A new way of counting PacifiCorp's costs could reduce Utah electricity prices by $50 million per year.
But the precise impact of an April 16 Utah Public Service Commission order will not be clear until a full-blown rate case for PacifiCorp, parent company of Utah Power, is completed later this year.The PSC's order changes the way PacifiCorp allocates its costs among customers in the seven states where it does business.
According to a company press release, the existing allocation method was put in place eight years ago, after the 1989 merger of PacifiCorp and Utah Power. It allowed PacifiCorp to allocate pre-merger costs to the company of origin, like Utah Power, and post-merger costs on a systemwide basis.
The new order from the PSC says PacifiCorp should allocate all costs evenly over its entire system, regardless of when the costs were incurred.
"This would have an impact of decreasing rates," PSC Chairman Steve Mecham said Thursday.
He said the change will be phased in over five years. But other factors in the current rate case, such as costs of capital and depreciation, also will affect Utah prices.
The PacifiCorp release said the order could reduce Utah electricity prices by $50 million to $60 million per year once it is fully phased in on Jan. 1, 2001.
"However, the company and the PSC are continuing to discuss the new allocation method and have agreed that the impact on customer prices must be determined in a general rate case," it said.
Doug Larson, Utah Power's director of regulatory policy for Utah, Idaho and Wyoming, said the earlier allocation method still is accepted in PacifiCorp's six other states. And he does not know how the Utah change will affect prices there.
"Shareholders potentially are left with cost recovery at less than 100 percent," Larson said Thursday.
The state's Division of Public Utilities and Committee of Consumer Services asked for a new PacifiCorp rate case and suggested changes to the allocation method in early 1997.
In March 1997, the state Legislature created a task force to study electrical deregulation and froze PacifiCorp's rates at Jan. 31, 1997, levels until May 1998. The company agreed to an interim annual price decrease of $12.4 million for Utah customers, the PacifiCorp release said.
However, the last Legislature did not renew the price freeze, and hearings on the allocation method went ahead during 1997.
The PSC started working on the general rate case earlier this year, and public hearings are scheduled for October. Mecham said the commission should have a decision ready by the end of 1998.