BEFORE the WASHINGTON UTILITIES and TRANSPORTATION COMMISSION WASHINGTON UTILITIES and TRANSPORTATION COMMISSION, Complainant
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Service Date: December 5, 2017 BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION WASHINGTON UTILITIES AND DOCKETS UE-170033 and TRANSPORTATION COMMISSION, UG-170034 (consolidated) ORDER 08 Complainant, FINAL ORDER REJECTING TARIFF v. SHEETS; APPROVING AND ADOPTING SETTLEMENT STIPULATION; RESOLVING PUGET SOUND ENERGY, CONTESTED ISSUES; AND AUTHORIZING AND REQUIRING COMPLIANCE FILING Respondent. Synopsis: The Commission approves and adopts a Settlement Stipulation that all parties to this proceeding except Public Counsel support as proposed resolutions of most of the many issues initially contested. The Settlement Stipulation would establish new revenue requirements, update PSE’s cost of capital, address increased depreciation expense established in connection with shortened depreciation schedules for PSE’s coal-fired production assets in Colstrip, Montana, accept numerous uncontested individual revenue requirement adjustments, and resolve several individual adjustments to which Public Counsel objects, including depreciation of natural gas capital investments, pension expense, non-Colstrip environmental remediation costs, storm damage expense, and the costs of assets held for future use. The Settling Parties agreed to, and the Commission approves in this Order, an overall electric revenue increase of $20 million (1.0 percent increase) and an overall natural gas revenue decrease of $35 million (3.9 percent decrease). The Settlement Stipulation also addresses several contested non-revenue issues, including guidelines for a possible expedited rate filing (ERF) to update PSE’s rates within 12 months after the date of this order, plans to address the continuation of the Company’s water heater program, and a changed metric for PSE’s Service Quality Index. Finally, the Settlement Stipulation expressly recognizes as prudent eight projects, including capital projects improving or acquiring production, distribution, and storage assets, a power purchase agreement acquiring additional hydropower, new and renewed BPA transmission contracts, and deferred non- Colstrip depreciation expense. DOCKETS UE-170033 and UG-170034 (consolidated) PAGE ii ORDER 08 The Commission, in addition, resolves a number of fully contested non-revenue issues related to decoupling, class cost of service studies, rate spread, rate design, and PSE’s proposed cost recovery mechanism for certain capital costs. The parties to the Settlement Stipulation agreed these issues should be reserved for decision on the basis of a fully developed record and the parties’ briefing of the issues. The Commission’s decisions on these issues are summarized briefly in the discussion of Commission determinations in the Summary section of this Order at paragraphs 8 – 23. DOCKETS UE-170033 and UG-170034 (consolidated) PAGE iii ORDER 08 TABLE OF CONTENTS SUMMARY .....................................................................................................................................1 MEMORANDUM ...........................................................................................................................7 I. Background and Procedural History ...............................................................................7 II. PSE’s 2013 Rate Plan.......................................................................................................13 III. Present Posture of PSE’s 2017 General Rate Case .......................................................18 IV. Revenue Requirements ....................................................................................................26 A. Uncontested Adjustments ............................................................................................. 26 B. Key Contested Issues Addressed by Settlement Stipulation......................................... 27 1. Capital Structure and Cost of Capital ....................................................................... 27 a. Settlement Stipulation ......................................................................................... 27 b. Public Counsel..................................................................................................... 31 Commission Determination ..............................................................................................32 2. Colstrip Costs: Depreciation Expense; Future Decommissioning and Remediation Expense ............................................................................................................................. 34 a. Settlement Stipulation ......................................................................................... 38 i. Depreciation Study (Electric Adjustment 13.06) ............................................ 38 ii. Accounting for Depreciation, and Decommissioning and Remediation ......... 40 b. Public Counsel’s Alternative Viewpoint ............................................................. 43 i. Electric Depreciation Study (Electric Adjustment 13.06) ............................... 43 Commission Determinations ............................................................................................48 ii. Other Colstrip Issues ....................................................................................... 51 Commission Determination ..............................................................................................53 C. Contested Revenue Requirement Adjustments ............................................................. 53 1. Overall Revenue Requirement .................................................................................. 53 Commission Determination ..............................................................................................56 2. Depreciation Study (Natural Gas Adjustment 11.06) ............................................... 57 a. Settlement Stipulation ......................................................................................... 57 b. Public Counsel’s Recommendation .................................................................... 57 Commission Determination ..............................................................................................60 3. Pension Plan (Electric Adjustment 13.15; Natural Gas Adjustment 11.15) ............. 61 a. PSE Direct Case Supporting Settlement Stipulation ........................................... 61 b. Public Counsel Response Testimony .................................................................. 62 c. PSE Rebuttal Testimony ..................................................................................... 63 Commission Determination ..............................................................................................64 4. Environmental Remediation (Non-Colstrip) (Electric Adjustment 13.19; Natural Gas Adjustment 11.19)............................................................................................................. 64 a. Settlement Stipulation ......................................................................................... 64 b. Public Counsel..................................................................................................... 67 Commission Determination ..............................................................................................68 DOCKETS UE-170033 and UG-170034 (consolidated) PAGE iv ORDER 08 5. Storm Damage (Electric Adjustment 14.05) ............................................................. 69 a. Settlement Stipulation ......................................................................................... 70 b. Public Counsel..................................................................................................... 71 Commission Determination ..............................................................................................71 6. Plant Held for Future Use (Public Counsel Electric Adjustment B-5) ..................... 72 Commission Determination ..............................................................................................74 V. Non-Revenue Issues Addressed in the Settlement Stipulation and Contested by Public Counsel ..................................................................................................................74 A. Expedited Rate Filing ................................................................................................... 74 1. Settlement Stipulation ............................................................................................... 74 2. Public Counsel .......................................................................................................... 75 Commission Determination ..............................................................................................76 B. Water Heater Program .................................................................................................. 76 1. Settlement Stipulation ............................................................................................... 76 2. Public Counsel .......................................................................................................... 77 Commission Determination ..............................................................................................77 C. SQI5 .............................................................................................................................. 77 1. Settlement Stipulation ............................................................................................... 77 2. Public Counsel .........................................................................................................