Fresh out of Portland’s Lewis and Clark Law School, Simon ffitch took a job with Legal Aid, where many of his low-income clients had troubles with the power company.
They had fallen behind on their heating bills and were facing shutoffs. Or, they couldn’t afford the initial deposit to get hooked up.
Heat and light are “an essential service” for people, said ffitch, who talked clients through their legal rights, including the right to set up a payment plan, or contest a shutoff for medical reasons.
Now 57, ffitch still looks out for the little guy. As head of the Washington Attorney General’s Public Counsel Division, he represents residential and small business customers in utility rate cases.
When Avista Utilities of Spokane, Puget Sound Energy, or other state-regulated utilities want to raise electric, natural gas or telephone rates, ffitch and his staff scrutinize the requests on behalf of consumers. He and his staff hire expert witnesses and testify before the Washington Utilities and Transportation Commission, which approves or denies rate requests.
“We’re the advocate for the customer,” ffitch said, “making sure that rates are no higher than they should be, based on the evidence.”
The attorney’s name is familiar to many Eastern Washington Avista customers. (The spelling of his last name is the legacy of an English ancestor, who refused to convert to the modern capital F in the 1600s. “I inherited it from my family, and I don’t want to change it,” ffitch said.)
Over the years, ffitch has taken Avista to task over executive salaries and questioned the utility’s profit margin. He’s also critical of utilities’ trend of asking for higher rates every year.
Shortly after rates went up on Jan. 1, Avista asked for another 9 percent boost in electric rates, and a 2.5 percent increase in natural gas rates. The latest request is pending before the utilities commission, which has 11 months to act.
“Customers are getting real tired of these annual hits, and they’re not small hits,” ffitch said. “There’s a limit to what customers can afford to pay.”
He appealed the rate increase that took effect in January in Thurston County Superior Court, saying the utilities commission’s decision contained “key legal errors,” and the rate hike should be rolled back by 25 percent. About $60,000 in the rate request was for improper advertising to promote Avista’s corporate image and encourage customers to use natural gas, ffitch said. A bigger issue in the appeal is Avista’s settlement with the Coeur d’Alene Tribe over the company’s historic use of Lake Coeur d’Alene as a reservoir for downstream dams. Ratepayers shouldn’t have to shoulder the company’s retroactive payment for decades of trespass on the tribe’s submerged lands, ffitch said. Those fees – about $39 million – are reflected in the latest rate hike.
Avista disagrees. “When we take a look at what he’s doing (with the appeal), we’re pretty disappointed,” said Kelly Norwood, Avista’s vice president of state and federal regulation.
Norwood said the issues raised in the appeal were hashed over in detail by the Washington Utilities and Transportation Commission, and dismissed.
Avista doesn’t like to ask for higher rates, said Jessie Wuerst, a company spokeswoman. But in recent years, the company has been squeezed by higher wholesale power costs, plus the need to replace aging equipment and repair Avista’s tattered credit rating, she said.
“The utility industry is highly scrutinized,” Wuerst said. “The use of every ratepayer dollar is audited and reviewed and approved by the utility commission.”
A public crusader
In person, ffitch is a measured speaker, with the slightly rumpled look of a college professor.
Utility law has been a near-constant in his career. Before moving to the Public Counsel Division 12 years ago, he worked as an administrative law judge at both the Oregon and Washington utilities commissions. His résumé also includes a stint in regulatory banking at the Federal Deposit Insurance Corp.
“The guy appears to eat, live and sleep this stuff. He’s a total crusader on the behalf of the public. … I think he’s frustrating to the utilities because of his dogged effort to make sure the Average Joe and Josephine has their needs heard,” said Gary Smith, executive director of the Independent Business Association.
The association represents 4,300 small Washington companies. Smith said his clients don’t have time to follow proposed rate increases or testify before the Washington Utilities and Transportation Commission. The complexity of the utility issues is also a deterrent.
“I could never read a utility tariff and hope to understand what it means,” Smith said. “I can read labor laws, environmental laws and tax laws, but utility law is a world unto its own. … That’s why the Office of Public Counsel is a total godsend.”
“I think we’d all be paying more for our service if Simon ffitch and the Public Counsel weren’t at the table,” said Chuck Eberdt, manager of the Energy Project in Bellingham, which promotes affordable energy for low-income people.
Eberdt said the Energy Project’s interests often align with the Public Counsel Division. But occasionally, Eberdt and ffitch find themselves on opposite sides in rate cases.
“I don’t like being cross-examined by him,” Eberdt said. “He asks the tough questions. … He doesn’t back down.”
The Attorney General’s Office of Public Counsel started in 1983, when high costs from the 1970s energy crisis were still fresh in people’s memories. Ken Eikenberry, then the attorney general, wanted to make sure that consumer interests got a fair hearing before the Washington Utilities and Transportation Commission.
The division employs two attorneys, including ffitch. The staff also includes one full-time and two part-time regulatory analysts, who provide technical expertise. The division’s annual budget of $910,000 also pays for expert witnesses, who testify on topics such as utilities’ financial health, quality of service and power costs.
Rate cases are complex legal proceedings. The Washington Utilities and Transportation Commission acts as a judge, weighing a company’s need to cover its costs and turn a profit against customers’ need for fair and reasonable rates. Rate cases hinge on expert testimony from attorneys, economists and others versed in utilities.
“One person, by themselves, up against the utility company really is a mismatch,” ffitch said. The utilities have “the lawyers and they have the experts. … We’re able to redress the balance a little bit. … We provide a voice for customers that has some expertise, some legal resources as well as analytic resources, so they can have an effective voice in this highly technical process.”
Other parties are also represented at rate cases. Large industrial customers typically weigh in, along with energy-efficiency advocates, and representatives of groups that assist needy families.
The Washington Utilities and Transportation Commission’s standard is to determine “fair, just, reasonable and sufficient” rates, said spokeswoman Amanda Murdock.
In return for operating as monopolies in their service areas, the utilities’ rates are set by the commission. Murdock said the commission’s charge is to make sure the utilities remain financially healthy, while keeping rates fair and reasonable.
“It’s a balanced process,” said Wuerst, the Avista spokeswoman.
All the parties have input. Sometimes the utility, commission staff and other parties reach a negotiated settlement. As part of negotiations, Avista sometimes agrees to take certain costs out of its rate requests, Wuerst said.
Two years ago, Avista agreed to trim $1.7 million in executive pay from a rate hike. In pushing for the decrease, ffitch noted that while salaries for most Avista employees grew by a total of 18 percent between 2000 and 2006, the pay for a former CEO rose by nearly 40 percent, and compensation for other executives shot up 70 percent.
Profits and executive pay
Avista said that while executive pay grabs headlines, it actually accounts for a tiny fraction of ratepayers’ bills.
“Out of every dollar customers pay on their bills, less than one-half of one penny goes to executive compensation,” said Debbie Simock, an Avista spokeswoman.
This year, salaries have been frozen for Avista Chairman and CEO Scott Morris and 13 other top officers. And the salary costs, Simock said, are borne by the company’s investors as well as ratepayers.
Executive pay is still important, ffitch said. “A million dollars is real money,” he said. And it’s a philosophical issue as well, he said.
“You want to know that at every level of the company, they are watching costs and pinching pennies so the customers only have to pay what’s absolutely necessary in terms of increases.”
He also has been vocal about Avista and other utilities filing yearly requests for higher rates. The requests demonstrate a lack of desire to control costs or keep rates stable, he said.
“I think that customers can legitimately ask whether the company’s really being managed properly if they come in for a rate case every year,” ffitch said.
Avista’s Norwood, however, said conditions in the utility industry have changed radically since the late 1980s and 1990s, when Avista went a decade without asking for a rate hike.
Wholesale power costs have doubled. In addition, prices for cement and steel skyrocketed just as Avista began replacing 50-year-old turbines at its dams and making improvements to aging substations and transmission lines. Avista spends about $210 million per year on infrastructure – twice as much as five years ago, Norwood said.
“We need a tremendous amount of capital just to keep the lights on,” said Wuerst. “That’s why we have to attract investors to help us with this debt.”
Avista wants a higher profit margin to attract investors. The company is allowed to earn a 10.2 percent return on equity. A request to boost the rate to 11 percent was included in Avista’s latest rate filing.
When investors buy stock in Avista, they generate money for the company’s capital projects. Wuerst said ratepayers benefit because Avista doesn’t have to borrow as much. By boosting its profit margin, the company also hopes to improve its Standard and Poor’s credit rating so it can get better interest rates when it does have to borrow, she said.
Over the past five years, Avista failed to hit the 10.2 percent return, she added, averaging just less than 8 percent.
The Idaho Public Utilities Commission recently approved a 10.5 percent rate of return for Idaho Power, in Southern Idaho, Norwood noted. In a January order, the commission referred to deteriorating credit markets in explaining its decision to raise the company’s return on equity.
Boosting Avista’s profit margin to 11 percent would cost ratepayers about $6 million in the current request, ffitch said.
“What do you have to offer investors as a return to get them to invest in a company like Avista?” ffitch asked. “That’s an issue that we’ll be looking at in upcoming rate cases.”
With the economy tanking, the return needed to entice investors may be changing, he said.
“To the average person on the street, earning a 10 percent return on an investment has always been pretty good,” ffitch said.
With many investments losing money, utilities – with their captive audiences and their government-set rates – could be looking more attractive to investors, he said.