Nova Zhang
Puget Sound Energy, a utility company, is expected to overcharge its customers by $4.7 million by the end of 2020 due to a regulatory filing mistake. The issue arose when the company filed revised rates for its revenue decoupling adjustment mechanism without zeroing out the existing rates, resulting in customers being charged the combined rate. This error has impacted most of Puget Sound Energy's customers, and the company has filed for a correction with the Washington UTC, which, if approved, would provide refunds to customers through lower rates starting in January 2021.
| Characteristics | Values |
|---|---|
| Reason for Overcharging | Regulatory filing mistake |
| Date of Overcharging | Since Oct. 15, 2020 |
| Amount Overcharged | $4.7 million |
| Refund | Customers would be refunded through lower rates from Jan. 1, 2021 |
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What You'll Learn
Regulatory filing mistake
A regulatory filing mistake caused Puget Sound Energy to overcharge most of its customers, leading to an estimated $4.7 million in excess collections by the end of 2020. The error occurred when Puget Sound Energy failed to zero out the existing rates of its revenue decoupling adjustment mechanism while filing revised rates earlier that year. As a result, the new rates were added on top of the old ones, leading to the overcharging of customers.
The issue began on October 15, and the company filed a correction with the Washington UTC on December 1, 2020. If approved, customers would receive refunds in the form of lower rates starting January 1, 2021. The rate changes were implemented to lower rates for PSE customers during the COVID-19 pandemic, as the WUTC approved spreading the revenue target over two years instead of one.
A Puget Sound Energy spokesman, Jarrett Tomalin, acknowledged the complexity of rate cases and noted that company mistakes can occur. Similarly, WUTC spokeswoman Emilie Brown commented, "Rate cases are complex, and company mistakes happen."
This incident highlights the importance of accurate regulatory filings and the potential financial impact on customers when errors occur. It is essential for companies to carefully review and adjust their rates to avoid such overcharging incidents in the future.
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Customers overcharged
Puget Sound Energy customers have been overcharged due to a rate filing mix-up. The error, which is expected to result in a $4.7 million overcollection by the end of the year, occurred when the company filed for revised rates without zeroing out the existing rates of its revenue decoupling adjustment mechanism. This caused the new rates to be layered on top of the old ones, resulting in customers being overcharged. The issue has been affecting most customers since October 15.
In response to the mistake, PSE filed a correction with the Washington UTC on December 1, proposing to refund customers through lower rates starting January 1, 2021. The rate changes were approved by the WUTC to help lower rates for PSE customers during the COVID-19 pandemic. A PSE spokesman, Jarrett Tomalin, acknowledged the complexity of rate cases and noted that company mistakes can happen. Similarly, WUTC spokeswoman Emilie Brown acknowledged that "rate cases are complex, and company mistakes happen."
The overcharging error is not an isolated incident for Puget Sound Energy. In the latest Energy West podcast, Clearing Up's Dan Catchpole and California Energy Markets' Jason Fordney discussed a range of issues affecting the Western power grid, including the risks of summer reliability and new metrics to assess the risk of capacity shortfalls in the Northwest. Ensuring fair and accurate billing practices remains a critical aspect of the energy industry, with customers relying on transparent and correct billing to manage their energy costs effectively.
As a result of the error, Puget Sound Energy customers can expect to see adjustments in their rates in the coming months. While the company has proposed a solution to refund customers, it is essential that individuals review their energy bills regularly and contact customer service if they identify any discrepancies or have concerns about their charges. Being proactive in addressing potential billing issues can help customers protect their financial interests and ensure they are only paying for the energy services they consume.
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Revenue decoupling adjustment mechanism
In 2013, the Washington Utilities and Transportation Commission (UTC) approved a decoupling mechanism for Puget Sound Energy (PSE) based on a revenue-per-customer calculation. This mechanism included an annual adjustment factor known as the "'K factor', which increases the allowed revenue per customer over time. The K factor helps to avoid the issue of "regulatory lag", where new rates are outdated by the time they are implemented, leading to a constant stream of general rate cases.
The revenue decoupling adjustment mechanism is designed to equalize the revenue collected from customers with the utility's actual non-energy costs between rate cases. It allows PSE to make periodic adjustments to utility rates based on the difference between actual and allowed revenue from the previous year. This stabilizes revenues set by regulators, leaving PSE indifferent to the quantity of energy sold. As a result, the utility's incentive to boost revenues by increasing sales is eliminated, along with its financial disincentive to invest in energy efficiency.
The Commission's endorsement of the settlement agreement's proposal for full decoupling of electric and natural gas rates set a national precedent. This decoupling mechanism breaks the link between PSE's power sales and revenues, relying on modest periodic rate adjustments to stabilize revenues. While rates may fluctuate up to a capped amount of 3% each year, the mechanism includes an earnings test to balance PSE's incentive to control costs with customers' interests in preventing windfall profits.
In 2020, a regulatory filing mistake led PSE to overcharge most of its customers, resulting in an expected $4.7 million overcollection by the end of the year. This error occurred when PSE filed revised rates without zeroing out the existing rates of its revenue decoupling adjustment mechanism, leading to the layering of rates. To rectify this issue, PSE filed a correction with the Washington UTC, and if approved, customers would receive refunds through lower rates effective January 1, 2021.
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Refunds for customers
A regulatory filing mistake led Puget Sound Energy to overcharge most of its customers, with the error expected to total $4.7 million by the end of 2020. The issue arose when the company filed revised rates for its revenue decoupling adjustment mechanism without zeroing out the existing rates, resulting in customers being overcharged.
Puget Sound Energy (PSE) filed a correction with the Washington UTC on December 1, 2020 (UE-200965). If approved, customers would receive refunds through lower rates effective January 1, 2021. This correction aimed to address the overcharging issue by implementing lower rates for a period to compensate for the previous overcharges.
Customers who have overpaid for their energy usage will receive refunds or credits. PSE determines overpayments or underpayments annually, from June to June. If a customer has overpaid, they will be issued a refund or credited the excess amount. Conversely, if a customer has underpaid, they will be billed for the outstanding balance.
Customers can also benefit from the Budget Payment Plan offered by PSE. This plan smooths out monthly energy costs, creating predictable bills throughout the year. The plan estimates the total annual energy cost based on previous energy usage and divides it into equal monthly payments. PSE reviews actual energy usage and adjusts the payment plan accordingly in March, June, and November. If a customer has overpaid or underpaid by the end of the year, PSE will make the necessary adjustments through refunds, credits, or additional billing.
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Rate changes
As a regulated utility, any changes to the tariffs of Puget Sound Energy's (PSE) services and rates must be reviewed and approved by the state Utilities and Transportation Commission (UTC).
On January 15, 2025, the UTC approved rate increases for PSE's electric and natural gas customers, set to take effect incrementally over the next two years. PSE's electric revenue will increase by $326.6 million (11.5%) in January 2025 and by $203.3 million (6.4%) in January 2026. For electric customers using 800 kWh of energy per month, this translates to a $13.08 (12%) increase in 2025 and a $7.67 (6.3%) increase in 2026, resulting in an average monthly bill of $129.83.
Natural gas rates will also increase, with a $109.8 million (10.6%) increase in January 2025 and a $21.1 million (1.8%) increase in January 2026. Residential gas customers using 64 therms per month can expect to see a $7.56 (9.4%) increase in 2025 and a $1.65 (1.9%) increase in 2026, for an average monthly bill of $89.86.
The rate increases are intended to nudge utilities toward decarbonization, in line with Washington's Clean Energy Transformation Act and Climate Commitment Act. Additionally, the two-year rate plan includes an increase in PSE's return on equity from 9.4% to 9.8% in January 2025 and 9.9% in January 2026.
It is important to note that PSE also offers a Budget Payment Plan to smooth out monthly energy costs and create more predictable bills. This plan estimates the total annual energy cost based on previous usage and divides it into equal monthly payments.
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Frequently asked questions
Yes, a regulatory filing mistake led Puget Sound Energy to overcharge most of its customers. The error is expected to total $4.7 million by the end of 2020.
The problem stems from not zeroing out the existing rates of its revenue decoupling adjustment mechanism when it filed for revised rates earlier in 2020. Instead of replacing the existing rates, the revised rates were layered on top, resulting in customers being overcharged.
Puget Sound Energy filed a correction with the Washington UTC on December 1, 2020. If approved, customers would be refunded through lower rates effective January 1, 2021.
The rate changes came after the Washington UTC approved spreading the revenue target over two years instead of one to lower rates for customers during the COVID-19 pandemic.
