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News Release
 
Commission Approves Rate Hike for Portland General Electric
 
 August 31, 2001 (2001 - 031)(UE 115)
 
Contacts: Roy Hemmingway, Chairman, 503 378-6611; Roger Hamilton, Commissioner, 503 378-6611; Joan H. Smith, Commissioner, 503 378-6611; Bob Valdez, Public Information Officer, 503 378-8962
 
Salem, OR – The Oregon Public Utility Commission has approved new rates for customers of Portland General Electric effective October 1, 2001.
 
The decision is the result of a nearly yearlong examination of PGE's rate request by the Commission and its staff. The Citizens' Utility Board, Industrial Customers of Northwest Utilities, and Fred Meyer stores also formally participated in the case.
 
Based on PGE's latest power cost calculations, PGE's rates are expected to increase by an average of approximately 35 percent. Residential rates will go up about 26 percent, and industrial rates will increase about 47 percent.
 
A residential customer using 1000 kWh a month will pay about $16 more a month.
 
The exact impact on customer rates will not be known until September 12, 2001. That is the date when PGE will establish rates based on forward price estimates and the value of PGE's resources. However, Commission staff does not anticipate a large variation from today's prediction.
 
"The decision to raise rates by this large amount has been a difficult one. The Commission is very aware of the severe impact this increase will have on many residential and business customers of PGE," Commission Chairman Roy Hemmingway said. "However, the law requires the PUC to pass on to customers the prudently incurred costs of the utility. These increases are primarily due to the increased cost of power in the marketplace, as well as the increased cost of fuel to run PGE's generation, both of which are beyond the control of PGE. Although wholesale power and gas prices have stabilized in the last few months, they are still significantly higher than they were at the time of PGE's last rate case."
 
Wholesale prices are higher due to a combination of factors: increased demand, lack of new generating facilities, low water conditions, higher natural gas prices, and the troubled deregulation effort in California. Prices have nearly tripled from PGE's last general rate change in 1997. At that time, power costs averaged 1.372 cents/kWh. Power costs have since increased some 173 percent, and now average 3.740 cents/kWh. At various times last winter the extremely volatile power market saw peak power prices exceeding $1.20 /kWh.
 
"We've been extremely fortunate, up until now, in most of Oregon to enjoy low energy costs. However, a combination of factors has dramatically changed the landscape," stressed Chairman Hemmingway.
 
Aside from power costs, the authorized increase is almost $50 million less than PGE requested, a reduction resulting from settlements among the parties (which were adopted by the Commission) and decisions by the Commission on contested issues (cost of capital and operation and management expenses.)
 
The Commission worked with PGE and customer groups to adopt a Power Cost Adjustment (PCA) mechanism that will lower rates if power costs decline. Conversely prices could go up if wholesale prices rise. Power costs will be reviewed on a quarterly basis.
 
The Commission is adopting a tiered rate structure for residential customers, with the first 225 kWh a month priced lower than additional usage during the month. The lower price for the first 225 kWh a month reflects the benefits of power provided by the Bonneville Power Administration. The tiered rate design by itself would produce widely varying percentage increases for residential customers using different amounts of electricity. The Commission is authorizing an increase in the monthly customer charge for residential customers to "smooth out" the percentage increases at different usage levels.
 
* Note. Rates effective October 1, 2001 will likely be slightly higher due to 3 other adjustments to be decided by the Commission at its September 25 meeting.
 
They include a SAVE (Share all Value Equitably) adjustment; expiration of a Trojan credit; and Low-Income Assistance increase. The three adjustments amount to approximately 5 percent. SAVE allows the company to recover the cost of energy conservation efforts and lost revenue from reduced demand. Without this mechanism the utility would have no incentive to conserve.
 
 
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PGE Rate Case (UE-115) Background
 
The order is the result of a nearly yearlong examination of PGE's rate request by the Commission staff. The Citizens' Utility Board and Industrial Customers of Northwest Utilities and Fred Meyer stores participated formally in the case.
 
The law requires the Commission to allow utilities to recover prudently incurred costs. Unlike California, the Commission will not force our utilities into bankruptcy.
 
The Commission is keenly aware this increase will have a significant impact on low-income Oregonians. We encourage them to contact the utility about energy saving options and bill payment assistance programs. One such program is Oregon HEAT, a nonprofit organization and the Community Energy Project, a nonprofit that helps low-income families in Portland control their energy costs, and to weatherize homes of low-income seniors and disabled citizens. There is also federal assistance administered through Oregon counties.
 
How much are rates going up?
 
Based on PGE's latest power cost calculations, customers can expect an overall increase of approximately 35 percent. Residential rates will go up about 26 percent, and industrial rates will increase about 47 percent.
 
A residential customer using 1000 kWh a month will pay about $16 more a month.
 
The exact impact on customer rates will not be known until September 12, 2001. That is when PGE will establish rates based on forward price curves and the value of PGE's resources. However, Commission staff does not anticipate a large variation from today's announcement.
 
These are costs the utility simply cannot be expected to absorb. The Commission, in its order, did reduce costs for Operation and Maintenance in order to reduce the impact of wholesale energy costs.
 
Aside from power costs, the authorized increase is almost $50 million less than PGE requested, a reduction resulting from settlements among the parties, which were adopted by the Commission, and decisions by the Commission on contested issues such as cost of capital and operation and management expenses.
 
Why is my electric bill going up?
 
PGE, like other utilities across the West, has seen dramatic increases in the prices they pay for wholesale power contracts and fuel for generating plants. Consider this: if power costs had remained constant since 1996 (the company's last general rate case), it most likely wouldn’t be requesting an increase at all in what it charges for a kilowatt-hour of energy. In fact, PGE might even have been able to decrease prices slightly.
 
Power prices have increased for a variety of reasons:
  • The price of natural gas, which fuels electric generating plants, went up;
  • Throughout the West, demand for electricity has gone up faster than supply;
  • California’s deregulation plan failed to provide a smooth transition from regulated to competitive markets;
  • FERC price control plan has limited PGE’s ability to offset customers’ costs by selling surplus power on the wholesale market;
  • Due to the worst drought since 1977, the water level behind the dams is lower than normal, limiting hydroelectric production.
The order includes a Power cost adjustment mechanism:
 
The Commission adopts a Power Cost Adjustment (PCA) mechanism that will lower rates if power costs decline. The PCA establishes how PGE will account for variations between expected power costs included in base rates and actual power costs, and describes the method by which the company and its customers will share in the benefits and burdens of such variations. This mechanism will track the fluctuations in power costs and require a refund to customers of over collections exceeding a preset amount. The PCA balances the interests of customers and PGE and helps ensure the company’s continued ability to secure a reliable source of energy to meet demand.
 
The Commission is also adopting a tiered rate structure for residential customers, with the first 225 kWh a month priced lower than additional usage during the month. The lower price for the first 225 kWh a month reflects the benefits of power provided by the Bonneville Power Administration. The tiered rate design by itself would produce widely varying percentage increases for residential customers using different amounts of electricity. The Commission is authorizing an increase in the monthly customer charge for residential customers to "smooth out" the percentage increases at different usage levels.
 
Why is the price increase higher for industrial customers than residential customers?
 
There are two main reasons why industrial customers will see a larger percentage increase. The first reason is because a larger portion of a business customer’s bill is energy-use related; their percentage increase is higher. The rise in power costs account for the retail price increase, so the more energy a customer consumes as a portion of their total bill, the more it affects them. Secondly, residential and farm customers will have access to lower-cost federal hydropower, which helps hold down power prices for these customers. Small business customers (30 kW monthly demand or less) overall will pay about 31% more, while larger customers overall will pay about 46% more. The percentage increase is higher for larger customers because their service is more energy-intensive and power cost increases account for most of the overall rate increase.
 
Why not phase in the rate hike?
 
A phase in would simply put off today what would have to be paid in the future, plus it would require interest, driving up the eventual cost.
 
How have recent FERC orders affected PGE’s price increase?
 
To meet customers’ power needs, PGE generates about half of its own power and purchases the other half on the wholesale market through contracts. Most of the purchases are done well in advance to assure a reliable supply, based on what PGE expects the weather to be, plus an extra cushion. If PGE has surplus power after meeting its customers’ needs, PGE sells it on the wholesale market.
 
In the past couple of years, PGE had been able to offset higher power costs by selling surplus power on the wholesale market, but FERC’s actions to create price controls have hurt its ability to make those sales and pass the benefits on to customers.
 
In August 2001, PGE joined together with other Western utilities to protest recent actions by FERC to create price controls on wholesale power sales in the West. This coalition of utilities concluded that FERC’s actions may create higher prices for some utilities’ retail customers and could result in power supply shortages in many areas of the West.
 
How does the PGE rate hike compare with other utilities and public utility districts?
 
Bonneville Power Administration is proposing 46 percent effective October 1, 2001.
Eugene Water and Electric Board is proposing an increase of 36 percent for residential, and 32 to 38 percent for commercial industrial customers effective October 1, 2001
 
Springfield Utility Board raised rates an average of 10.5 percent in January and is proposing an additional 16.7 percent October 1, 2001.
 
Clark County Utility in Washington raised its rates by an average of 23 percent January 15, followed by 20 percent August 1, 2001.
 
Emerald Peoples' Utility District April 1, 2001 raised rates 16 percent, and will raise rates by 16 percent October 1, 2001.
 
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