Docket No. UE-970686 Page 1 BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION Petition of PUGET SOUND ENERGY For an Order (1) Authorizing Deferral of Electricity Conservation Expenditures and (2) Approving a Tariff Rider for Concurrent Recovery in Electric Rates of Such Deferred Electricity Conservation Expenditures DOCKET NO. UE-970686 ORDER On April 23, 1997, Puget Sound Energy ("the Company") submitted a petition requesting an accounting order which: (1) authorizes the deferral of expenditures incurred after December 31, 1996 in accordance with the Company's Schedule 83, Electricity Conservation Service, and (2) approves an electric tariff rider for concurrent recovery in rates of such deferred electricity conservation expenditures. The Petition indicated that the mechanism proposed therein would be an interim measure. According to the Petition, a number of significant issues must be resolved through the collaborative process, including cost allocation issues, the determination of avoided costs, the scope of the Company's role in meeting the goals of the Regional Comprehensive Review, and the design of a long-term recovery mechanism. The Company intends that adoption of the recovery mechanism proposed in its filing would not have precedential effect on the discussion and resolution of these issues in the collaborative process. The Company intends to submit a filing which addresses these issues no later than August 1998. This petition concerns the deferral and recovery of expenditures incurred by the Company after December 31, 1996 under its electricity conservation programs. Puget has been authorized to defer expenses associated with its energy conservation programs since 1978, when the Commission issued its Second Supplemental Order in Cause No. U-78-45. The relief requested by the Company would extend this authorization. With respect to the rate recovery of the expenses so deferred, however, the Company proposes a different method. Rather than amortizing these electric conservation costs in rates over a ten-year period--which Cause No. U-78-45 permitted the Company to do--the Company proposes to recover them in rates through an alternative recovery mechanism. The Stipulation we approved in the merger proceeding (Docket No. UE-960195) stated the following with respect to electric conservation expenditures after December 31, 1996: Electric conservation expenditures after December 31, 1996 (including those expenditures resulting from PSE's commitment to conservation or public purposes funding under the Comprehensive Regional Review) will be subject to recovery through an alternative recovery mechanism to be proposed by PSE in a separate filing subsequent to merger approval. (Stipulation, Section III.A.4.a, page 8) According to the Company, its April 23 Petition is the separate filing contemplated by the Stipulation. It should be noted that the Company's petition relates to the recovery of costs incurred in connection only with the electricity conservation programs which PSE offers. Costs incurred with PSE's gas conservation programs are subject to the tracker currently in place pursuant to our order issued in Docket No. UG-950288, where we granted Washington Natural Gas Company ("WNG") Effective February 10, 1997, WNG was merged with Puget Sound Power & Light Company to form PSE. approval to defer its conservation expenditures and recover them under a tracker mechanism. The essential elements which PSE proposes for rate recovery of costs incurred in connection with electricity conservation services are as follows: Scope of Expenditures Defined by Tariff. The expenditures authorized for deferral would be those incurred in accordance with PSE's Schedule 83, the Electricity Conservation Service tariff. Contemporaneously with this filing, PSE submitted a revised Schedule 83 which, along with the accompanying program Schedules 200-203, 205-206 and 250-254, sets forth the conservation programs which PSE proposes to include within its electricity conservation service. A copy of the proposed Schedule 83, bearing a proposed effective date of May 24, 1997, was included as Attachment 1 with the Petition. Recovery Through an Electric Tariff Rider. Electric conservation expenditures would be recovered through an electric tariff rider, Schedule 120. This tariff schedule would impose a surcharge applied to each kWh of electricity sales under each of PSE's electricity sales tariffs. Excluding wholesale sales. A copy of the proposed electric tariff rider was included with the Petition as Attachment 2. Concurrent Recovery in Rates. The rates set forth in such rider would be calculated to recover the conservation expenditures which are projected to be incurred for each program year, subject to true-up during a subsequent twelve-month period based on actual conservation expenditures during the program years and the actual recoveries during the relevant recovery period. The initial program year is calendar year 1997. According to the Petition, the projected expenditures for electricity conservation service in accordance with Schedule 83 for calendar year 1997 is $4.49 million. The proposed rates set forth in the electric tariff rider, Schedule 120, were designed to recover this amount in rates during the period following the effective date of the tariff through March 31, 1998. Subsequent True-Up to Actuals. PSE will submit a filing on or before March 1, 1998 stating the actual amounts spent during calendar year 1997. The variance between actual expenditures during the program year (calendar year 1997) and expected revenue collections during the recovery period May 1997 through March 1998), At the time of the March 1 filing, actual revenue collections through January would be known. Revenue collections for the remaining two months of the recovery period--February and March--would be estimated, and subject to true-up at the time of the subsequent adjustment to the tariff rider. would be reflected in an adjustment to the tariff rider, Schedule 120, to be effective during the twelve month period commencing April 1, 1998. No Allowance for Funds Used to Conserve Energy. Because the rider would provide for concurrent recovery of conservation expenditures in rates, no allowance for funds used to conserve energy, or AFUCE, would be necessary. Recovery on a Peak Credit Basis for Each Customer Class. The rate set forth in the tariff rider, Schedule 120, is designed to recover the authorized electric conservation expenditures on a peak credit basis for each rate class over the recovery period. The portion allocable to the ARCO special contract load--for which recovery is not provided--is calculated based on an equal percentage methodology. The Company included Attachment 3 to the Petition to show how the conservation recovery amount was calculated. The Company's proposed treatment for deferral and recovery of expenditures incurred for electricity conservation programs through an electric tariff rider is a reasonable interim measure. As the Company notes in its Petition, a number of significant issues must be resolved through before a more permanent electric conservation program and cost recovery mechanism can be put in place. The Company has committed to making a filing which addresses these issues no later than August 1998. We look forward to reviewing that filing. In the interim, the request for deferral and recovery of electricity conservation costs proposed in the Company's petition is approved. FINDINGS THE COMMISSION FINDS: 1. Puget Sound Energy is engaged in the business of furnishing electric and gas service within the state of Washington as a public service company, and is subject to the jurisdiction of this Commission. 2. On April 23, 1997, the Company filed a Petition seeking an order authorizing the deferral of expenditures incurred after December 31, 1996 in accordance with the Company's Schedule 83, Electricity Conservation Service, and approving an electric tariff rider for recovery in rates of such deferred electricity conservation expenditures. 3. The proposed treatment for deferral and recovery of expenditures incurred for electricity conservation programs through an electric tariff rider is a reasonable interim measure and should be approved. O R D E R WHEREFORE, THE COMMISSION HEREBY ORDERS: 1. Petitioner Puget Sound Energy is authorized to defer expenditures it incurred after December 31, 1996 pursuant to Schedule 83--Electricity Conservation Service. 2. Effective May 24, 1997, PSE shall implement an electric tariff rider, Schedule 120, for recovery of electricity conservation expenditures. The rate set forth in such Schedule 120 shall be designed to recover $4.693 million, The revenue requirement associated with $4.49 million in expenditures. on a peak credit basis for each class, during the period May 24, 1997 through March 31, 1998. 3. The rate set forth Schedule 120 shall be subject to revision effective April 1, 1998 to reflect (a) PSE's projected expenditures under its Schedule 83, Electricity Conservation Service, for calendar year 1998, and (b) the variance between actual expenditures during calendar year 1997 and expected revenue collections for the recovery period ending as of March 31, 1998. For purposes of this filing such revenue collections shall be the actual revenue collections through January 1998. Revenue collections for the remaining two months of the recovery period--February and March 1998--would be estimated, and subject to true-up at the time of the subsequent adjustment to the tariff rider. 4. The rate set forth Schedule 120 shall be subject to revision effective April 1 of each year to reflect (a) PSE's projected expenditures under its Schedule 83, Electricity Conservation Service, for the then-current calendar year, and (b) the variance between actual electricity conservation expenditures for the previous calendar year and expected revenue collections under Schedule 120 during the 12-month recovery period ending March 31 of the then current year. Revenue collections for the last two months of the recovery period--February and March--would be estimated, and subject to true-up at the time of the subsequent adjustment to the tariff rider. Such filing shall be submitted not less than thirty (30) days prior to the April 1 proposed effective date. 5. The Commission retains jurisdiction to effectuate the provisions of this Order. DATED at Olympia, Washington, and effective this 16th day of May, 1997. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION SHARON L. NELSON, Chairman RICHARD HEMSTAD, Commissioner WILLIAM R. GILLIS, Commissioner