The Utah Association of Energy Users (UAE) had a tremendously active year in 2019 with our involvement in both significant regulatory and legislative issues that involved three different appeals to higher courts in the State of Utah regarding Rocky Mountain Power (RMP) cases on new wind and transmission, a defective Request For Proposals (RFP) for wind-only resources, and the Energy Balancing Account (EBA) interim rate increase. We also intervened in Dominion Energy of Utah’s (DEU) general rate case where Transportation customers have been proposed to receive an over 40% rate increase under the cost of service study. Other PacifiCorp/RMP activities that UAE continues to participate in include the Multi-State Protocol (MSP), which needed interim resolution before December 31, 2019, as well as the Integrated Resource Plan (IRP), Demand-Side Management (DSM), EBA, Sustainable Transportation and Energy Plan legislation (STEP) activities, as well as other dockets before the Utah Public Service Commission (Commission).
UAE has also been involved in DEU’s docket seeking preapproval of a Liquified Natural Gas (LNG) plant in a second attempt after the Commission rejected DEU’s first application in 2018. We also completed work on the 2017 Federal Tax Reform Act and ensured the final dollars were returned to ratepayers.
On the national environmental front, UAE monitored the reversal or change to several energy-related rules under the Trump administration, including the Clean Power Plan Rule 111(d), methane-emission reporting, greenhouse gas emissions, regional haze, and others that are currently in limbo under President Trump, as well as the attempt to develop federal support for nuclear energy and coal plants. Regionally, UAE participated and provided key comments to the Northern Tier Transmission Group (NTTG) as part of its transmission study, as well as commenting on PacifiCorp’s generator interconnection reform straw proposal.
UAE actively participated in the 2019 Utah General Session, supporting or helping refine the language in bills that impact energy issues.
Our strong, diverse membership makes UAE a recognized and effective representative of large energy users. For information about current regulatory activity that impacts your company, contact Kelly Francone at or 801-355-4365.
Federal Reform Tax Act
In December 2017 the Federal Reform Tax Act reduced federal corporate taxes from 35% to 21%. UAE filed in early January 2018 for deferred accounting so that RMP customers would receive all of the benefits of tax reform from the start of the year.
RMP originally filed an application to return $20 million to customers of the projected $76.2 million in order to use the remaining funds to offset other potential cost increases. UAE supported a return of at least $61 million in 2018 so that current customers can enjoy the savings now, while avoiding a need to adjust rates back up if the ultimate determination of benefits was lower than projected.
The Commission approved the $61 million rate reduction as proposed by UAE, which represented an approximate 4.1% reduction, and is being credited to customers over eight months.
Effective January 1, 2019, RMP was required to credit Utah ratepayers $61 million annually, starting in May 2018 and in effect until the effective date of the rates set in the Company’s next general rate case, expected to be filed in 2020. The Commission allowed RMP to defer $4.9 million annually in a regulatory liability account until the next rate case result becomes effective.
Those funds will then be applied toward the accelerated depreciation of the Dave Johnston coal generating plant to reduce Utah’s share of the plant’s current net book balance. The Stipulation also includes several other significant benefits totaling nearly $1 billion. Schedule 9 and 9A monthly power and energy charges were reduced by 3.07% to 3.41%, respectively, with Schedule 8 charges reduced by 1.98%.
In regard to the Tax Act impact on DEU, the company calculated a $14.5 million decrease in early 2018 to its annual revenue requirement due to the federal income tax expense reduction. UAE supported DEU’s approach in calculating the direct distribution non-gas revenue requirement impact of the tax reduction.
On May 16, 2018, the Commission approved the Settlement made by DEU, the Division of Public Utilities (Division), Office of Consumer Services (Office), and UAE. The sur-credit became effective June 1, 2018, and will continue up to the rate effective date of new rates approved by the Commission in the general rate case occurring in 2019/2020.
On March 27, 2019, DEU filed its application to implement sur-credit 3, in order to credit customers with the amortization of its plant-related excess deferred income taxes that occurred in 2018 using average rate assumption method. UAE identified two errors in DEU’s calculations.
After discussions with parties, UAE entered into a settlement agreement with DEU, the Division and Office using corrected calculations. These corrections increased the total sur-credit 3 by about $300,000, from $4.7 million to $5.0 million.
Integrated Resource Plan
The IRP process is designed to identify costs and risks of alternative available resources to allow selection of an optimal mix of resources to be acquired by the utility. Numerous organizations from many states participate in the IRP process, including regulatory agencies, resource developers and public interest/environmental organizations.
UAE is one of the few representatives of large energy users active in the IRP process, and typically the only representative of large Utah energy users. UAE’s primary goals are to ensure reasonable consideration of all practicable resource options, promote competition in generation resources, and identify and minimize undue biases of PacifiCorp and other IRP participants.
PacifiCorp began its 2019 IRP process in June of 2018 and, as with its typical IRP cycle, was expected to issue its bi-annual IRP Report on the first of April 2019. However, because PacifiCorp undertook a complicated analysis of the economics of continued coal plant operations, PacifiCorp delayed its IRP filings in all states until October 18, 2019. In its filing, the company announced it plans to close 16 of its 24 coal units by 2030 and to eliminate four more units by 2038. The proposed unit retirements will reduce the company’s 5,900 MW coal portfolio by nearly 2,800 MW by 2030 and by nearly 4,500 MW by 2038.
The utility proposes to add nearly 7,000 MW of new renewable energy resources and to build 400 miles of new transmission lines over the next decade to accelerate decarbonizing its grid, according to the 2019 IRP. PacifiCorp also plans to develop 3,500 MW of new wind generation by 2025 and more than 4,600 MW of additional wind generation by 2038. It also expects to add nearly 3,000 MW of new solar by 2025 and another 6,300 MW by 2038. The IRP identifies an additional 2,800 MW of energy storage expected to come online by 2038.
UAE has actively participated in IRP meetings. During the process, UAE helped identify the most economically beneficial combination of coal-plant retirements. Also, UAE identified errors in some of the modelling done by the company. UAE intends to participate in the Commission approval process for the IRP in 2020. In addition, the 2021 IRP cycle will begin in June of 2020.
DEU General Rate Case
As part of a settlement allowing Dominion Energy to acquire Questar Gas, UAE negotiated an agreement for the new company not to file a new GRC until mid-2019—when it is required by Commission orders to file. DEU filed its rate case on July 1, 2019. The DEU GRC will extend into 2020.
The Company is asking for a $19.2 million rate increase, effective March 1, 2020. DEU asserts that the rate increase is required to pay for capital expenditures to serve Utah customers. In addition, DEU is seeking to add an additional $10 million annually to its Infrastructure Tracker to replace pipelines. A significant amount of the proposed increase in revenue requirement comes from DEU’s request to increase the Return on Equity (ROE) from 9.8% to 10.5%.
DEU contends that full cost-of-service for Transportation (TS) rates would require a 44.32% increase on average and a 58.2% increase to the Transportation Bypass Firm (TBF) class. DEU proposes to impose an average TS rate increase of 37%.
In our direct testimony filed October 17th, UAE proposed an overall revenue requirement reduction of $23.9 million. We also proposed a 9.7% ROE as a placeholder until other parties filed their ROE recommendations. UAE also recommended keeping the $70.9 million Infrastructure Tracker in place with a one-year inflation adjustor that would increase that to $72.2 million for 2020. UAE witness Kevin Higgins further recommended that the amount be capped at that amount with no future adjustments for inflation.
In its Phase II cost-of-service filing made on November 14th, UAE recommended a three-step phase-in of the full cost-based increase to the TS class and the target increase to the TBF class March 1, 2020, March 1, 2021, and March 1, 2022.
UAE also proposed the throughput factor be reduced to 32%. This weighting produces a weighting for Allocation factor 230 of 68% Design Day and 32% Throughput.
UAE agreed with DEU’s analysis that interruptible load will be curtailed on an actual peak day, and therefore, should not be assigned any peak demand responsibility. The proposed three-phase revenue changes using DEU’s requested $19.2 million rate increase would result in the TS customers being allocated increases of 9.4%, 12.9% and 11.4% over the three-year period to reach full cost of service.
Parties filed Phase II rebuttal testimony on December 13, 2019 and the hearings occurred on December 15-17.
UAE has been active in the multi-state cost allocation process (MSP) among PacifiCorp’s six states since the utility was created and is typically the only active participant representing large Utah energy users. The 2010 MSP Protocol expired in 2016 but was effectively extended as the 2017 MSP Protocol through 2019.
MSP meetings continued throughout 2019, with discussions and negotiations intensifying as the December 31, 2019, expiration date of the “2017 Protocol” approaches. The 2017 Protocol relies upon dynamic, rolled-in allocations and a 75/25 demand/energy split for transmission and generation resources.
The MSP process is significantly complicated by legislation and goals in Oregon and Washington that mandate elimination of coal resources from their resource mixes. Laws passed in each state effectively requires that the rate base in those states cannot include coal assets after 2029 in Oregon, and 2025 in Washington.
PacifiCorp is proposing a two to three-year extension of the current dynamic system, with a few changes. It is seeking Commission approval of the extension this year. Thereafter, it proposes that generation resources should be assigned to each state based on a fixed slice/subscription approach.
PacifiCorp plans to continue to dispatch its generation resources on a total system, least cost basis. With fixed ownership slices, however, PacifiCorp will need to rely upon locational marginal prices to charge states that rely upon resources assigned to other states. PacifiCorp plans to sign a contract with CAISO for development of a nodal pricing model to provide a more granular look at the use of system resources on an hour-to-hour basis. MSP negotiations regarding this proposed new cost allocation scheme will continue in 2020 and 2021 and beyond.
UAE is the only entity representing large Utah power users that participates actively in MSP meetings and negotiations. Its participation continues to be critical to evaluate and mitigate the impacts of any proposed cost allocation changes for Utah and, more importantly, for large Utah energy users.
Energy Balancing Account
RMP is required to make true-up filings for both the EBA and the RBA each year. In its 2019 EBA filing, RMP filed on March 15, 2019, requesting recovery of $23.9 million in total deferred EBA costs incurred in calendar year 2018.
The DPU filed testimony recommending that the Commission permit RMP to recover the full requested amount in interim rates, with a true-up to occur after a hearing in February of 2020. On April 26, 2019, the Commission approved RMP’s proposal to increase its EBA by $23.9 million, with interim rates going into effect on May 1, 2019.
UAE is a charter member of the DSM Steering Committee and the DSM Advisory Group and regularly participates in meetings and efforts to evaluate proposed DSM programs and surcharges.
RMP projected costs of $61.3 million for 2018 DSM programs. At the mid-year meeting, RMP indicated that they were reducing that projection to approximately $58 million. The DSM director said that renewable energy is at such a low cost right now that new energy efficiency programs can’t compete with it and that is why the DSM expenses are lower.
In a completed forecast done in November 1, 2018, RMP calculated that it would over collect $15.7 million in funds in 2018 and another $18.7 million at year end 2019 if the surcharge was not changed. UAE recommended reducing the 3.68% surcharge to 3.54%, effective January 1, 2019, accompanied by a one-time refund of $14.5 million issued February 1, 2019. The Commission approved those changes.
Facing similar challenges with lower renewable energy costs, RMP notified stakeholders that it also would over-collect DSM funds by 2019 year-end. UAE and other stakeholders discussed potential programs that could be effective for use of some of the remaining money. The Company filed a request on December 28, 2019, to refund $22 million to Utah ratepayers to resolve the over-collection of DSM funds in 2019, to be effective February 1, 2020. The 3.54% surcharge is expected to remain at that level to collect the appropriate amount of DSM funds in 2020.
UAE is also monitoring the activities of the Northern Tier Transmission Group (NTTG), a group of transmission providers that attempts to coordinate transmission operations and planning. PacifiCorp and five other utilities are members. UAE has been concerned that NTTG’s studies in 2018 lacked a robust analysis necessary to evaluate the need for PacifiCorp’s Gateway Project segments, cost allocation concerns and other issues.
UAE has coordinated with the Office, the Utah Associated Municipal Power Systems (UAMPS), Utah Municipal Power Agency (UMPA), and Deseret Power. The group expressed concern about the lack of transparency and scrutiny of PacifiCorp data. The joint parties submitted an Economic Study Request (ESR) to evaluate up to two 345 kV transmission lines across western Wyoming and Idaho as a lower cost alternative to the PacifiCorp Gateway South and West 500 kV single circuit lines.
DEU LNG Application
In 2018 the Commission rejected DEU’s application for pre-approval of DEU’s proposal to build an LNG plant based on arguments from UAE, the Division, the Office and others that the plant was not needed. The Commission ultimately denied DEU’s request, primarily on the basis that DEU had not conducted a meaningful RFP process or done a meaningful analysis of less expensive options.
DEU filed another application this year seeking pre-approval of an LNG plant. DEU did not propose to allocate any costs of the LNG plant to TS customers in its application.
In our testimony, UAE recommended that if the proposed LNG facility is approved, that the costs should not be allocated to Transportation customers based on cost causation principles because the Company confirmed that the proposed facility has been planned for the sole benefit of its firm sales customers, and because transportation customers are responsible for their own gas supply.
UAE also stated that this docket is not the appropriate forum for a discussion of or any rulings on the allocation of costs for the proposed LNG facility. Supplier non-gas costs, including the costs of the proposed LNG facility, should be allocated through a general rate case, not in this instant proceeding.
The Commission issued an order on October 25, 2019, approving the voluntary request for pre-construction approval. The Commission found that the concerns raised by DEU of a catastrophic event that could cut off gas supply are sufficient enough that the utility must have resources necessary to ameliorate that risk.
The Commission also found that DEU successfully issued an RFP that allowed for multiple resources to bid, which the utility had not done in the previous filing. Although the Division asserted in its testimony that the Commission should require the DEU to evaluate recovering LNG resource costs from Transportation customers based on a “future cost-of-service study” to be conducted in the next rate case, the Commission agreed with UAE in that cost allocation issues should not be determined in this docket,
UAE opposed the imposition of interim rates, reiterating the comments it made in both the 2017 and 2018 EBA appeals, in which UAE asserted that the Commission lacked the power to impose interim rates in the EBA process.
UAE appealed orders allowing interim EBA rates because it believes the Commission lacks authority to impose interim rates in the EBA context. While there are typically not significant dollars at issue in the EBA, it is important to constrain the Commission’s ability to authorize interim rates in other contexts.
The Utah Supreme Court held oral arguments on the EBA Appeal on March 20, 2019, and issued a decision on June 27, 2019. The Supreme Court agreed with UAE that the Commission exceeded its statutory authority by authorizing PacifiCorp to recover EBA costs through interim rates. The Supreme Court adopted UAE’s interpretation of the EBA statute, and its ruling forecloses the future imposition of interim rates except where expressly authorized by statute.
After the issuance of the Supreme Court’s ruling, the Commission opened a docket to determine how to address the interim rate imposed as a result of RMP’s 2019 EBA filing and how to handle EBA dockets going forward. RMP has now ceased collection of interim EBA rates and has filed a proposed change to the EBA tariff to reflect the Supreme Court’s ruling.
RMP filed for a Deferred Accounting Order (DAO) on its pension program on December 31, 2018. The Application claimed that economic conditions have caused a significant amount of pension plan participants to take lump sum distributions “in 2018, triggering a requirement for [RMP] to expense approximately $21 million in pension-related losses [the “Settlements”] for the year.”
The Company also claimed that this would be likely to recur, due to the number of plan participants nearing retirement age and the current low interest rate environment.
RMP asked the Commission to defer an expense of approximately $21 million as part of a regulatory asset associated with the Pension Regulatory Asset and to amortize the expense over the same period as the Pension Regulatory Asset, which is currently being amortized over approximately 21 years, with the opportunity to recover the amount in rates as part of net periodic benefit costs. RMP claimed that such an action would protect customers from potential cost volatility.
UAE, along with the Division and Office, opposed the Application because the DAO was filed between rate cases and normal pension provisions should be set for recovery only in a GRC. Also, UAE argued that the costs were not out of the norm and the pension expenses have actually been lower in 2018 than in earlier GRCs. On May 22nd the Commission agreed with UAE and denied the DAO.
The draft results of the ESR were released in August and they show that a double circuit 345 kV transmission circuit demonstrated an acceptable system performance and an overall capital cost savings of $1.9 billion less than the Gateway South and West expansions. These findings are significant, because this is the first formal study that shows a lower cost and reliable alternative to PacifiCorp’s proposed expansion.
UAE has filed several rounds of comments with NTTG on those issues and will continue to monitor NTTG studies and activities to make sure customer voices are heard.
Major Plant Addition Dockets
In 2017, PacifiCorp opened a docket seeking Commission approval of an RFP to construct or acquire up to 1,300 MW of new wind resources. Although UAE and many other groups opposed the request, RMP ultimately received Commission approval for the RFP and to construct or acquire approximately 1,100 MW of new wind resources in Wyoming and to construct a 140-mile segment of the Gateway West transmission project.
Because of significant perceived errors in the RMP process, UAE appealed the Commission’s orders approving the RFP and the wind and transmission projects. Those appeals remain pending before the Utah Court of Appeals. UAE has agreed to a temporary stay of those appeals to discuss settlement with RMP in an effort to improve the RFP process for future acquisitions.
UAE is the only industrial energy representative that plays an active role each year at the Utah Legislature on issues of relevance to large energy users. During the 2019 Session we followed and participated in 15 energy bills. UAE worked on supporting/opposing or shaping the language of several energy bills this year.
Key bills include:
Sustainable Transportation and Energy Plan Act Amendments
House Bill 107, sponsored by Representative Steve Handy, amended the STEP ACT language to include a “large-scale gas utility”.
This bill was backed by DEU in order to allow the Company similar opportunities that RMP received when the STEP SB 115 passed in 2016. UAE fought the bill as it allows DEU to spend up to $50 million over a five-year period (as part of a pilot program) on natural gas vehicle infrastructure and develop renewable natural gas, both of which add costs and risks for transportation customers especially, as well as potentially thwarting competition in the market.
The bill did not pass its first committee meeting due to the concerns that we expressed, along with OCS, but after DEU added language in the bill that the Commission would have oversight on DEU actions the bill passed and was signed by Governor Herbert. The program began on January 1, 2020; UAE intends to participate in any filings or hearings.
Energy Balancing Account Amendments
Senate Bil 150, sponsored by Senator Hemmert, repealed the reinstatement of the 70/30 sharing mechanism on net power costs that, based on UAE’s agreement with parties in the SB 115 negotiations, would otherwise have been reinstated by January 1, 2020. The bill allows RMP to collect 100% of its net power costs.
UAE fought the bill, but realizing that with Senate President Stuart Adam’s backing this bill, it was most likely going to pass, UAE negotiated a commitment from the senators for the creation of a two-year task force to examine retail access for industrial customers starting in the 2019 Interim Session. These meetings have been held since the start of the Interim Session.
Community Renewable Energy Act
House Bill 411, sponsored by Representative Handy, authorizes cities or counties to elect to allow their citizens to purchase 100% net renewable energy through RMP – something that cities like Salt Lake City and Park City have been pursuing for a number of years.
UAE did not oppose the bill, but helped work on the bill language to protect industrial energy users who do not operate in such areas from being allocated any resulting costs. This bill passed and was signed by Governor Herbert. UAE has participated in the meetings held in the summer and fall on the rules for communities who pass ordinances to receive only renewable energy. We will continue to participate in the processes as they occur.
UAE monitors and evaluates greenhouse gas (GHG) issues and represents industrial interests in regional and statewide GHG related initiatives. At the regional level, UAE tracked developments and actions taken by the EPA on carbon issues as they evolved under the Trump administration, replacing the Clean Power Plan with the Affordable Clean Air Act, as well as rulings on methane, ozone designations, regional haze, and in other areas, and how they might impact Utah industries.