Puget Energy strikes deal with industrial customers

Signaling an end to an acrimonious dispute, Puget Energy Inc.'s utility subsidiary said a proposed settlement has been reached with 11 industrial customers who wanted relief from a market index-based electricity tariff. Under terms of the proposal, which must be approved by Washington state regulators, about 85% of the industrial loads in question will be able to buy electricity from suppliers other than Puget Sound Energy (PSE) at negotiated prices or self-generate the electricity they use.

Mar 13th, 2001


By the OGJ Online Staff

HOUSTON, Mar. 13�Signaling an end to an acrimonious dispute, Puget Energy Inc.'s utility subsidiary said a proposed settlement has been reached with 11 industrial customers who wanted relief from a market index-based electricity tariff.

Under terms of the proposed settlement, which must be approved by Washington state regulators, about 85% of the industrial loads in question will now be able to buy electricity from suppliers other than Puget Sound Energy (PSE) at negotiated prices or self-generate the electricity they use.

In turn, these industrial customers would give up any rights to electricity PSE will use to supply to its other customers. A few of the smaller customers in the case will have the ability to transfer to a new rate designed especially for their needs, Puget Energy said.

Tim Hogan, Puget Sound Energy's vice-president of external affairs, said the company was pleased "to reach agreement on a package that enhances the ability of these customers to better manage their power costs, while staying true to the principle of protecting the power supply for PSE's residential and small-business customers.''

Earlier, the Washington Utilities and Transportation Commission (UTC) agreed with 13 large Northwest industrial companies who argued their electricity rates were excessive and ordered electric rates for the companies capped at $150/Mw-hr. Under the so-called soft cap, if Puget Sound could verify its wholesale costs were higher than $150, the utility could conceivably have recovered the higher amount from the companies.

The industrial companies argued they were in an emergency because electric bills had more than tripled, resulting in layoffs, reduced production, and even factory shutdowns. Their electricity prices were linked to the Dow Jones Mid-Columbia Firm and Non-firm indices which have been escalating and experienced high volatility. This tariff was agreed on in 1996 by the companies, commission, and utility. The companies claimed their electricity bills jumped as much as 300% this year.

Among those seeking relief were Air Liquide America Corp., Air Products & Chemicals Inc., Boeing Co., CNC Containers, Equilon Enterprises LLC, Georgia-Pacific West Inc., Tesoro Northwest Co., Intel Corp., and others.

Under the market-based tariff established by the commission, the companies paid Puget Sound for their energy costs, including transmission and distribution, but the commodity portion fluctuated with the index.

They asked the commission to adopt a new rate based on Puget Sound�s cost of providing electric service to them. Puget Sound opposed reinstatement of traditional cost-based tariffs. The utility claimed the change would shift the costs to the residential and commercial customers.

The companies wanted the market-based tariff disbanded because, they argued, Puget Sound was a party as either purchaser or seller in at least 35% of the transactions reported to Dow Jones which compiles the index. Such market dominance by a party who has much to lose based on the index prices raised extremely serious questions regarding the validity of the index, the companies said in their filing.

The companies also objected to the use of the highest market price to set all prices for all the companies similar to the much criticized wholesale power market in California. The companies said they agreed to assume the risks in a functioning competitive market, but they did not agree to assume the risks if the market was seriously flawed.

The companies said hedging wouldn't solve the problem. They maintained hedging would be required over a very long term to smooth the current and projected future prices. Moreover, they said, there were no hedging products offered in the market.

The commission scheduled a Mar. 21 hearing to review the proposed settlement.

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