Agenda date:   February 9, 2000
Item Number:

Docket:  UG-000073
Company:  Northwest Natural Gas Company

Staff:   Yohannes Mariam, Rate Research Specialist
   Merton Lott, Gas Coordinator
   Jim Russell, Policy Research Specialist


Recommendation:

Issue a complaint and order suspending the filings in Docket UG-000073 and set 
the matter for hearing.

Discussion

On January 21, 2000, Northwest Natural Gas Company (NW Natural or Company) 
filed a general rate increase for its gas service in Washington, effective 
February 21, 2000. The proposed filing will increase  the company's revenue 
from its Washington operation by $6,204,367 or 18.8%. 

Background

NW Natural serves approximately 38,000 customers in Vancouver and surrounding 
areas of Southwestern Washington. The Company's prior approved general rate 
increase was on October  22, 1997, at which time the Commission granted a 
revenue increase of $608,000 (3.1%). The Company is requesting an overall rate 
of return of 9.17% with an 11.25% return on equity, on a pro forma rate base 
of  $84.830 million.  

The Company cites two primary reasons for the proposed rate increase: First, 
the implementation of jurisdictional allocation rather than the use of system 
average cost, and second,  to recover major investments the Company has made 
since the prior general rate increase.  The Company is required to implement a 
jurisdictional allocation in the state of Oregon by December 1, 2000, and 
Washington's WAC 480-90-031 (5)- Accounting, requires jurisdictional allocated 
results for reporting purposes.  Based on a test year period ended December 31, 
1999, the Company reports that the  overall rate of return and return on equity 
from its Washington operations are 4.82% and 1.72%  respectively.

NW Natural requested a waiver of the requirement to submit an embedded cost of 
service study (U86-100, pp.11).  After conducting a  comparative analysis of 
its proposed rate structure with 



Docket UG-000073
February 9, 2000
Page 2

other LDCs that have determined rate structures based on embedded cost of 
service studies, the Company has concluded that the rate structures are 
comparable.  Washington represents less than 10% of NW Natural’s business.  
Staff believes that the use of rate spreads and design of other LDCs can 
provide adequate information to determine whether or not the proposed rate 
structures are just and reasonable. NW Natural was not required to perform an 
embedded cost study in its last proceeding.  Staff believes that it is not 
necessary for NW natural to submit a fully allocated embedded cost study but 
wants the Commission to have the benefit of hearing from other parties, and 
thus recommends that the Commission make a decision regarding the Company’s 
request for waiver in the prehearing conference.

To alleviate the financial burden on its Washington customers, the Company has 
suggested its willingness to phase implementation of Commission approved or 
stipulated increases. The suggested phased implementation schedule is as 
follows: Phase 1 to begin on May 1, 2000, Phase II to start on December 1, 2000 
and the final phase to start on May 1, 2001. Staff  believes that although 
phased implementation could be in the interest of customers, consideration 
needs to be given to the Oregon’s implementation of decreased rates related to 
jurisdictional allocations on or after December 1, 2000.  Furthermore,  
determination of fair and reasonable phased increases requires an in-depth 
analysis of the company’s proposed rate increase.

Summary

The impact of the proposed general rate increase by customer class is as 
follows:

Customer Class    Annual    Percent 
 Revenue   Change
Firm Residential Sales     $ 3,161,080   17.8%
Firm Commercial Sales         $ 1,979,906   18.4%
Industrial Firm Sales     $    241,858   18.2%
Industrial Interruptible Sales    $      78,544   17.6%   
Interruptible Incentive Sales and 
 Transportation Service    $    313,255   10.1%
Basic Firm Transportation Service   $    156,963   16.8%
Rental Revenue/Special Contract   $    272,760   ------
Total Revenue      $ 6,204,367   18.8%

Conclusion 
The Company’s proposal to implement a general rate increase of such a magnitude 
( an increase of 17%-18%) will create a major financial burden on its 
Washington customers.  In order to properly evaluate and determine whether or 
not the proposed tariff revisions are fair, just, reasonable and sufficient, 
Staff recommends that the Commission issue a complaint and order suspending the 
filing in Docket UG-000073 and set the matter for hearing.