4. Responses to A.05-07-010 and the Settlement Agreement
A. The Conservation Groups
The Conservation Groups are parties to the Settlement Agreement.20 They state that the Settlement Agreement resolves all contested issues of law and fact to the satisfaction of the Settlement Parties, and that the Conservation Groups support the Commission's approval of A.05-07-010 under § 853(b) with the conditions (i.e., "Commitments") attached to the Settlement Agreement.
B. Karuk Tribe
As one of the signatories of the Settlement Agreement, the Karuk Tribe asks the Commission to exempt the proposed transaction from § 854(a) pursuant to § 853(b), subject to the conditions in the Settlement Agreement. Despite its support of the Settlement Agreement, the Karuk Tribe believes the Commission should carefully scrutinize the proposed transaction. The Tribe is especially concerned that the transaction might adversely affect PacifiCorp's ability to finance costly environmental conditions that the Federal Energy Regulatory Commission may adopt in a pending re-licensing proceeding regarding PacifiCorp's hydroelectric facilities on the Klamath River.
C. DRA
DRA asserts that it is the Commission's practice to approve a change in ownership of a public utility serving captive ratepayers only if the transaction benefits ratepayers. DRA believes the benefits of the MEHC-PacifiCorp transaction are meager and speculative, and do not justify Commission approval of the transaction.
The Applicants contend that the chief benefit of the transaction is MEHC's willingness and ability to fund utility infrastructure investments. DRA believes the Applicants' promise to invest in utility infrastructure is nothing more than an acknowledgment of PacifiCorp's obligation to serve as set forth in § 451:
451: [E]very public utility shall furnish and maintain such adequate, efficient, just, and reasonable service, instrumentalities, equipment, and facilities...as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.
DRA posits that there is no evidence that ScottishPower would not maintain the infrastructure necessary to serve customers as required by § 451. PacifiCorp under the ownership of ScottishPower is operating its facilities reliably, making necessary capital expenditures, and otherwise meeting its obligation to serve. Accordingly, DRA sees no benefit to ratepayers from MEHC's commitment to spend money on infrastructure.
The Applicants pledge to reduce the cost of PacifiCorp's long-term debt issued over the next five years by 10-basis points.21 The Applicants estimate the value this benefit at $6.3 million over five years. DRA states that the value of this benefit is uncertain, as the Applicants admit that PacifiCorp would have the burden in future proceedings to show that the cost of PacifiCorp's incremental long-term debt has been lowered by 10-basis points.
The Applicants also promise to cap costs charged to PacifiCorp by MEHC and MEC at $9 million per year for five years, which is $6 million less per year compared to the $15 million that ScottishPower would have charged PacifiCorp in 2006. DRA argues that the Applicants did not substantiate their claim that ScottishPower's charges would be $15 million. In fact, pleadings filed by the staff of the Oregon Public Utilities Commission indicate that a more appropriate estimate of the annual overhead charge is $11.7 million rather than $15 million.
DRA states that even accepting the Applicants' claimed savings on long-term debt and corporate charges, the savings to California ratepayers is only $143,000 per year. DRA believes this amount is inconsequential and does not justify approval of the transaction.
The Applicants commit to make their employees, officers and directors available to testify before the Commission, to allow access to books and records, and to honor existing labor contracts.22 DRA contends that these Commitments, and virtually all the others, do nothing more than maintain the status quo and comply with the law.
If the Commission approves the proposed transaction, DRA recommends that such approval be subject to two conditions. First, the Applicants claim they will not seek to recover the acquisition premium in PacifiCorp's rates unless the Commission reduces PacifiCorp's retail revenue requirement by imputing benefits accruing to PPW, MEHC, or Berkshire Hathaway. DRA declares that carving out an exception to the rule that shareholders must finance the acquisition premium is unacceptable.
Second, the Applicants concede that additional cost savings are likely from the acquisition of common services and fuel, and from improved efficiency as a result of information exchange.23 In light of these benefits, DRA recommends that PacifiCorp's general rate case (GRC) increase be deferred by one year, until 2008, to ensure that ratepayers receive some benefit from the transaction.
20 The Conservation Groups consist of American Rivers, California Trout, Trout Unlimited, Friends of the River, NorthCoast Environmental Center, Oregon Natural Resources Council, Headwaters, Klamath Forest Alliance, WaterWatch of Oregon, Sierra Club, Institute for Fisheries Resources, and the Pacific Coast Federation of Fishermen's Associations.
21 DRA's concerns about PacifiCorp's claimed costs savings as expressed in today's Decision do not reflect the new and revised Commitments that the Applicants filed on January 5, 2006.
22 Commitments 4, 5, 6, and 29.
23 Exhibit 6, p. 6, Lines 22 to p. 7, Line 1.
