Striking an equitable balance between power rates charged to residential and small business customers and those paid by large industrial users will be the goal of a hearing to be held later this year by the Utah Public Service Commission.
Commission members have expressed concern that reduced rate contracts between Utah Power & Light Co. and large industrial users like Geneva Steel places an unfair burden on its residential customers.Under the present contract, Geneva pays about 2.5 cents per hour for 1,000 watts of electricity. A typical residential customer pays about 7.8 cents for the same amount of power. At question is whether the discrepancy constitutes subsidizing by the residential customer.
The PSC announced in February that it would form a task force to study the issue and would follow that with hearings.
The idea for the task force surfaced following the commission's struggle with a power rate case involving UP&L and Nucor Steel. The case brought to a head the question: At which point do the special rate contracts, intended to keep large industrial users under contract to private utility companies, become a detriment to residential and small business utility customers?
On Feb. 28 the Division of Public Utilities gave a list of suggested topics for review to the PSC. The commission is studying the list to determine which ones will be assigned to the task force.
While the reduced rate contracts do provide companies a savings, they are subject to interruption by UP&L with little advance notice. This is intended to ensure that UP&L's deliveries to residential consumers are not affected during peak demand periods.
In recent years, the PSC has granted a number of reduced-rate contracts. Generally, two factors are involved. First, the contracts are for interruptible power. Second, most of the companies have access to another power source, usually their own power generating facility.
UP&L officials and the companies argue that the interruptible nature of the contracts justifies the lower rates. UP&L has assured the commission that the rate still covers the actual cost of the power delivered, that other customers are not subsidizing the contracts. During the Nucor hearings in January, though, UP&L officials admitted that the company may be nearing its capacity for interruptible power contracts and said it is an area that will have to be reviewed, especially in the wake of a merger that saw UP&L join with Pacific Power & Light under the ownership of Oregon-based PacifiCorp.
Power officials argue that even though the larger companies pay a lower rate, they are needed in the system to help pay fixed operating costs. Without the revenue of the reduced rate contracts, residential customers would have to bear a higher proportion of that cost. In the Nucor case, UP&L officials said the loss could have reached $14 million. UP&L expects the new contract to reduce revenues between $1 million and $4 million.
Gauging the impact of the Nucor settlement is difficult as it came on the heels of the merger agreement, an event that UP&L officials said would benefit Utahns. That prediction seems justified by UP&L's recent announcement that it will ask the PSC for a 2 percent rate reduction for Utah customers.
The PSC hopes the task force study and the hearings will provide it with the kind of information it needs to better evaluate future reduced-rate contract proposals. This would ensure that residential customers do not find themselves subsidizing large industrial power customers.