Portland General Electric residential customers saw an 18% increase in the cost of their electricity bills since the beginning of January, the highest rate increase within the past two decades. Now, a new proposal from the utility aims to raise those rates again. If approved, electricity bills could be 7% higher than they are now starting at the beginning of 2025. Bob Jenks is the executive director of the Oregon Citizens’ Utility Board, an advocacy group that represents consumer interests in utilities. He joins us to share his thoughts on the proposal. We’ll also hear from Kristen Sheeran, PGE’s senior director of policy planning and sustainability, to learn more on why they believe this increase is needed.
Note: The following transcript was created by a computer and edited by a volunteer.
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Oregonians are paying a lot more for electricity than they were just a few years ago. Rates for Pacific Power customers went up 33% in the last 14 months. PGE customers saw a similar increase, and the utility has already asked regulators for a 7.4% bump in 2025. In a few minutes, we’ll talk to the executive director of the board that advocates on behalf of ratepayers in Oregon, but we start with Kristen Sheeran. She is PGE’s senior director of policy, planning and sustainability. Welcome to the show.
Kristen Sheeran: Thank you. Thank you for having me.
Miller: What are the biggest drivers for this proposed increase for next year?
Sheeran: The proposed increase for next year is really to help meet growing customer demand on our system and bolster reliability. In order to do that, it’s imperative that we’re able to make investments in updating our aging infrastructure, to improve resilience and to create the flexibility on the grid that’s going to allow energy to flow for more resources and in more directions to support our changing customer needs.
As we look around the country, PGE is confronting the same challenges as other utilities. We have a grid that was built decades ago for a very different energy system and very different energy needs than what we see from our customers today. We’re all operating in a very challenging macroeconomic environment with continued inflation and high interest rate costs.
Our customer energy demands are changing. We’re seeing electrification and significant load growth on the commercial industrial side. And climate change is creating extremes and weather patterns that are creating additional wildfire risk, damages from storms, as well as changes in peak energy demands on our system, and how we manage those peak loads to ensure reliable continuous service for our customers.
Miller: In a tweet about this proposed increase, you emphasized “investments in local battery energy storage systems.” That was the first thing you mentioned in that short tweet. But KOIN News looked into the filing and found that only about $17 million of the $202 million total increase would go towards battery storage facility projects in 2025. Why emphasize batteries in your communication with the public?
Sheeran: Well, capital investments account for 75% of the proposed increase in the filing we just did with the Oregon Public Utility Commission, and this includes capital investments in those batteries that you referenced, as well as transmission and distribution system upgrades. So on the battery front, these are projects that are going to help us provide flexible reserve power when needed on our system. Our new battery installations are going to allow us to reduce the risk of outages for customers, and they also help us reduce the need to purchase energy from the power markets during times of peak demand. And this has both a cost and the carbon benefit for our customers.
Miller: I’m just wondering about the emphasis, though. I mean, if it’s something like 8% of the total cost, why have that be the focus of your main public communications tweet about the reason for this increase?
Sheeran: Well, I mean, we’ve talked about both the battery projects and all the costs that go into the battery projects - integrating them into our system, any related operation and maintenance expenses. But then there’s also the continued investments we have to make as a utility on our transmission and distribution systems, and that includes enhancing our current lines and updating aging ones. And this is what’s gonna ultimately allow us to bring in more regional diversity of sources onto our grid, and to accommodate this very significant load growth we’re seeing in our service territory from electrification and economic expansion.
So batteries are a new resource, a new type of resource for us on our system. It’s a significant investment in batteries and battery storage that PGE has made; I think the largest single acquisition in batteries outside of the state of California. So that’s new and significant. We continuously make investments in transmission and distribution upgrades and enhancements. But as our system continues to age and as electrification and load growth continue to put demands on that existing legacy infrastructure, we’ll see more and more of these T&D [transmission and distribution] investments as we move into the future.
Miller: I wanna run a voicemail by you. This is one of our listeners, Richard, who called in from Portland.
Richard [voicemail]: “I called PGE and asked them if they had done any neighborhood impact studies about what their rate increase might do or cost people, and they had not, they do not, they did not. That’s what they told me. They did not do any neighborhood impact studies, which I find really disheartening; people just raise the prices and they walk away like, ‘Well, that can’t cause any trouble.’ And I think it’s going to cause a lot of trouble and a lot of unintended consequences.”
Miller: If the current request is approved and not increased, it would mean a 40% increase in electricity rates in just - what, three years or so. Is there any process to take into account what these rate increases mean for your ratepayers?
Sheeran: Well, absolutely. First of all, as we modernize and strengthen the grid, we are focused on keeping the cost of electricity as affordable as possible for customers. As a utility, we exist to serve power to our customers. And affordability is absolutely at the forefront of all the decisions we’re making in terms of our investment, in terms of our day-to-day operations, how we operate the system and how we look to the future. The process that gets set forth once we do this filing at the OPUC [Oregon Public Utility Commission] begins a very public process where the public gets to weigh in on what’s been proposed in terms of cost recovery for primarily those capital, but also some related O&M [operating and maintenance] investments. So there are certainly channels for public input.
But I think it’s also important to note that as we’re trying to mitigate the costs of these investments in our system on our customers, we’re looking at all different ways to reduce customer bill impacts. We just recently expanded our Income-Qualified Bill Discount Program, which is an energy assistance program for families and households that qualify, to help folks continue to be able to afford their electricity. We have a variety of different tools and programs that help customers across the income spectrum manage their energy use and cost, including incentives for energy efficiency, where we partner with the Energy Trust of Oregon, and tools like our Smart Thermostat Program, Time of Day, EV Smart Charging, and Peak Time Rebates. All of those are intended to give customers more control over their electricity usage so they can help manage costs on their end, as we’re doing everything we can as the utility to make prudent investments to maintain system reliability. So that the same continuous electricity service our customers have looked to us for the last 130 years can continue into the future.
Miller: At a time when a lot of ratepayers are struggling to pay these bills that are getting bigger and bigger, you’re asking to increase the profit margin from 9.5% to 9.75%. You also write in the filing that if you don’t have this increase, the profit margin could go down to say, 4% or 5%. What’s wrong with that? What’s wrong with having shareholders get a lower profit margin when people are struggling to pay their bills?
Sheeran: Look, our customers are at the forefront in all of our decision-making. And as I mentioned earlier, we exist as a utility to serve safe and reliable and affordable power to our customers. But with the pressures we’re seeing, not just on PGE’s system but across the country as we look to modernize the grid to meet today’s customers energy demands and a cleaner energy future, the reality is it’s gonna take all of us to get there. And our shareholders help us make the investments that we need to make in order to continue to deliver that affordable and reliable power.
Miller: Let me make sure I understand your argument. You’re saying that if you can’t get a guaranteed rate of return from Oregon regulators that is close to 10% next year, you won’t have enough shareholders, they will just bail, and you won’t be able to spend enough money on the required infrastructure needs that you’re saying you need to make. Is that your basic argument?
Sheeran: No. What we’re saying is that our shareholders and our investors are a critical piece of the puzzle in how we’re able to deliver electricity service to Oregon customers.
Miller: But why can’t they get a 4% or 5% rate of return? That seems like a pretty good rate of return.
Sheeran: I think rates of returns have to be looked at comparable to rates of return for other utility investments across the country.
Miller: Because if you don’t give it, and make it 9% or 10%, you’re saying they will take their money out of PGE. I just want to understand the basic point here, because I think listeners will really care about this.
Sheeran: We need a rate of return that’s competitive so that we can continue to attract the low-cost capital that allows us to make the investments in our system that will enable us to continue to provide electricity service to our customers in the most affordable, safe and reliable ways we can.
Miller: Kristen Sheeran, thanks very much.
Sheeran: Thank you for your questions.
Miller: Kristen Sheeran is PGE’s senior director of policy, planning and sustainability.
Let’s listen to another voicemail right now. This is Kathy from West Linn.
Kathy [voicemail]: “I got my largest bill I’ve ever received from PGE for January. And the thing about that was that I was away for a week, and only kept a few lights on for security reasons while I was away. I got my second bill from PGE since I had my solar panels installed and I still have to pay close to what I had been paying when I was on PGE’s Equal Pay Program, and this is despite generating electricity through my solar panels.”
Miller: Bob Jenks joins us now. He is the executive director of the Oregon Citizens’ Utility Board, which advocates on behalf of ratepayers. Welcome back to the show.
Bob Jenks: Great. Thank you.
Miller: Why are you opposing this proposed increase from PGE for next year?
Jenks: At this point, we don’t think customers can afford it. The rate increase that went into January was really, really hard on folks; people don’t pay rates, they pay bills. And the week of cold weather - when the temperature gets down to 20 [degrees], it takes a lot of energy to power your house. There’s still thousands of customers who haven’t paid their January bill. And to immediately turn around and say, “yeah, that was okay, now let’s do it again” - we just think is premature. It doesn’t make sense.
We think PGE should withdraw this rate request, reduce it down, get rid of things like the shareholder profit increase you proposed, put it off until....you have a second battery storage project coming on in July of 2025. Time it when that gets done or time it at a later point. Let customers absorb the increase that they’ve already had, let them pay for that January cold snap, and let’s move forward.
Miller: You pointed out in a recent blog post that this 7.5% rate increase request does not include a bunch of things: wildfire mitigation costs, costs associated with the utilities Colstrip coal plant, or increases from the cost of wholesale power, what they pay to actually bring the power to their customers. What’s a ballpark figure, if you have one, for what those additional requests - when they’re added in, in the summer or the fall - could add up to?
Jenks: It’s hard to know for sure. We think some of the costs, the wildfire mitigation, I believe, is about a 2.7% increase. That’s expected around the first of April. But PGE has these mechanisms that allow them to add costs throughout the year. So the power costs and the costs of fuel will be added on a regular basis throughout the course of the year. New contracts can be added in.
Last year, the rate case didn’t start out at 18%. It somewhat caught us by surprise. You expect the original filings to shrink over time. But suddenly they’re growing and you end up with a big increase in January. So I don’t know what the increase is gonna be next January, but people shouldn’t assume that the worst it could be is 7.2% because that’s what they’re asking for at this time of the year.
Miller: In other words, even though you’re saying they should not make this 7% increase, you wouldn’t be surprised if it were higher than that come next year anyway, if it’s 10% or 15% or whatever, it ends up being.
Jenks: Right. I think one of the things we need to do is, we need to get control over PGE, the various rate-making mechanisms, and try to start managing their costs.
Miller: You say PGE, but can you put PGE into the larger context of investor-owned utilities in Oregon?
Jenks: Yes, PGE is just one. We have three investor-owned utilities: Idaho Power, which serves a little bit of Eastern Oregon and isn’t subject to any of the clean energy laws in Oregon. Idaho doesn’t have any clean energy laws. They’re proposing a 26% rate increase. Pacific Power, which serves a good bit of the state, they’re proposing a 22% increase on top of what you already listed as 30% over the last couple of years. So, utilities across the state are pushing for higher rates. PacifiCorp, a lot of it is driven by wildfire and wildfire liability.
It’s a problem because customers can’t afford to see their cost go up and up and up like this every year. When I took this job, and that was quite a while ago, I’ve been doing this for a number of years, the system used to be different. It used to be, a utility would file for rates. They’d get a rate increase and then they’d live with that rate increase. They’d live with those rates for a period of time until new investments and other things started to erode their ROE, erode their profit margin. And once the profit margin started to get lower and did start to affect its ability to compete with other folks for shareholder dollars, then they would ask to reset their rates. But often four or five years would happen between those rate cases. It may be that we can’t go four or five years between them.
But the idea now, there is no longer an idea that a utility will live with the rate that’s set. The rate was set in January, and in February - the next month - PGE is asking for another rate increase. And the question becomes, how long should they live with the rate? How long should customers have to adjust to it before we’re back in and fighting over this stuff again?
Miller: Did regulation change? Did statutes change in the decades that you’re talking about? Or did expectations, on the part of shareholders or investor-owned utilities? I mean, is there something on the books that’s different now than in the good old days you were talking about? You know, maybe in the mid-90′s, say, when a rate would stay static for three to five years?
Jenks: Yes, there’s a couple of things that happened. There has been some legislation that’s passed that allows utilities cost recovery. But a lot of it - in fact, this rate case that PGE has filed, the 7.2% rate increase - includes a proposal for a new mechanism to make it easier to raise rates every January for the rest of the decade. And so every time PGE comes in for a rate hike, they’re not just asking to recover their new investments. They tack on policy issues. They want a new mechanism that allows them to raise rates, they want to shift risk from their shareholders to their customers. So, wholesale over time, rate making has become more about going line for line through a utilities’ line items and saying, what do we allow them to put into rates, than starting and saying what should a just and reasonable rate be for the customer?
That, really, is where we think the conversation of much more focus is, is what’s a reasonable rate for customers to pay, what’s affordable, what is just to ask customers to pay, and can the utility live with that?
Miller: On that note, it’s a complicated question, almost a philosophical one, because if I understand it correctly, you’re not saying, no, I don’t think utilities should be hardening their infrastructure to make it less likely that their lines will cause forest fires. You’re not saying they shouldn’t be investing in wind and solar. These are things that you and the majority of Oregonians say are necessary. So it seems that the question is, who should be shouldering the costs? What’s your argument for why shareholders should have to pay more for, whether it’s innovation or infrastructure?
Jenks: Right, it’s not just who pays the cost. It’s when the cost will be incurred. When suddenly we had new wildfire costs come in over the last couple of years, since the Labor Day fires. And the question is, did any of the utilities say, oh, we’ve got a big new cost our customers have to absorb. Maybe we should put off some of the T&D investments…
Miller: T and D?
Jenks: Transmission and distribution. Maybe we should put off some of the other things we’re doing, delay it for a year or two and adjust the timing of these, try to manage our costs and our investments better for our end prices. Most businesses are in a competitive world where their prices are set by the market. And so they have to say, OK, we’ve got these things, we’ve got new costs, we’ve got things we’ve got to do. But how do we manage those within the context of the prices that are set by the market?
So, again, utilities need to make these things…
Miller: …Just to finish that sentence, because it’s an important point, we’re not talking about a competitive market here. We’re talking about monopolies, right? I mean, when you’re a renter or you own a house, there’s one place you’re going to get electricity from and that’s why we have a Utilities’ Commission that says, yes or no to these rate increases. But they’re also in the funny position, it seems to me, of deciding what is an appropriate return on investment for shareholders. How do you think about that question?
I mean, I had a slightly confusing back and forth with Kristen Sheeran, but at least to my ear, in the end, she basically did say as I heard it, that if they cannot give their shareholders a good enough return on investment for this utility investment, that they’ll just take their dollars somewhere else. And then I guess the larger point there, then, is they won’t have enough money to do all the things that almost everybody agrees they need to do.
First of all, do you agree with that basic math, that if the state doesn’t set prices high enough or allow PGE to set prices high enough, and Pacific Power and Idaho Power, that ratepayers themselves could suffer from a lack of investment by shareholders? Do you agree with that basic proposition?
Jenks: Yes, but not in the way the utilities approach it. If profits go down for a year or two, it’s not the crisis that they make it out to be. Ultimately, shareholders do invest in a company, there’s a bunch of different utilities a shareholder could invest in and they’re not going to invest in one that’s chronically under-earning. But the real question in rate-making is really over time. If, again, utilities earnings can drop for a period of a year or two, knowing that it’s going to go back up next time it gets reset, we don’t have to be setting rates constantly, trying to always get them back up every time it drops.
Right now their ROE [return on equity] is 9.5. If it drops to 9.0 or it drops to 8.8 - we used to talk about 250 basis points as being a reasonable range for earnings. 250 basis points would be, from 9.5, 250 would be 7.0. So a much wider range of earnings should be considered reasonable. And instead, what we’re stuck at this point is we always got to get it up to nine, and utilities are always trying to ask to get it closer to 10, or in the case of Pacific Power and Idaho Power, they’re asking for the rate of return to go above 10.
Miller: You mentioned the wildfire liability. And in terms of wildfires, broadly, I think about this as sort of two directions. One is spending money proactively to make it less likely that a wildfire is going to start. The other is like Pacific Power has to do right now. They settled a recent lawsuit with the victims of the 2020 Labor Day Fire, especially in Southern Oregon. They’re going to pay $300 million for that and that followed losing an earlier suit this past summer. Are ratepayers, in this case, Pacific Power ratepayers, going to be paying those damages? Or will the company pay it in the form of shareholders?
Jenks: In all likelihood, there’s going to be some of both. You can’t fully insulate customers from the impact of what could be billions of dollars of liability. Their credit’s been downgraded, which raises the cost of borrowing. There’s gonna be impacts, it’s really hard to fully insulate the customer. And if the costs get high enough to drive them into bankruptcy, then there’s gonna be consequences to the customer from that. So it’s really hard to protect customers from it.
But at the same time, when a court has gone out and found somebody to be reckless, which is the language the court used, when the court goes out and assigns punitive damages to a corporation, turning it around and putting those punitive damages on captive customers who have no other choice, doesn’t really punish the company at all. It punishes the customers. So there is a fundamental issue of, how do we address these costs? And shareholders really ought to be taking the costs that really are related to these court cases where they’re being fined, that it’s the company’s fault, and costs are being assigned to the company, to cause pain to the company, to get it to change its behavior. Those costs shouldn’t be picked up by customers.
Miller: Just briefly, I mentioned the Public Utility Commission earlier, but what role do you think the legislature could play in reining in these rate increases? We have about 40 seconds left.
Jenks: Ultimately, you can’t do it at the Public Utility Commission. Then I think you will see legislation being proposed. If the legislature says that rent can’t go up more than 10% above inflation, that’s a reasonable definition of what is just unreasonable increases. And the question is, can we get utility rates into that kind of range? Can we get them to a reasonable range? And if we can’t, I would imagine people will complain to their legislators and legislators will want to weigh in.
Miller: Bob Jenks, thanks very much.
Jenks: Thank you.
Miller: Bob Jenks is the executive director of the Oregon Citizens Utility Board.
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