Oregon PUC Orders Pacific Power to Implement Direct Access Option With End-Date for Transition Charges

The Oregon Public Utility Commission has ordered Pacific Power (Pacificorp) to implement a long-term cost-of-service opt-out program that would allow direct access customers to cease paying transition charges after a five-year period, similar to the more active direct access program at Portland General Electric.

Direct access customers in Oregon are required to pay transition charges, or exit fees reflecting prior utility procurements on their behalf. Although utilities are required to offer multi-year opt-out direct access programs, only an option under Portland General Electric schedules 485 & 489 (the long-term cost-of-service opt-out) allows the customer to avoid future transition charges after the initial term (in PGE's case, five years). Other direct access schedules, even where offering a multi-year term including those at in Pacific Power, require the customer to continue paying transition charges if the customer renews their direct access service after the end of the initial term.

"We find no basis to maintain this difference in the programs of the two utilities," the PUC said in its decision adopting a PGE-type model for Pacific Power.

Accordingly, the PUC directed Pacific Power to, within 60 days, file a tariff offering to provide a five-year opt-out program that allows a qualified customer to go to direct access and pay fixed transition charges for the next five years, and then to be no longer subject to transition adjustments, so long as that customer remains a direct access customer.

"We acknowledge Pacific Power's concerns that any program that allows customers to elect direct access permanently be tailored for each utility, be designed to protect other customers from cost-shifting, and be limited to large, sophisticated customers. In its tariff filing Pacific Power may tailor its program to fit its circumstances," the PUC said.

"No party has alleged that PGE's program results in cost shifting to other customers, and we expect Pacific Power's filing to conform to that standard," the PUC said.

Additionally, the PUC declined to expand the class of customers eligible for direct access or the long-term cost-of-service opt-out. As first reported by Matters, small and medium-sized customers had sought to expand the eligibility for the long-term cost-of-service opt-out.

The PUC's decision also addressed the issue of municipal franchise fees, and their impact on direct access. Retail suppliers have argued that due to the inclusion of franchise fees in base rates, direct access customers double-pay costs associated with franchise fees in cases where cities impose a tax on retail suppliers to recoup any lost revenue under the utility franchise fee due to migration of customers to direct access.

The PUC took at face value cities' claim that they have the legal authority to make up their lost revenue from lower franchise fees by imposing a tax directly on competitive electric service suppliers serving loads within municipal boundaries.

"While that approach makes the cities whole, it might create a disincentive for customers to elect direct access," the PUC noted.

"[T]he disincentive to direct access can be addressed by unbundling all franchise fees collected by each utility and recovering those costs through a variable charge that is avoided by a direct access customer," the PUC said.

However, the PUC did not direct the immediate unbundling of the franchise fee from base rates, and instead directed that PGE and Pacific Power must, in their next general rate cases, cooperate with interested parties to develop a volumetric franchise fee rate element that would be avoided by any customer taking direct access service.

"We note that the franchise fee rate element may not match exactly the in lieu tax collected by the local government. We expect that the difference in these values will be de minimis in terms of whether a customer will choose direct access," the PUC said.

Cities had also requested that the utilities be directed to inform a local government whenever a customer elects direct access. As the utilities did not object to that condition, the PUC adopted it, and directed the utilities to develop protocols for such notice.

Docket UM 1587