Cost for Electricity
Cost for an average residence heated with electricity
(using 1,085 kWh/month)
 
Monthly
Yearly
Monthly
Yearly
Return on Investment*
$1.90
$22.74
$2.09
$25.11
Return of
Investment
$2.01
$24.10
$2.22
$26.61
Total related to HB 3220
$3.91
$46.84
$4.31
$51.72
Operation and Maintenance, and Property Taxes
$0.83
$10.02
$0.92
$11.06
Decommissioning
$0.96
$11.53
$1.06
$12.73
Total
$5.70
$68.39
$6.29
$75.51
 
*This is the portion that would be affected if HB 3220 is repealed and the Supreme Court upholds the Court of Appeals decision
 
 
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