PUGET ENERGY executives described Friday as a "dark, wet day" for the company's shareholders, bemoaning rock-bottom power prices that are driving their stock earnings into the ground. But it's the nearly 1 million Western Washington electric users served by the company's subsidiary, Puget Sound Energy (PSE), who must be wondering if they can ever catch a break. That's because Puget Sound Energy, based in Bellevue, has asked state officials for two rate increases—a 22 percent temporary increase in March, followed by a 15 percent permanent increase in the fall. If energy prices are low, why do residential customers have to pay more?
PSE says it lost at that great craps game called the energy market. The utility's hydroelectric dams generate only a small amount of the juice its customers use, so PSE has to buy most of its power from outside sources. What the utility doesn't sell to its customers, it markets to energy companies in California and elsewhere. PSE tries to buy low and sell high to turn a profit, but the energy market has been so unpredictable that what looked like a good contract purchase price a few months ago is now well above the selling price. The company says it's losing about $600,000 per day, thanks to its speculation in the energy market—and it needs residential ratepayers to bail it out.
But the news Puget Sound Energy hasn't been trumpeting so loudly is that, until six months ago, the utility was winning the speculation game and piling up record earnings by selling wholesale power in the spiked energy market. The extra cash prevented PSE from raising rates during the 2000 drought, as many other Northwest utilities did, but neither did customers see their electric bills go down. Instead, PSE paid those profits to its lone shareholder, the utility's parent company, Puget Energy. If the state Utilities and Transportation Commission agrees to PSE's rate increase, customers could be left with a hangover from the energy crisis for years to come.
Unfortunately for customers of private utilities like PSE, the cost of electricity tends to go up but not come down under the state's current electric regulatory system. The state utilities commission has the authority to call utilities onto the carpet and force them to drop rates, but the agency doesn't operate that way. Instead, the commission waits for utilities to request rate reviews. Naturally, utilities show up asking for rate increases when times are hard but don't come around when the going is good. "When costs go up, the utilities come right out and say they need more money. When the costs go down, they don't [initiate rate reviews]," says Jim Lazar, an electricity regulation consultant helping the state attorney general's office review PSE's current proposed rate increase.
Puget Sound Energy is arguing that its costs of business are too high in comparison with the rates it currently charges customers. But state officials are suspicious that the utility is losing money not because customers pay too little but because parent company Puget Energy is bleeding money out of the utility. Last week, a financial consultant testifying on behalf of the attorney general's office, which represents PSE's customers before the utilities commission, said the utility failed to reinvest its profits wisely, instead paying them out to Puget Energy and its shareholders. If the utility had not been weakened this way, argued Stephen G. Hill, PSE could have weathered the current market downturn.
Assistant Attorney General Simon ffitch recently directed harsh criticism at Puget Energy for requesting a rate increase while paying out generous stock dividends. He also suggests that Puget Energy has been being siphoning money from the utility to invest in its other subsidiaries. The company owns a pipeline construction firm called InfrastruX, which since its inception two years ago has displayed a voracious, if not bingeful, appetite for acquiring similar companies in Texas and on the East Coast. "[Puget Energy] is saying, 'Don't pay any attention to the fact that despite our alleged financial problems, we've got money to put into unregulated subsidiaries,'" says ffitch.
Puget Energy officials said Friday that the company's investment in subsidiary businesses would benefit utility customers in the long run by creating more revenue that would help the company keep power prices low.
State utilities commission staff recently turned down Puget Sound Energy's temporary rate increase, which would have generated an additional $170 million in revenues for the utility, in favor of a much smaller hike worth $42 million. But the agency's commissioners won't make a final decision until March. A decision on PSE's proposed permanent increase is expected in October. Policy director Lisa Steel says it's possible that any long-term rate increase given to the utility would be tagged with an expiration date.
Even so, for the immediate future, don't expect any pleasant surprises on your electric bill.