In 2018 the Utah Association of Energy Users (UAE) was involved in several important regulatory and legislative issues that involved evaluating impacts of federal income tax reform and appropriate rate reductions for Rocky Mountain Power (RMP) and Dominion Energy of Utah (DEU), PacifiCorp’s Request For Proposals (RFP) processes and applications for pre-approval of wind repowering resources and Major Plant Additions (MPAs) for new Wyoming wind and transmission resources.
Other PacifiCorp/RMP activities that UAE continues to participate in include the Multi-State Protocol (MSP), which has intensified in complexity, as well as the Integrated Resource Plan (IRP), Demand-Side Management (DSM), Energy Balancing Account (EBA), Sustainable Transportation and Energy Plan legislation (STEP) activities, as well as other dockets before the Utah Public Service Commission (Commission). UAE challenged DEU’s interruption and penalty calculation procedure that would have harmed transportation customers, and successfully opposed DEU’s efforts to impose a new peak-hour charge on that same class. UAE has also been involved in DEU’s docket seeking preapproval of a Liquified Natural Gas (LNG) plant and seeking new charges and language change under the DEU transportation tariff.
UAE monitored the reversal or change to several energy-related rules put into place under the Obama 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.
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. In RMP’s July 2018 filing, the utility calculated tax savings of $65.9 million per year, in addition to $26.4 million per year in amortization savings for excess deferred income taxes.
RMP proposed that the Company defer the dollars exceeding the original $61 million refund the Commission approved and use the deferred amount to offset future costs and price increases.
In its August direct testimony, UAE recommended a 2019 rate decrease totaling an aggregate of $86.7 million, including: 1) at least the full $65.9 million in tax savings, 2) plus $1.8 million per year for three years to amortize excess 2018 tax savings, 3) plus $13.2 million per year, which represented about half of the estimated property-related excess deferred income tax savings, and 4) $5.8 million per year for five years to amortize non-property excess deferred income taxes.
On November 9, 2018, the Commission approved the Stipulation settled by Utah parties and RMP to return all the benefits of the Tax Reform Act to Utah customers. 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 net 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 to 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 next general rate case occurring in 2019.
Although DSM has become a cornerstone in PacifiCorp’s resource stack in the last decade, in 2018 PacifiCorp developed $3.3 million less in programs than projected for the first time in many years.
In 2018 UAE worked with the Steering Committee and RMP to address the expected over collection of $15.7 million in funds for DSM programs for year-end 2018, and another $18.7 million that would be over collected in 2019 if the DSM surcharge did not change. UAE recommended reducing the DSM surcharge from 3.66% to approximately 3.54%, which the Commission approved.
In addition, parties agreed with UAE’s support of a one-time $14.5 million refund to customers based on a new 194 tariff to refund the money, effective February 1.
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 original 2010 MSP protocol expired in 2016 but was effectively extended through 2019.
Regular MSP meetings have occurred for several years regarding a “permanent” interstate cost allocation protocol that could be used by PacifiCorp’s six states after 2019.
PacifiCorp and representatives from most of the states are attempting to develop a workable cost allocation method for when the current protocol expires.
The process continues to be significantly complicated by legislation and goals in Oregon and other northwest states that seek to eliminate coal resources. Oregon legislation requires that Oregon rates must not include any coal assets after 2029, but the remaining lives of PacifiCorp’s coal plants do not all line up with that objective.
Oregon has paid higher depreciation costs than other states for several years such that it expects to have depreciated its share of coal plant down to zero by 2029. However, after 2029 Oregon rates cannot include depreciation of capital additions to coal plants.
The MSP group has explored the idea of a split of PacifiCorp into separate “east” and “west” companies, each with specified resources. However, PacifiCorp claims that splitting the company in that manner would create significant legal and financial burdens for it and its ratepayers.
PacifiCorp has presented several “straw-person” proposals for assigning transmission and generation assets and cost allocations, all of which could affect risk and costs, particularly after 2029.
PacifiCorp’s primary proposals include assignment of fixed slices of existing resources to each state, with the use of “subscription” for future resources, under which each state will assume specific cost responsibilities for new resources.
Energy Balancing Account
In 2017, the Commission incorporated an interim rate adjustment mechanism into the EBA for RMP to be able to collect an interim increase for its net power costs. UAE joined the Office and the Utah Industrial Energy Consumers (UIEC) in a petition for reconsideration of the Commission’s decision.
When the Commission declined to remove the interim ratemaking mechanism, UAE and the Office appealed to the Utah Supreme Court, as well as appealing the Commission’s use of an interim rate adjustment in connection with the 2018 EBA.
UAE does not believe that an interim EBA rate adjustment mechanism is authorized by statute. The appeal to the Supreme Court was fully briefed in late 2018 and oral argument continues.
UAE also filed comments with the Commission on the EBA before the agency filed the second set of its required comments to the Public Utilities and Technology Interim Committee (PUTIC) on November 5, 2018.
As part of RMP’s Senate Bill 115 “STEP” legislation passed in 2016, the Commission was required to file comments to PUTIC in 2017 and 2018 as to “whether allowing an electrical corporation to continue to recover [100% of the electrical corporation’s prudently incurred] costs under Subsection (2)(d) [of the EBA statute] is reasonable and in the public interest.”
The EBA pilot, which was scheduled to last through 2016, was extended through December 2019 under RMP Senate Bill 115 in the 2016 General Session. The EBA pilot included a 70/30 risk-sharing mechanism for net power costs which UAE was instrumental in securing. SB 115 also mandated a temporary elimination of that sharing mechanism through December 2018.
In its comments, UAE continued to stress that the risk-sharing mechanism “struck a reasonable balance between customers and shareholders” and served as a “meaningful incentive” for RMP in managing its net power costs.
UAE believes the risk-sharing mechanism provides RMP “a material stake in each of the actions and decisions related to power costs,” bringing its interests into alignment with those of its customers. UAE argued that when the utility shares in the benefits and risks of its decisions, it has a strong incentive to perform well in managing costs. UAE recommended that if any extension of the EBA is permitted beyond December 31, 2018, the risksharing mechanism should be reinstated.
PacifiCorp Major Plant Addition Analysis
In 2017, PacifiCorp opened three separate dockets in Utah that were not openly discussed or analyzed in the resource planning process for 2017, as is required under IRP requirements.
The proposals addressed repowering approximately 900 MW of existing wind resources, acquiring 1,200 MW of new Wyoming wind resources and the construction of several new transmission lines that would include the 140-mile segment of the Gateway West transmission line that has not been built due to lack of support by state regulators in the states PacifiCorp serves.
The proposals are a combined estimated cost of $3.5 billion. UAE worked diligently in filing comments on the Request For Proposals (RFP) and also participated in the hiring of an independent evaluator as required by the Utah Energy Resource Procurement Act (Act) on competitive bidding.
UAE filings addressed a number of concerns, including a key factor that the solicitation violated the Act in regard to the limitation of a small segment of the market in relation to wind and transmission located only in Wyoming.
Other concerns include: the insufficient time available to conduct a comprehensive review, the qualification and time constraints that would preclude most bidders from bidding, resources being inconsistent with the IRP, and the fact that the proposed transmission had not been properly vetted, nor was it necessary.
UAE urged the Commission to require PacifiCorp to issue an RFP that included wind resources that can interconnect anywhere to PacifiCorp’s system and solar resources. In the first docket, RMP sought Commission approval of an RFP soliciting bids for southern Wyoming wind resources. UAE asked the Commission to require RMP to include solar resources in the RFP.
The Commission approved the RFP without such a requirement, but with a recommendation that the RFP be modified to include solar resources. Commissioner David Clark dissented and said that he believed the Commission should reject the RFP unless PacifiCorp agreed to include solar resources within the RFP.
PacifiCorp rejected the Commission’s suggestion and proceeded with a wind-only RFP, while separately issuing a second RFP for solar resources. Because we do not believe the RFP was approved in compliance with applicable Utah laws and rules, UAE has appealed the Commission’s approval of the RFP.
In the second docket, RMP asked for pre-approval of its proposed wind repowering expenses, estimated at or above $900 million. UAE testimony emphasized the fact that the repowering of PacifiCorp’s current wind facilities provides a very minor potential of ratepayer benefits, while the potential ratepayer risks are significant.
UAE, along with the Division and Office, opposed the request, due to questionable economics of the projects and RMP’s continual changes to its analyses and data. The Commission nevertheless approved eleven wind repowering projects, excluding one project that UAE specifically opposed.
In the third docket, RMP sought pre-approval for an estimated $2.5 million to construct or acquire nearly 1,300 MW of new wind resources and to construct several new Wyoming transmission lines, including what it refers to as the “D-2” segment of the Gateway West transmission line.
UAE, the Division and the Office opposed the request, again due to questionable economics and consistent changes to RMP’s analyses and data. Again, however, the Commission approved the request. UAE has filed a limited appeal of the new wind and transmission approval, based on its appeal of the RFP approval and the argument that a defective RFP cannot support MPA approval. This appeal and the RFP appeal will be argued in 2019, unless current mediation efforts are successful.
In all three dockets, RMP sought to use a Revenue Tracking Mechanism (RTM) to defer and recover its costs. UAE also opposed the use of the RTM as unnecessary and inappropriate. The Commission rejected the use of the RTM in all of the dockets, opting instead to utilize traditional cost-recovery mechanisms.
DEU Peak Hour Imbalance Filing
In 2017, DEU filed an application seeking to add a new charge for transportation customers for hourly peaking services. The Company had signed contracts with Kern River and its affiliate Dominion Energy Questar Pipeline for firm peak-hour services, at a cost of over $2 million annually.
DEU proposed that transportation customers bear about 14% of the cost. UAE opposed the charge because “peak hour” services are unusual and unneeded and transportation customers are not the cause of the any need for such services.
UAE also argued that system non-gas costs can be determined for transportation customers only in a General Rate Case, which will not occur until 2019.
The Commission agreed that such costs could not be allocated to transportation customers outside of a general rate case, and denied DEU’s request to charge transportation customers a portion of the peak-hour costs for now. This issue, and many others, will most likely arise again in DEU’s 2019 general rate case.
DEU Interruption Penalty Calculations
In August of 2018, DEU filed an application with the Commission seeking to change several sections of its transportation tariff. DEU proposed a new supply curtailment restriction called “Hold Burn to Scheduled Quantity” to limit firm and interruptible transportation customers to burning no more than their confirmed nominations during periods when DEU faces supply constraints.
DEU proposed both a $25/Dth penalty (plus daily index price) for failure to limit usage to confirmed nominations during a Hold Burn to Scheduled Quantity and also the current $40/Dth penalty (plus three years of increased firm contract demand) for failure to interrupt when an interruption is called.
UAE filed testimony challenging the proposed $25/Dth penalty and proposed a penalty of no more than $5/Dth for violation of a Hold to Burn Scheduled Quantity restriction. UAE also argued that the restriction and penalties should be applied at the supplier level and not the customer level and made other recommendations.
Following settlement discussions with parties including DEU, UAE, the Division and Office, UAE’s recommendation for capping the Hold to Burn penalty to $5/Dth (plus daily index price) was adopted for usage outside a 10% tolerance band, along with a $25/Dth (plus daily index price) penalty for all additional usage in excess of the customer’s confirmed scheduled quantity of gas received into the DEU system.
A settlement also allows aggregation at the supplier/nominating party level of Hold Burn to Scheduled Quantity imbalances within a given receipt point group, which will help avoid or mitigate penalties. Customers are still required to pay for penalties that are not avoided by aggregation. The settlement also included various other matters that mitigated the significance of the DEU proposal.
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. In 2018, Representative John Knotwell sponsored Senate Bill 261, which permitted RMP to apply to the Commission for approval of an adjustment clause to acquire or construct a photovoltaic or thermal solar energy resource using a rate based on current market prices, rather than regulated prices. This bill allowed the utility to compete with other commercial solar energy companies and projects outside of RMP and earn revenue on the resource.
Because this ability could have significantly reduced the competition in the Utah solar market, UAE worked with parties on the language of the bill to protect RMP customers and present a more level opportunity for other solar developers. Senate Bill 261 passed. House Bill 422 was sponsored by Representative Mike Noel, authorizing the Commission to approve rural natural gas infrastructure in areas that were not previously served and to include those costs in the gas corporations’ annual revenue.
UAE worked with the Division and the Office to develop substitute language that protects the current customers from significant increases, while still allowing rural areas the opportunity to get natural gas into their areas from DEU. This bill also passed.
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.