The staff of the Oregon Public Utility Commission (OPUC) gaveNorthwest Natural Gas (NWNG) quite a beating this week in a generalrate case. The staff recommended a revenue reduction of $19.9million per year from the gas utility’s operations in Oregon. NWNGhad requested a revenue increase of $14.7 million per year.

The staff’s case incorporates a recommended return on commonshareholders’ equity (ROE) of 8.5%, compared to the company’sproposed ROE of 11.25%. NWNG’s current ROE is 13.25%, as adopted bythe OPUC in the company’s last general rate case in 1989.

“Obviously we are disappointed by the recommendations in thestaff’s case,” said NWNG CEO Richard G. Reiten. “We know thatmembers of the OPUC staff feel justified in the positions presentedin their testimony. While we respect their role in the case, westrongly disagree with their conclusions about how to reach a fairand prudent result for both customers and shareholders.”

The staff is considered to be an independent party in the ratecase. Its positions are not binding on the administrative law judgewho will preside over hearings in the case or on the commissionwhen it makes its decisions on the issues.

Reiten said the staff testimony fails to recognize NW Natural’ssuccesses in improving productivity and customer service. “Industrystudies show we are one of the most efficient gas distributioncompanies in the nation. At the same time, we have achieved veryhigh customer satisfaction ratings.”

“The 8.5% ROE recommended by the staff would be about the lowestreturn allowed for a gas utility in the nation,” Reiten noted. “Ifthe commission were to adopt this number as an authorized returnfor NW Natural’s shareholders, it would severely hamper our effortsto raise capital in the debt and equity markets. It would alsocreate a significant disincentive for the company to invest in theinfrastructure necessary to provide service to those who wantnatural gas service in our growing service area.”

The OPUC staff recommends that about $3.4 million in wages andsalaries be excluded from rate recovery, including about $1.6million in wages and bonuses paid to NWNG’s union employees under anew labor agreement signed in 1997. Reiten said it would be thefirst time in Oregon that wages and benefits negotiated at arm’slength between management and labor have been disallowed.

The staff also recommends disallowance of about $8.9 million forsales, marketing and customer information expenses, and another$13.8 million from the company’s investment in a new customerinformation system. Hearings in the general rate case begin on May24.

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