VIII. Impact of Rate Increase

Siskiyou says that it is experiencing significant economic hardships. No party disagreed. Siskiyou argues that the proposed rate increase would be particularly hard on PacifiCorp's ratepayers in the county. In the past, we have considered ratepayer economic conditions in setting the authorized rate of return. In this instance, granting PacifiCorp's request would result in a return on equity of 5.8%. This is substantially below its last authorized return. We must balance the impact of the interim rate increase on ratepayers, and the need for the increase.

PacifiCorp's request would result in an average rate increase to its California customers of almost 14%. This is a tremendous increase to impose on customers. In addition, PacifiCorp proposes to apply this surcharge to CARE customers, which the Commission has not done for other utilities. These customers, as noted by PacifiCorp, will feel the brunt of this increase the most.

By imposing this burden on its California customers, PacifiCorp estimates it will increase its revenues by less than $7.5 million annually. PacifiCorp asserts that this increase is necessary due to the potential high costs it faces to procure power. However, this expected increase in revenues of under $7.5 million is dwarfed by the range of uncertainty in PacifiCorp's procurement costs. PacifiCorp has suggested its net power costs could be as high as $760 million or just $432 million if costs return to the level experienced in 1999. Other parties have suggested that with other assumptions, PacifiCorp's net power costs could be just $138 million.

We note that PacifiCorp made its request in the spring of 2001, when market electric and gas prices were unreasonably high. Actions taken by the Governor, the State Department of Water Resources and the Commission have helped stabilize market prices and return them to much lower levels than were experienced in 2000 and 2001. It is therefore very uncertain that PacifiCorp will in fact incur the high level of net power costs which underlie its request.

Given the significant detrimental impacts of a large rate increase to PacifiCorp's customers, and the relatively small relief that it would give PacifiCorp in the event that PacifiCorp does incur high power costs, it is not reasonable to authorize an interim rate increase at this time.

We are also concerned that granting interim rate relief based solely on a forecast that the utility may not earn its authorized rate of return sets a problematic precedent. Our ratemaking policies provide that utilities may earn more than their authorized rate of return if circumstances turn out to favor the utility, and may earn less if circumstances are not in the utility's favor. Granting an interim increase as requested by PacifiCorp would upset the balance of the upside and downside inherent in our ratemaking, and provide PacifiCorp with a limited risk while retaining its full upside potential.