Oregon regulators adopt Avista gas rate settlement, below-average equity return

Avista Corp. will implement a $4.2 million (5%) gas rate increase Sept. 1, 2025, after the Oregon Public Utility Commission adopted a settlement on May 23 that maintains the company's authorized return on equity and includes a marginal decrease to its rate of return.

➤ The authorized rate increase is a little over half of Avista's November 2024 request, and the stipulated return on equity (ROE) is below prevailing industry averages but consistent with the Oregon commission's electric and gas ROE authorizations this decade.

➤ The authorized settlement stipulates that Avista will complete a study and cost-benefit analysis to determine whether targeted voluntary electrification (TVE) is a cost-effective alternative to the company's Aldyl-A pipeline replacement program. The stipulation also requires Avista to consider non-pipe alternatives (NPA) for two capital projects.

➤ Regulatory Research Associates views Oregon's regulatory environment as relatively balanced from an investor perspective. The majority of recent rate cases were resolved through settlement negotiations, and equity returns established in those proceedings have been somewhat below prevailing industry averages when established. On a positive note, the commission utilizes forward-looking test years for most companies, reducing regulatory lag.

Avista serves approximately 106,500 Oregon natural gas customers. The company filed its application Nov. 1, 2024, seeking a $7.8 million gas rate increase.

Rate case order

The order authorizes Avista to implement an approximately $4.2 million (5%) gas rate increase (Docket No. UG 519) premised on a 9.50% return on equity (50% of capital) and a 7.22% return on average rate base valued at $389.4 million for a test year ending Aug. 31, 2026.

Avista initially sought a $7.8 million increase premised on a 10.40% return on equity (50% of capital) and a 7.67% return on average rate base valued at approximately $389.4 million for a forecast test year ending Aug. 31, 2026.

The authorized 9.50% ROE is slightly below the 9.73% average ROE authorized for gas utilities in cases decided during the first quarter of 2025, and the 9.72% average for cases decided during the full year 2024. There were six gas ROE authorizations in the first quarter of 2025 versus 44 in the full year 2024. Avista was authorized a 9.50% ROE in its last Oregon gas rate case in Docket No. UG 461.

For a discussion of trends in ROE authorizations and other rate case parameters, refer to RRA's "Major Rate Case Decisions Quarterly Update.

The stipulated ROE and cost of capital adjustments agreed to by the settling parties resulted in a $2.4 million reduction to Avista's requested $7.8 million rate increase. Remaining downward adjustments to the proposed revenue requirement are tied to reductions to various expenses Avista sought to include in rates, including $0.627 million for insurance and rate-base related expenses, about $0.210 million for property, wage/salary and cost allocation expenses, and other miscellaneous adjustments.

In addition, Avista agreed to complete a study to determine whether a TVE pilot program is a cost-effective alternative to Aldyl-A pipeline replacement on its gas pipeline system, where such pipes may be decommissioned or removed. The study is to include a cost-benefit analysis that takes into consideration the avoided costs of Aldyl-A pipeline replacement and compliance with the state's Climate Protection Program.

Avista is authorized to defer for later recovery all costs associated with implementing the TVE pilot. Interest will accrue on the unamortized balance at Avista's approved rate of return authorized in this case. A tariff to implement the TVE pilot must be filed with the PUC no later than Sept. 1, 2026, for an effective date of Jan. 1, 2027.

Per the settlement terms, the company will also undertake an analysis to consider NPA for two capital projects. The company must submit a compliance filing within 12 months with the results of the analysis. If NPA are cost-effective for either project, Avista must invest in them and propose how it will recover costs within the compliance filing. Additionally, parties agreed that if Avista undertakes a plan to systemically replace service pipes, the company is to include an NPA analysis to determine whether the pipeline replacement is cost-effective.

The order also updates Avista's gas decoupling mechanism, effective Sept. 1, 2025, to include test year customer and revenue-per-customer data; directs Avista to return to customers over a three-year period $5 million of tax benefits resulting from certain federal tax expense changes; directs Avista to provide capital attestations for plant included in rate base in this proceeding before the rate-effective date; and orders the company to evaluate its low-income programs and work to identify additional multifamily customers that should be included in the multifamily rate schedule.

Rate case history

On Nov. 1, 2024, Avista filed an application for a $7.8 million (9.2%) natural gas rate increase premised on a 10.40% return on equity (50% of capital) and 7.67% return on average rate base valued at approximately $389.4 million for a forecast test year ending Dec. 31, 2026. The company calculated that under its current rates, it would earn a 6.21% overall return for the forecast test year, below the 7.235% return authorized in the company's last Oregon gas rate case.

The company cited cost pressures from inflation and high interest rates, along with other increases in operating expenses, as factors necessitating the requested rate hike.

Avista stated its proposed ROE within a range of 10.20% to 10.70% is reasonable, considering the company's risk profile relative to a proxy group of other gas utilities and "the economic requirements necessary to support continuous access to capital under reasonable terms."

The Oregon PUC has typically approved ROEs between 9.40% and 9.50% in gas and electric rate case decisions dating back to 2013, including in an Oct. 25, 2024, decision in Northwest Natural Holding Co. subsidiary Northwest Natural Gas Co.'s settled gas rate case that granted a 9.40% ROE, versus the 10.10% ROE supported by the company prior to settling with parties to the case.

In early March 2025, intervenors in the case filed initial testimony in the proceeding, recommending that state regulators reject the company's proposed ROE. The Oregon PUC staff supported a rate increase that was about 27% of Avista's $7.8 million electric rate increase request, premised on the midpoint of its recommended return on equity range of 9.0%-9.6% (50% of capital) and a 7.12% return on average rate base valued at $385.47 million for a test year ending Aug. 31, 2026.

RRA evaluation of Ore. regulation

RRA views Oregon's regulatory environment as relatively balanced from an investor perspective. The majority of recent rate cases have been resolved through settlement negotiations, and equity returns established in those proceedings have been somewhat below prevailing industry averages when established. On a positive note, the commission utilizes forward-looking test years for most companies, reducing regulatory lag.

In the gas industry, local distribution companies are permitted to retain a portion of the margins associated with off-system sales and capacity release. The commission has generally approved utility-related mergers without onerous restrictions but has utilized various ring-fencing mechanisms designed to shield the regulated utilities from the diversified activities of their parent companies or affiliates.

RRA accords Oregon an Average/2 ranking. For additional information, see RRA's Oregon Commission Profile.
 

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