Historic electric rate hike whittled to 5.5% after utility admits error

Rocky Mountain Power’s Wyoming customers will see an overall rate hike of 5.5% in January rather than the historic 29.2% increase the company initially proposed

In a last-minute deal, the day before facing the Wyoming Public Service Commission, Rocky Mountain Power admitted a major accounting error regarding fuel cost overruns and agreed to a $9.4 million rebate, resulting in a reduction to the utility’s second major rate hike of the year.

Commissioners on Tuesday approved the “energy cost adjustment” settlement agreement that was hashed out between the utility, a coalition of its industrial consumers in the state and representatives of the Wyoming Office of Consumer Advocate.

Ratepayers will still see a hike in their monthly bills beginning in January, due to another increase in its base rates. But it will ultimately amount to about 5.5%, rather than the historic 29.2% the utility proposed as “just and reasonable” earlier this year.

That means average residential customers using 700 kilowatt-hours of power will see their monthly electric bill increase by $7.55, according to Rocky Mountain Power.

How the case, and the math worked out

Each year, Rocky Mountain Power is permitted to “true-up” its estimated-versus-actual costs for commodities like natural gas and coal to fuel power generation facilities, as well as electrical power it buys on the open market. Sometimes that results in a discount to ratepayers, and sometimes it results in a temporary increase.

The utility testified earlier this year that extreme weather events in 2022 spiked commodity prices — particularly for natural gas and coal — resulting in a fuel cost overrun. The company insisted its Wyoming ratepayers were on the hook for $50.3 million. 

The Public Service Commission temporarily approved that “energy cost adjustment” to be collected over 12 months beginning in July, and promised to make a final ruling later in the year because some stakeholders contested the calculations.

On Monday, the day before the commission was scheduled to hear oral arguments in the case, Rocky Mountain Power agreed to a settlement, acknowledging it had made a significant error in its formula to arrive at $50.3 million.

Factoring in what its customers have already paid since July, the company must now provide an “energy cost adjustment” discount of about $9.4 million, according to the settlement agreement that was hastily approved Tuesday by the commission.

Parallel to the annual “energy cost adjustment,” Rocky Mountain Power had also proposed increasing its continuing base rates. It asked for a 21.6% hike to collect an extra annual $140.2 million. That was knocked down to 8.3% for an extra annual $54 million.

Now that both cases are resolved, the combined impact for the utility’s 144,000 customers in the state is a 5.5% year-over-year increase beginning in January.

Then in July when the $9.4 million rebate has been fully doled out, customers will feel the full force of the 8.3% base rate increase.

The error

Rocky Mountain Power participates in the Western Energy Imbalance Market, which helps utilities on the western grid orchestrate electrical demand with supply. As a participant, the company sometimes sells some of its power, earning it revenue, and sometimes buys power. There are thousands of such exchanges each year. 

Utilities typically choose from two different formulas to track what they owe or what they earn and how those earnings or debts are shared with ratepayers. The Wyoming Public Service Commission in 2020 directed Rocky Mountain Power to use the “System Energy” formula, but it used another formula that doesn’t fairly credit Wyoming ratepayers, according to written testimony in the case.

That’s why Rocky Mountain Power must now provide a $9.4 million energy-cost-adjustment rebate to customers over the next six months.

It was an error that “never should have happened,” Commission Chair Mary Throne told company officials while ruling on the case Tuesday.

“The commission expects the company, at a bare minimum, to follow its orders, and the commission staff and intervenors should not have to be on the lookout for basic errors of that sort for a sophisticated utility faced with a myriad of compliance obligations that it must meet in the ordinary course of business,” Throne said. “I would not expect to see this kind of error again.”

Bargaining

strategy?

The massive difference between what the company asked for — a 29.2% increase — and what was ultimately approved — a 5.5% increase beginning in January and 8.3% beginning in July — is not necessarily indicative of gross misrepresentations or a bargaining strategy on behalf of Rocky Mountain Power, according to commissioners’ statements in deliberating the cases.

Aside from the company’s accounting error regarding annual fuel cost adjustments, many reductions were due to the commission kicking out difficult-to-verify estimates for future rising costs. Commissioners, as well as parties that challenged the rate hikes, said they expect the utility will resubmit some of the same increase proposals once it has more evidence of the trajectory of rising costs.

Other proposed increases were disallowed because Rocky Mountain Power introduced or attempted to justify them late in the process, such as $11.9 million based on the company’s estimate of rising insurance costs.

There were other reductions based on the commission’s authority to determine what is “just and reasonable.” 

For example, Rocky Mountain Power proposed a maximum allowable rate of return of 10.3%, but the commission set it at 9.35%, representing a $10 million reduction in the money the utility can get back from investments.

In closing remarks Tuesday, Throne warned that though the commission will continue to carefully scrutinize future rate increase proposals, the body doesn’t have the authority to deny any regulated utility prudent and justified costs, which appear to be on the rise.

“I just want to emphasize that we take affordability into consideration to the extent the law allows, which is that affordability is not specifically referenced in our statutes beyond its inclusion in the concept of just and reasonable rates,” Throne said. “We do our best to follow the law that we have, not the law that we might like it to be.”

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