Puget Sound Energy seeks to link retail rates, wholesale power costs

By the OGJ Online Staff

HOUSTON, Aug. 22 -- Puget Sound Energy, the utility subsidiary of Puget Energy Inc., Bellevue, Wash., Tuesday asked Washington state regulators to link electricity customers' rates to the utility's purchased power costs.

It estimated the proposed mechanism would, based on current estimates of the company's net power costs, defer and ultimately collect about $84 million for additional net power costs for the period ending Dec. 31.

Rick Hawley, Puget Sound Energy vice-president and chief financial officer, said the move was necessary because of changing market conditions since the end of June that "significantly increased our net power cost estimates for 2001 and 2002."

He called the pass-through mechanism "critical" to maintaining Puget Sound Energy's financial health and blamed its problems on a turbulent energy marketplace and record low hydro conditions.

"The load-serving utilities in the Western states have all been infected by the power cost problems initiated by California's mishandling of their situation and misguided federal intervention in the wholesale markets," Hawley said. "We don't want to end up in the same predicament as California," he said.

Puget Sound has joined other utilities in calling on federal regulators to adopt a new formula for setting electric power prices in the West. They have complained left unchanged the Federal Energy Regulatory Commission order could create higher prices for some utilities' retail customers and could result in power supply shortages in many areas of the West.

FERC issued orders June 19 and July 25 in an effort to stabilize the western energy market. Wholesale prices are now geared to the cost of power production in California. Specifically, the cap is based on the highest-cost natural gas-fired plant in the state, whose power is needed when reserves fall below 7%, triggering a Stage 1 supply emergency. The price caps set a price for power that is bought and sold daily in the West, but were not applied to longer-term power contracts.

Puget Sound Energy's proposal includes an interim plan to recover the net power cost the utility incurs in supplying electricity to customers and a commitment to file a general electric and natural gas rate case by November 2001.

The mechanism would mirror the way Washington utilities currently pass through to customers the wholesale cost of natural gas, at no profit to the utility. If approved by Washington Utilities and Transportation Commission, Puget Sound Energy would immediately begin deferring the difference between its net power costs and the amounts currently being recovered through existing customer rates and reflect these amounts in customer bills beginning this November.

This interim mechanism would continue until completion of the proceedings in the upcoming general rate filing. Puget Sound said it has managed until now to insulate its customers from the increase in costs associated with hydroelectric generation being at record lows and the extremely volatile wholesale power markets.