UTAH ASSOCIATION OF ENERGY USERS
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2022
ACCOMPLISHMENTS
In 2022, a number of significant regulatory issues arose that could have had a significant impact on large energy users. The Utah Association of Energy Users was actively involved in several key issues that included Dominion Energy Utah’s (Dominion) general rate case, Rocky Mountain Power’s (RMP) All-Source Request for Proposals (RFP), and a stakeholder working group on RMP cost-of-service and rate design issues.
UAE also remained actively involved in RMP’s Multi-State Process (MSP), Integrated Resource Planning (IRP) process, and Demand-Side Management (DSM) activities, the Energy Balancing Account (EBA) and REC Balancing Account (REC) filings, and other dockets.
On the national environmental front, UAE monitored several energy-related rules, methane-emission reporting, greenhouse gas emissions, ozone and regional haze, and others, as well as continued interest in carbon capture and nuclear energy. Regionally, UAE continued to participate in the California Independent System Operator (CAISO) energy imbalance market.
UAE also actively participated in legislative matters that arose in the 2022 Utah General Session, supporting or helping refine the language on 15 bills that impacted energy issues.
Additional details on the major activities and accomplishments of the UAE Intervention Group and the UAE Legislative Group in 2022 are provided below.
ELECTRICITY
RMP 2022 All-Source RFP
Consistent with the action plan resulting from its 2021 IRP, PacifiCorp filed an application in September 2021 seeking bids for 1,345 MW of new renewable and non-renewable generation resources, as well as 600 MW of new storage resources.
UAE actively participated in that docket by filing comments with suggestions designed to ensure that the RFP will yield a robust market response and that all bids will be evaluated fairly. Most of UAE’s suggestions were either adopted by PacifiCorp and others or were adopted by the Commission in its order approving the solicitation process, which was issued in April 2022.
The solicitation process approved by the Commission required benchmark bids to be submitted by November 2022 and market bids to be submitted by February 2023. PacifiCorp and the Independent Examiner will evaluate the bids and a final shortlist will be determined by June 2023.
Thereafter, PacifiCorp will engage in contract negotiations for those final shortlist bids and will then seek approval of the selected resources. Pre-approval (or a waiver of the pre-approval requirement) is required for larger projects.
If a waiver is granted, the prudence review will be conducted in a rate case or a Major Plant Addition proceeding. Prudence review for those projects that don’t require pre-approval or a waiver will be conducted either in a rate case, an EBA proceeding, or a Major Plant Addition docket. UAE has actively participated in the process to develop the RFP and will actively participate in any approval process.
Service Quality Working Group
During RMP’s 2020 GRC, several parties objected to various proposals as having insufficient factual and analytical support. RMP and others suggested that a working group be formed to more fully discuss these proposals after the conclusion of the GRC and before the filing of the next rate case.
The Commission approved this recommendation and ordered the creation of such a working group. UAE has continued to represent large energy users in the meetings to address the topics identified by the working group.
Parties continued to meet throughout 2022 to discuss the topics being addressed by the working group, which included Advanced Metering Infrastructure, advanced rate design, grid modernization, classification and allocation of costs associated with transmission and generation plant, etc. UAE is actively participating in these working group meetings which will continue in 2023.
NATURAL GAS
DEU General Rate Case
Dominion filed a general rate case on May 2, 2022. As part of a settlement allowing Dominion to acquire Questar Gas, Dominion is required to file a new rate case every three years. In its application filed with the Utah Public Service Commission (Commission), Dominion sought a $70.5 million increase in rates, to be effective January 1, 2023.
A major part of the increase was the ongoing investment tracker program to replace high pressure mains.
The costs associated with the construction of a Liquefied Natural Gas (LNG) facility in Magna, Utah, was also a major contributor to Dominion’s request to increase its revenue requirement. The Commission previously approved the LNG project and approved cost recovery of $210 million but indicated that the costs would be allocated in the next rate case. In its rate case application, Dominion did not propose to allocate any of the costs to transportation service customers (TS), however, the Division of Public Utilities (DPU) and the Office of Consumer Services (OCS) each filed testimony recommending that the costs of the LNG plant be allocated to the TS class.
The Company filing proposed using declining block rates in each of the transportation classes, as well as dividing the TS class into three separate groups. In the original filing, existing TS customers were to be separated into the three different classes. The new small class (TSS) would have the most customers but would also have the smallest annual usage. The new large class (TSL) would have the fewest customers and would use the largest amount of natural gas every year.
The proposed rate impacts in Dominion’s application were -10.68%, 22.30% and 65.50%, for TSS, TSM and TSL, respectively.
UAE filed testimony proposing adjustments to reduce Dominion’s revenue requirement increase to $30.6 million. In revenue requirement testimony sponsored by Kevin Higgins, UAE recommended reducing Dominion’s revenue requirement by a total of $39.8 million, based on a 9.5% ROE placeholder.
UAE also recommended that if the Commission were to approve continuance of the Infrastructure Tracker, it should cap expenditures at $77.4 million without future adjustments for inflation as requested by Dominion. UAE also recommended an adjustment to include the negative pension expense which would have reduced Dominion’s revenue requirement by $23.9 million. Alternatively, UAE recommended that the Commission direct Dominion to exclude pension expense from all future rate case filings.
After accepting corrections and adjustments recommended by UAE and other parties at the Phase 1 hearings, Dominion’s proposed revenue requirement increase going into the hearing was $67.31 million. In its December 27, 2022, Order, the Commission approved a distribution non-gas revenue requirement increase of $47.76 million. The total increase went into effect on January 1, 2023, except for the TS class.
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, public interest/environmental organizations, and parties representing Wyoming coal mining interests. UAE is one of the few representatives of large energy users active in the IRP process, and is the only representative of large Utah energy users.
UAE’s primary goal in participating in the IRP is to ensure that PacifiCorp develops a reasonable process to select a resource plan that is the least-cost, least-risk portfolio for consumers, including by ensuring reasonable consideration of all practicable resource options, promoting competition in generation resources, and identifying and minimizing undue biases of PacifiCorp and other IRP participants.
PacifiCorp’s 2021 IRP filing was delayed as the result of significant problems experienced with a new modeling platform (PLEXOS) that PacifiCorp acquired for this IRP cycle. PLEXOS, a third-party modeling platform utilized by many utilities, will ultimately allow PacifiCorp to do more complicated modeling as it diversifies its generation resources.
PacifiCorp ultimately filed its 2021 IRP on September 1, 2021. The preferred portfolio includes all resources identified in the final shortlist of the 2020 RFP, which include 1,302 MW of new solar, 1,792 MW of new wind, and 697 MW of battery storage capacity, most of which will be co-located with the solar resources.
These wind resources also depend on the construction of the Gateway South Transmission project, which is included in the preferred portfolio.
In addition to these resources identified in the 2020 RFP, the 2021 IRP preferred portfolio indicates that PacifiCorp will in the next five years seek to A) acquire and repower the Rock River 1 (49 MW) and Foote Creek II-IV (43 MW) wind projects; B) add 745 MW of additional new wind resources by 2026; C) add 600 MW of new solar resources co-located with battery storage resources by 2026; D) construct the Natrium nuclear project in Wyoming (500 MW plus storage) by 2028; and E) construct 500 kV Boardman to Hemingway transmission project by 2026.
UAE filed comments recommending that the Commission not acknowledge a portion of the 2021 IRP because the proposed nuclear/natrium plant hasn’t been modeled and costs have not been revealed. The Commission issued its ruling on the 2021 IRP in June of 2022. It did not acknowledge the IRP for a variety of reasons.
PacifiCorp kicked off its 2023 IRP process in February of 2022. UAE participated in that evaluation in 2022 and will continue in 2023.
DEU General Rate Case Cont.
Regarding dividing the TS class, UAE testified that breaking the class into three groups was not necessary to improve alignment with cost. If such a division was approved by the Commission, UAE supported mitigating the cost increase to allow for customers to adjust contracts, evaluate where they belong among the three groups and pursue other opportunities if possible.
In its order, the Commission approved the separation of the TS class into small, medium, and large transportation classes, with distinct rates for each class. To mitigate the rate impact for the new TS classes, the new rates will be implemented over three periods: January 1, 2023, July 1, 2023, and July 1, 2024. Once all rate changes are implemented, the final rate changes are: -16.1%, +14.6% and +55.8%, for TSS, TSM and TSL, respectively.
The Commission awarded DEU a 9.60% ROE. The Commission adopted UAE’s recommendation to base Test Year labor expenses on the average actual Full-Time Employee count during the 13-month period, reducing the Utah revenue requirement by $1.6 million compared to Dominion’s proposal. UAE argued that Dominion should be compensated for the actual number of employees it actually has, rather than a budgeted amount.
The Commission also adopted UAE’s recommendation that pension expenses, whether positive or negative, should be excluded in any future Dominion general rate case filing. In Phase II of the rate case, the Commission supported continuing the UAE recommendation to exclude Interruptible Sales (IS) customers in the development of the design-day factor. The Order states that “most IS customers are already contributing to demand-related costs captured through the design-day demand weighting.”
The Commission adopted UAE’s position on this point and denied proposals from both DPU and OCS to use peak-day demand instead of the gas utility’s design day to assign demand-related costs.
The proposal to use peak-day demand would have assigned a portion of design day costs to IS customers and would have increased design-day costs to all TS customers. The Commission agrees with UAE in its argument that Dominion does not size its system to serve the loads of the IS customers and therefore they should continue to be excluded from demand-related costs.
Regarding the Liquified Natural Gas plant costs, UAE argued throughout the case that the costs should be allocated only to the Firm sales classes, which were the intended beneficiaries of the LNG plant. The Commission agreed with UAE and declined to adopt OCS’s proposed adjustment to allocate costs to the TS customers. Overall, the cost allocation results were much less harmful to large energy users than they could have been.
Multi-State Protocol
MSP meetings continued throughout 2022. The protocol relies on 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 require that the rate base in those states cannot include coal assets after 2029 in Oregon, and 2025 in Washington.
Early in 2022, PacifiCorp provided a strawman proposal and identified a different production allocation factor method. The dollar amounts allocated to each state using this system vary from year to year.
PacifiCorp proposed a two-coincident peak method, with one peak from the summer and one from the winter. Under that proposal, the allocation to each state would also be fixed, which creates problems if one state’s load increases and another state reduces its capacity. Another concern UAE identified is that there needs to be a pricing method for when one state needs to lean on other parts of the system for either demand or energy because dynamic changes need to occur.
To address those concerns, UAE worked with the Wyoming Industrial Energy Consumers (WIEC) to address these problems. Also, CAISO is developing a locational marginal pricing mechanism. UAE and WIEC believe locational pricing is needed to dynamically allocate costs and to recognize state choices in system resources.
PacifiCorp is working with the UAE/WIEC proposal and calculating a series of projections using this method. The outcome of the MSP negotiations will significantly impact Utah commercial and industrial customers. UAE is the only entity representing large Utah power users that participates actively in all MSP meetings and negotiations. UAE participation is critical to determine and mitigate impacts of proposed cost allocation changes for large Utah energy users.
Demand-Side Management
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.
UAE supported RMP’s new load control program that was introduced in 2022 for the Commercial & Industrial customers, in which those customers have three opportunities to earn incentives by signing up for the program to be curtailed with and without notice, or a combination of the two.
In its final 2022 filing with the Commission, RMP noted that in years 2021-2024 the Company projects the DSM surcharge rate to remain at 3.56%. But in 2025 PacifiCorp forecasts that the surcharge will need to increase to 3.85% (which is 0.12% higher than projected in 2021) because the current surcharge won’t cover the increases of the amortization and carrying charges for the accelerated coal depreciation.
Based on projections from recent IRP meetings, we anticipate that DSM programs may need to increase to address the loss of generation from early coal plant retirements and the development of battery storage. UAE remains the only representative of large Utah energy users that actively monitors and participates in DSM activities.
LEGISLATIVE
2022 Legislature
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 2022 Session UAE followed and participated in 15 energy bills. UAE worked on supporting/opposing or shaping the language of several energy bills.
ENVIRONMENTAL
Environmental Issues
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 Biden administration, as well as rulings on methane, ozone designations, regional haze, and in other areas, and how they might impact Utah industries.