Dive Brief:
- The 9.8% rate of return won in its last rate case by Puget Sound Energy (PSE), the largest investor-owned utility in Washington state, was not proven “just, fair, reasonable and sufficient,” according to a County Superior Court Judge’s ruling. It must be reconsidered by state regulators.
- Judge Carol Murphy agreed with arguments from the state Attorney General’s Office and the Industrial Customers of Northwest Utilities that PSE did not provide the Washington Utilities and Transportation Commission (WUTC) sufficient justification for approving a rate of return increase through 2016 at the 9.8% level set in 2011.
- Despite many utilities’ diminishing profitability and increasing bond rating risks, the WUTC approved the multiyear plan which, according to the Attorney General’s office, could cost ratepayers $10 million annually. PSE argued fixed rate of return increases can benefit ratepayers by unburdening them of energy price volatility.
Dive Insight:
PSE rate calculations have traditionally been based on current market conditions, risk factors, and actual labor and infrastructure costs.
PSE argued that decoupling rate of return increases from market factors is a growing part of U.S. utilities' plans because it removes a disincentive to investment in conservation and energy efficiency.
Judge Murphy’s decision allows the commission to sustain the rate of return plan if PSE adequately justifies it on review.
The multiyear rate plan allowed PSE to increase residential electricity rates by 3.34% and natural-gas rates by 1.55% last July, and will allow the utility to increase rates up to 3% of the annual revenue, but any more than that has to be recovered the next year.
