The Oregon Public Utility Commission issued its ruling in Pacific Power’s general rate case. The Commission ordered Pacific Power to reduce 2013 rates by $17 million as a penalty for its imprudent analysis and decision making associated with its ongoing investment at seven coal-fired generation plants. Pacific Power had initially sought to increase its Oregon rates by $41.2 million, or 3.5 percent. The order released yesterday, combined with prior agreements reached between the company, CUB, and other parties, reduced that increase to only $3.7 million, or 0.3 percent.
The PUC granted Pacific Power's request for a separate tariff rider to recover its investment in the Monato-Oquirrh transmission line, and grant with modification Pacific Power's request for a power cost adjustment mechanism. …and grant(ed) partial approval of Pacific Power's request to include in rates its investment in upgrades to its coal fleet.
Prudence of Pacific Power's Investments: the PUC stated thatafter reviewing the state and federal regulations applicable to Pacific Power, it concluded that a reasonable utility faced with emerging state and federal regulations would find that some action was required to comply with those rules. At the federal level, the EPA's RHR (Regional Haze Rule) required states to prepare and submit implementation plans that demonstrated reasonable continuous progress in reducing regional haze in Class I areas. Even if states chose to implement an alternative program, that alternative program had to demonstrate, at a minimum, even greater reasonable progress toward national visibility goals than they would otherwise achieve under Section 308.
As the owner of major sources of emissions in both Utah and Wyoming, Pacific Power was required to take action to comply with the mandate that the region achieve reasonable progress toward the RHR's air quality goals. To help meet its obligation to serve its customers and efficiently operate its fleet of generating resources, Pacific Power acted prudently in initiating efforts to address the air quality and emissions regulations that affected its multiple units. Pacific Power states that since 1999 it has worked to reduce power plant emissions through its Comprehensive Air Initiative, and that for the plants at issue here it extensively analyzed its compliance alternatives, developed a long- term pollution control strategy, and coordinated installation of controls with the utility's existing four-year outage cycle to reduce replacement power costs.
The PUC finds that Pacific Power failed to act prudently in two areas. First, it said it was not convinced by Pacific Power's claims that there were not legitimate alternative courses of action-both in terms of the mix of compliance actions and, particularly, in the timing of those actions-that could have allowed Pacific Power to meet its air quality requirements at a lower cost and risk to the utility's Oregon ratepayers. The record shows that throughout the period under question, even in response to changing circumstances, Pacific Power did not alter its course of action or consider alternatives of any kind. Second, Pacific Power failed to perform appropriate analyses to determine the cost-effectiveness of the investments. Pacific Power's contemporaneous cost-effectiveness analyses were demonstrably deficient, and did not demonstrate the rigorous review that a prudent utility should have performed prior to making these significant investments.
Pacific Power itself states that it began implementing its emission reduction commitments in 2005, "well ahead of the emission reduction timelines under the regional haze rules which require BART to be installed no later than five years following approval of the applicable Regional Haze SIP." As cited by Sierra Club, documents from 2005 also show Pacific Power had a strategy of moving forward with air pollution controls that was independent of state or federal action.. Moreover, after it began implementing its air quality commitments, Pacific Power was confident enough that its emissions were sufficiently below regional milestones that it sought, in its 2007 IRP, acknowledgement to add two coal-fired resources that would begin operation in 2012 and 2014. In April of 2008, we did not acknowledge those plants.
The PUC said it expects to be kept informed about anticipated major utility investment. As this case demonstrates, investments made by a utility to serve its customers can significantly impact the rates paid by those customers. The communications between Pacific Power and this Commission with regard to the utility's investments related to its emission reduction plan were not sufficient.
The Citizens Utility Board of Oregon (CUB) argued that Pacific Power should have compared the cost of these upgrades with alternative generation projects and should have pursued some of the flexibility built into federal and state clean air rules to find a solution that would be cheaper for customers. This is the path that PGE took in 2010 when it agreed to close its Boardman Plant 20 years ahead of schedule. Instead, Pacific Power considered its investments to be foregone conclusions and conducted a narrow analysis that did not consider other options.
Due to a lack of robust analysis, the Commission was unsure of how to calculate a penalty for Pacific Power’s imprudence. The Commission disallowed 10 percent of Oregon’s share of the costs of the investments—$17 million. The Commission also requires Pacific Power and other utilities to include similar investments in their long-range plans in the future, allowing the Commission to investigate these types of investments before they are made.