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Oregon PUC Staff Calls for Major NWNG Rate Cut

Oregon PUC Staff Calls for Major NWNG Rate Cut

The staff of the Oregon Public Utility Commission (OPUC) gave Northwest Natural Gas (NWNG) quite a beating this week in a general rate case. The staff recommended a revenue reduction of $19.9 million per year from the gas utility's operations in Oregon. NWNG had requested a revenue increase of $14.7 million per year.

The staff's case incorporates a recommended return on common shareholders' equity (ROE) of 8.5%, compared to the company's proposed ROE of 11.25%. NWNG's current ROE is 13.25%, as adopted by the OPUC in the company's last general rate case in 1989.

"Obviously we are disappointed by the recommendations in the staff's case," said NWNG CEO Richard G. Reiten. "We know that members of the OPUC staff feel justified in the positions presented in their testimony. While we respect their role in the case, we strongly disagree with their conclusions about how to reach a fair and prudent result for both customers and shareholders."

The staff is considered to be an independent party in the rate case. Its positions are not binding on the administrative law judge who will preside over hearings in the case or on the commission when it makes its decisions on the issues.

Reiten said the staff testimony fails to recognize NW Natural's successes in improving productivity and customer service. "Industry studies show we are one of the most efficient gas distribution companies in the nation. At the same time, we have achieved very high customer satisfaction ratings."

"The 8.5% ROE recommended by the staff would be about the lowest return allowed for a gas utility in the nation," Reiten noted. "If the commission were to adopt this number as an authorized return for NW Natural's shareholders, it would severely hamper our efforts to raise capital in the debt and equity markets. It would also create a significant disincentive for the company to invest in the infrastructure necessary to provide service to those who want natural gas service in our growing service area."

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

The staff also recommends disallowance of about $8.9 million for sales, marketing and customer information expenses, and another $13.8 million from the company's investment in a new customer information system. Hearings in the general rate case begin on May 24.

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