SEATTLE — In the next step of its challenge of Puget Sound Energy’s multi-year rate plan, the Attorney General’s Office filed testimony recommending a lower profit margin that could ultimately save customers as much as $35 million every year.

The Attorney General’s Office of Public Counsel filed testimony Dec. 4 and analysis with the Washington Utilities and Transportation Commission (UTC) recommending PSE’s investor profit margin, or rate of return, be significantly reduced. The rate of return is a key component in the calculation of customer rates.

“Washington law requires that utility rates charged to consumers be fair, just, reasonable and sufficient,” Attorney General Bob Ferguson said. “Fair utility rates can incorporate a reasonable return for investors, but not an excessive one.”

In June, Public Counsel and Industrial Customers of NW Utilities successfully appealed the UTC’s decision to approve the PSE rate plan, arguing the rate of return was outdated and unduly high. A Thurston County Superior Court judge reversed the UTC decision and sent the plan back to the commission, instructing it to get more complete evidence and to set the correct investor profit margin.

After performing an in-depth analysis, Public Counsel’s expert witness found that the appropriate rate of return for the utility’s investors should be 8.65 percent. The rate plan initially approved by the UTC included a return of 9.8 percent, and PSE filed testimony earlier this month arguing that 9.8 percent is still appropriate.

Public Counsel argues that the 9.8 percent profit margin is excessive and too dated to use until 2015 or 2016, the term of the plan. Public Counsel also argues that the return should be reduced because the multi-year rate plan, which includes automatic annual increases, reduces PSE’s financial risk.

Translated into dollars, if the Attorney General’s recommendation is approved by the UTC, Public Counsel estimates that customer rates under the plan could be reduced by approximately $35 million per year.  Public Counsel would also expect to request customer refunds for the excess rates paid since the plan started in 2013, since those rates were based on the improperly high profit margin.

The commission will determine the specific amount of rate adjustments and refunds, if any, in a second phase of the case when it has made a decision on the investor profit issues.   The commission could also decide no reduction is warranted.

PSE’s rate plan went into effect in July 2013 and runs to 2015 or 2016 at PSE’s option, with automatic rate increases every year for the life of the plan.

The commission will hold a hearing on the case on Jan. 7 and is expected to issue a decision on the rate of return in February or March.  If the commission decides to reduce the return, a decision on any rate changes would happen later in 2015.

The Public Counsel Unit advocates for the interests of consumers on major rate cases, mergers, rulemakings and other proceedings before the UTC. More information about Public Counsel’s work is available online at  www.atg.wa.gov/Utilities/AboutPublicCounsel.aspx.