Washington UTC staff has recommended slashing Puget Sound Energy's revenue request in its 2019 general rate case for both electricity and natural gas, but it endorsed the utility's plan to accelerate the depreciation schedule on its shares in Colstrip units 3 and 4.

However, WUTC staff recommended PSE's next general rate case include a plan for recovering the costs of decommissioning and remediation of units 3 and 4 of the Montana coal-fired plant that includes an accounting of the company's federal production tax credits generated from its wind fleet.

Staff recommended the commission authorize revenue increases of $50 million, or a 2.5 percent rate increase, for PSE's electric operations and $38.4 million, or a 4.6 percent increase, for natural gas operations. Staff recommended a 7.33 rate of return, based on a return on equity of 9.2 percent and an equity layer of 48.5 percent.

In June, the investor-owned utility asked for a 6.9 percent rate increase to electric rates that would boost revenues by $139.5 million. On the natural gas side, PSE sought a 7.9 percent rate increase that would generate $65.5 million in new revenues. PSE is also requesting a 9.8 percent return on equity and a 48.5 percent equity ratio, and says it did not earn either its authorized rate of return of 7.6 percent or its authorized return on equity of 9.5 percent during the test year.

This rate case didn't include the cost of any new generation. Instead, PSE was looking to recover costs associated with investments in its transmission and distribution system, new pilot programs and building out its information technology infrastructure. (CU No. 1909 [16]).

Staff's argument against a larger revenue increase hinged largely on the regulatory concept of "attrition" and the utility's desire to create an "attrition allowance." Attrition refers to circumstances in which a utility's costs are rising more quickly than its revenues, putting pressure on the utility's ability to earn its authorized rate of return.

PSE's request for an attrition allowance falls short of the commission's policy standards on attrition allowances, staff said in testimony.

"Most notably, PSE is not experiencing chronic under earning, and it does not provide persuasive evidence that the costs it identifies are due to factors outside of the company's control. Further, the issues that the company does identify as beyond the company's ability to control, such as power costs and Tax Reform, largely are unrelated to attrition, as evidenced by the fact that those issues are not included in the company's own attrition study."

PSE requested accelerating the deprecation schedule on Colstrip units 3 and 4 to 2025, in accordance with the state's Clean Energy Transformation Act. WUTC staff agreed with PSE's plan to pay off the debt on Colstrip units 3 and 4, but recommended the commission revisit decommissioning and remediation aspects in the utility's next rate case.

Staff cited PSE's testimony in support of the settlement in its 2017 general rate case, which estimated that the utility had $280 million available in production tax credits. Staff said applying $115 million to the estimated unrecovered balance of units 1 and 2 and $5 million to the Colstrip community transition fund leaves $160 million available for decommissioning and remediation costs for units 3 and 4.

"To be conservative, assuming the unrecovered balance of Units 1 and 2 will be somewhat higher than $115 million and monetized PTCs will be somewhat lower than $280 million, it is plausible that 50 percent of the estimated available PTCs would be available for D&R costs for Units 3 and 4," staff said in testimony. "Under those assumptions, roughly $80 million in PTCs would be available to offset costs associated with Colstrip Units 3 and 4. PSE estimates remediation costs for Units 3 and 4 to be approximately $36.8 million. It is not clear that PSE needs to recover D&R costs for Units 3 and 4 through rates at all."

Staff recommended the commission order PSE to file a proposed plan in its next general rate case for the recovery of decommissioning and remediation costs for Colstrip units 3 and 4 that complies with the provisions of CETA, and to include in the plan an assessment of PTCs available to offset decommissioning and remediation costs for Colstrip units 3 and 4