ORDER NO. 96-258

ENTERED OCT 07 1996

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 800

DISPOSITION: APPLICATION GRANTED

INTRODUCTION

On April 16, 1996, Portland General Electric Company ("PGE" or "the Company") filed an application pursuant to ORS 757.455(2), requesting the Commission to designate certain conservation program expenditures approved for deferral and amortization as bondable conservation investments for the purpose of financing under ORS 757.415(1)(f) ("Bondable Conservation Investments"). The application included expenditures through December 31, 1994, and requested the Commission’s determination that $73,049,748 should be considered Bondable Conservation Investments pursuant to ORS 757.455(2). PGE served a copy of the Application on all parties on its combined UE 88 and UE 93 service lists.

On May 1, 1996, the Commission issued a Notice of Prehearing Conference. The conference was scheduled for May 23, 1996. On May 9, 1996, PGE filed an amendment to its application to include conservation program expenditures through December 31, 1995 (Amended Application). The amendment increased the amount of PGE’s request to $90,701,650. The Amended Application was also served on all parties on the combined UE 88 and UE 93 service lists.

At the Prehearing Conference held May 23, 1996, in Salem, Oregon, a schedule was agreed upon by Staff and PGE. The schedule included a deadline for interventions of June 3, 1996, and a Second Prehearing Conference on June 17, 1996. This schedule was confirmed by the May 24, 1996, Conference Memorandum/Notice of Prehearing Conference issued by the Administrative Law Judge. A Petition to Intervene and Complaint Pursuant to ORS 756.500, 757.210 was filed by the Utility Reform Project on June 14, 1996. This pleading was subsequently withdrawn by counsel for the Utility Reform Project on June 16, 1996.

At the Prehearing conference held June 17, 1996, PGE and Staff agreed to set a further Prehearing Conference for July 24, 1996. This date was extended to August 13, 1996, by agreement of PGE and Staff. PGE and Staff agreed to cancel the pre-hearing conference due to their concurrence on a stipulation.

The Staff of the Public Utility Commission of Oregon has reviewed the amended application and documents supplied by PGE in support of the amended application. Based on this review, PGE and Staff signed a Stipulation dated August 15, 1996 and an Addendum to the Stipulation dated October 3, 1996. The Stipulation and Addendum are attached as Appendix A.

FINDINGS OF FACT

In Order No. 89-1700, the Commission authorized deferral and amortization of certain conservation program expenditures pursuant to ORS 757.259, as a means of encouraging investment in demand-side resources. Following that order, the Commission issued many orders addressing conservation programs and permitting PGE to defer and amortize expenses of such programs over the program life.

Senate Bill 1036 was enacted by the Oregon State Legislature in 1995 as a means for utilities to finance or refinance authorized conservation investments. In particular, ORS 757.415 now provides as follows:

(1) A public utility may issue stocks and bonds, notes and other evidences of indebtedness, certificates of beneficial interests in a trust and securities for the following purposes and no others . . . .

. . .

(f) The finance or refinance of bondable conservation investment as described in ORS 757.455. Bonds, notes, certificates of beneficial interests in a trust and other evidences of indebtedness or ownership, issued for this purpose are "conservation bonds" for the purposes of ORS 757.460. Conservation bonds may rely partly or wholly for repayment on conservation investment assets and revenues arising with respect to conservation assets.

A new section, ORS 757.455, was added, as follows:

(1) It is the policy of the Public Utility Commission of Oregon to encourage financing investments at the lowest possible cost to utility customers, including but not limited to conservation program expenditures.

(2) If the commission decides that a public utility should defer and amortize certain conservation program expenditures, the public utility may apply to the commission for an order designating all or part of the conservation program expenditures as bondable conservation investment, for the purpose of financing or refinancing the designated expenditures under ORS 757.415(1)(f). After notice and an opportunity for a hearing, the commission may approve the application if it finds that the conservation program expenditures included in the application are used, useful and prudent and that financing or refinancing is likely to be more favorable to customers than other reasonably available alternatives. Upon approval, the commission shall issue an order stating the amount of the conservation program expenditures that qualify as bondable conservation investment.

(3) The commission shall set rates to include in revenue requirement recovery of a public utility’s bondable conservation investment, as well as the costs of equity and debt capital associated with it, including, without limitation, the payment of principal, premium, if any, and interest on conservation bonds. Revenues collectable or collected under this subsection shall be known as "conservation investment assets." The commission shall not revalue bondable conservation investment for rate-making purposes, determine that revenues required to recover bondable conservation investment and associated equity and debt capital costs are unjust or unreasonable, impair or reduce in any way the value of conservation investment assets, or impair the timing or the amount of revenues arising with respect to conservation investment assets that have been used to secure financing or refinancing under ORS 757.415 (1)(f).

(4) Subsections (2) and (3) of this section shall apply to any amounts presently deferred by a utility regardless of whether expended prior to September 9, 1995.

(5) As used in this section, "conservation program expenditures" includes, without limitation, loans and cash payments made to customers, the costs of conservation measures installed at the expense of the public utility, specific acquisition program development, promotion and labor costs and associated general supervision, rents, leases and overheads.

The amount which PGE and Staff ask the Commission to designate as Bondable Conservation Investments pursuant to ORS 757.455(2) is $80,730,501. These expenditures are identified on the next page. Part of the total, $9,458,962, is comprised of loans to customers. PGE will continue to require repayment of these loans. All loan repayments will be credited to ratepayers through PGE’s Schedule 101, or other appropriate mechanism.

Portland General Electric

Balance as of September 30, 1996

for Energy Efficiency Investments made through December 31, 1995

A description of each classification follows:

0% Interest Loans Payable on Sale

Loans primarily to residences for Weatherization measures in the home. No interest accrues and payments are due when the house is sold. Loans were last made in this classification in 1982.

Energy Efficiency Investments

These are a variety of energy efficiency investments made by the Company. Examples include Weatherization of existing homes and small businesses, Weatherization incentive payments for new homes, shower head retrofits and payments for energy efficient water heaters. Amortization periods for the investments range from five years through 25 years. The approximate average life is 15 years. These investments are included in rate making and are being collected from all customers.

PGE presented its analysis to demonstrate that refinancing has several benefits for customers and the Company. It will provide savings to customers by obtaining lower cost financing. PGE states that, upon the Commission’s making the requested designation, it will seek financing for a ten-year term, at a rate which is below its current cost of capital. The ten-year term will benefit PGE and its customers by reducing the Company’s stranded asset risk and facilitating the transition to a competitive marketplace. There will be no adverse rate impact on customers from the transaction. It is expected that savings from the lower cost of capital will offset the cost associated with shortening the term from today’s average program life of 15 years to a ten-year term. When and if such financing is secured, PGE will file another application requesting permission to issue securities pursuant to ORS 757.415(2).

Staff has examined PGE’s amended application and supporting documents and stipulates that the conservation program expenditures are used, useful and prudent, and that the financing contemplated by PGE will be more favorable to customers than other reasonably available alternatives. The Addendum addresses an issue raised by Staff pertaining to customer benefits from the transaction; i.e., the effect of an adverse IRS ruling on the treatment of deferred taxes. The condition in the Addendum ensures that even in the worst case, customers will benefit from demand-side management refinancing.

The filing of PGE’s application and amended application was duly noticed to interested parties who were informed of an opportunity to request a hearing on PGE’s Amended Application. Several Prehearing Conferences were held and no party requested an evidentiary hearing.

Upon review of the Stipulation and the Addendum, the Commission finds that the conservation program expenditures are used, useful and prudent, and that the financing contemplated by PGE is likely to be more favorable to customers than other reasonably available alternatives.

CONCLUSIONS

The Commission may designate qualified conservation program expenditures Bondable Conservation Investment if it finds that such expenditures are used, useful and prudent, and if financing is likely to be more favorable to customers than reasonably available alternatives. The Commission adopts the Stipulation and Addendum and finds that PGE’s deferred conservation program investment balances as of September 30, 1996, for expenditures made through December 31, 1995, totaling $80,730,501 meet these criteria and are proper Bondable Conservation Investments, pursuant to ORS 757.455(2).

ORDER

IT IS ORDERED that:

1. The Stipulation and Addendum attached as Appendix A are adopted in their entirety.

Portland General Electric Company’s deferred conservation program expenditures balances as of September 30, 1996, for expenditures made through December 31, 1995, in the total amount of $80,730,501 are hereby designated Bondable Conservation Investments, and may thus be used for the issuance of securities, subject to approval of an application for authorization to issue securities pursuant to ORS 757.400 et seq. PGE is authorized to seek financing of these assets for a ten-year term.

Made, entered, and effective ________________________________.

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements in OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by

OAR 860-013-0070(2). A party may appeal this order to a court pursuant to ORS 756.580.