ORDER NO. 96-244

ENTERED SEP 12 1996

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 729
UM 374
UG 115
DR 13

DISPOSITION: SETTLEMENT PROPOSAL APPROVED AND

ORDER NOS. 95-857 AND 95-1241 AMENDED.

Background

The above-captioned proceedings concerned the deferral and amortization of property tax savings realized by Northwest Natural Gas Company (NNG) as a result of Oregon’s November 1990 Ballot Measure 5. In Order No. 95-1241 (the Order), the Commission ordered NNG to amortize property tax savings for tax years 1991-1994 calculated according to the method set forth in the Memorandum of Understanding (MOU) approved in Order No. 91-830. NNG had asserted that the Commission should authorize amortizations of those savings based upon the "assessors’ method," utilizing the calculations of Ballot Measure 5 savings that appeared on the tax statements NNG received. The Commission rejected NNG’s argument and ruled in Order No. 95-1241 that NNG "shall refile tariffs in * * * UG 115 to amortize July 1, 1991, through June 30, 1994, Ballot Measure 5 savings, plus interest, as determined by use of the MOU adopted in Order No. 91-830." The Commission also stayed that portion of its order pending any appeal.

NNG appealed the Order to Marion County Circuit Court, pursuant to ORS 756.580, in Northwest Natural Gas Company v. Oregon Public Utility Commission, Case No. 96C-10313 (the Appeal). NNG asked the court to set aside, modify, and reverse the Order, and to rule that the Commission should authorize NNG to amortize Measure 5 savings for 1991-94 according to the assessors’ method.

While the Appeal was pending, on July 5, 1996, NNG made a proposal to the Commission to settle the Appeal along with another issue relating to the refund of Oregon’s 1995 excise tax "kicker." On July 29, 1996, NNG filed an amended settlement proposal (Appendix A hereto) in response to Staff’s July 22 report on NNG’s July 5 proposal ("Staff’s Report"). NNG presented its amended proposal to the Commission at a special public meeting on July 29, 1996. NNG clarified that its amended proposal included the refund of amounts calculated under the assessors' method, plus interest accrued through November 30, 1996. Following NNG's presentation, Staff recommended that the Commission approve NNG’s amended proposal. The Commission considered NNG’s amended proposal in executive session, and voted in the resumed open meeting, upon motion duly made, to accept and adopt NNG’s amended proposal. This order sets forth the rationale for that decision and formally accepts NNG’s settlement offer.

Discussion

The Commission’s decision to accept NNG’s amended settlement proposal is based on four primary factors: (1) NNG’s amended proposal uses the MOU method to calculate the principal amount of savings to be refunded to customers and is consistent with the application of that method to the other energy utilities; (2) the difference between MOU-calculated savings and assessors’ method savings is much greater on a proportionate basis for NNG than for any of the other energy utilities; (3) the risk that NNG will prevail on the Appeal, in which case NNG’s customers would receive no refund of the amounts in dispute; and, (4) NNG’s agreement to refund 1995 tax kicker savings on the same basis as the other energy utilities.

NNG’s amended settlement proposal is to refund to its customers the Oregon portion of the principal value of the difference between the MOU formula’s and the assessors’ method’s calculation of Measure 5 savings from July 1991 through June 1994. NNG will amortize this amount over one year or until fully amortized, commencing on December 1, 1996. This proposal differs from the Order only in that NNG will not amortize any interest on this amount, accrued or otherwise accruable from the beginning of the deferral period (July 1, 1991) through the end of amortization (November 30, 1997). NNG also will amortize the remaining balance in the Property Tax Adjustment Account (PTAC) as of November 30, 1996, defined as the remaining balance of Measure 5 savings deferred according to the assessors’ method between July 1, 1991, and June 30, 1996, together with interest through November 30, 1996, over the same year without additional interest. By accepting this proposal, the Commission achieves consistency among the energy utilities in the use of the MOU method to calculate the principal amount of Measure 5 savings for 1991-94 that will be refunded.

Waiver of interest is fair and reasonable in NNG’s case because of the considerably greater difference for NNG between application of the MOU method and the assessors’ method as compared to the other energy utilities. The composite experience of the five other energy utilities from 1991-1994 is that MOU-based deferrals were 22.6 percent higher than savings calculated using the assessors’ method, based upon the table attached to Staff’s Report as Appendix B, and attached hereto as Appendix B. For NNG, MOU-based estimated savings for 1991-94 were 90.4 percent higher than savings calculated under the assessors’ method, based upon the same table. If the difference between the two methods for NNG had been at the composite average, NNG would have saved approximately $2.99 million as compared to the result of the Order. Accepting this settlement will save NNG approximately $2.24 million as compared to the result of the Order, through elimination of the interest component. The result will put the refund to NNG’s customers more in line with refunds to the other energy utilities’ customers.

In addition, although the Commission believes it has a good case for the Order to be upheld on appeal, there is a risk that the courts will reverse the Order. In that case, NNG’s customers would not receive any refund of the amount in dispute, that is, the difference between the MOU method and the assessors’ method calculations for 1991-94, plus interest. Accepting this proposal ensures that NNG’s customers will receive a substantial portion of the amount in dispute. Including the additional principal amounts of Measure 5 savings to be amortized under the settlement, NNG will have distributed about $11.5 million in deferred property tax savings to customers covering the Measure 5 transition period. NNG also reduced rates on July 1, 1996, by the equivalent of about $3.7 million per year for Measure 5’s ongoing effects.

Finally, Staff and NNG had discussed the deferral of savings resulting from Oregon’s 1995 Excise Tax refund (the "tax kicker"). Prior to July 29, 1996, Staff had reached an oral agreement with all of the other energy utilities regarding a method to defer those savings above a threshold amount. NNG had not yet agreed to refund tax kicker savings. As part of the settlement of the Appeal, NNG also agreed to execute a tax kicker agreement on the same terms as Staff and the other energy utilities have agreed.

ORDER

IT IS ORDERED that:

1. The Amendment to Proposal of Northwest Natural Gas Company for Settlement of Oregon Excise Tax and Ballot Measure 5 Property Tax Issues, filed July 29, 1996 (Appendix A), is accepted.

2. Order Nos. 95-857 and 95-1241 are amended only to the extent that they apply to NNG, as specified in paragraph 3., below.

3. NNG will refund to its customers the Oregon portion of the principal value of the difference between the MOU formula’s and the assessors’ method’s calculation of Measure 5 savings from July 1991 through June 1994 with no interest on this amount from the beginning of the deferral period (July 1, 1991) through the end of amortization (expected to be November 30, 1997). NNG shall file tariffs to amortize this amount, along with any other remaining balance of Measure 5 savings deferred according to the assessors' method between July 1, 1991, and

June 30, 1996, together with interest through November 30, 1996, over the year beginning December 1, 1996, and ending November 30, 1997, or until fully amortized, without additional interest.

4. NNG will dismiss the Appeal (Marion County Circuit Court Case No. 96C-10313) with prejudice.

5. NNG will execute a tax kicker agreement on the same terms as Staff and the other utilities have agreed, as described in Staff’s Report dated July 22, 1996, regarding this settlement.

Made, entered, and effective ________________________________________.

A party may appeal this order to a court pursuant to ORS 756.580.