Accomplishments in 2011

Since 1986 UAE has been an active participant in all regulatory and legislative activity that affects electricity and the natural gas in Utah.

Introduction
The Utah Association of Energy Users (UAE) played a critical role in the power prices that were at the forefront of the energy issues in 2011. UAE had an exceptionally successful year, with significant impacts on electricity costs, analysis and design of Rocky Mountain Power’s power cost adjustment mechanism, improving Questar Gas’ cost of service and rate design for transportation customers, participating in resource planning, energy efficiency, multijurisdictional challenges, and other issues. UAE also participated in legislative issues, including the ongoing development of Governor Herbert’s “Energy Initiative” and other energy bills. UAE continued to monitor evolving Environmental Protection Agency actions and their potential impacts on industries in Utah. Following is a brief summary of some of the major activities of the UAE Intervention Group and the UAE Legislative Group in 2011.

2010/11 Rocky Mountain Power Rate Case
Rocky Mountain Power (RMP) filed a general rate case in January 2011. The initial filing proposed a record $232 million increase, based on a future test period. Although the average proposed rate increase was 13%, Schedule 9 customers were hit with the highest proposed increase of 16.6%. A comprehensive settlement of this case included resolution of five open dockets, with UAE playing a leading role on several critical issues, including rolled-in cost allocations, Renewable Energy Credit (REC) revenues, cost allocation and cost of service issues. UAE and other parties were instrumental in negotiating a reduced revenue requirement of $117 M, with a 7.1% average customer increase. Some of the major impacts UAE had on the case include the use of rolled-in interjurisdictional cost allocations, which resulted in a $15 million reduction in requested rates, as well as a $25 million offset to RMP’s deferred net power costs over three years. UAE also secured a delay in the next rate case filing by over three months, resulting in a $35 million benefit to RMP customers. The settlement included a reduction of the return on equity to 10%, deferral of Klamath Dam removal costs, an adjustment for RMP’s aggressive hedging policies and other adjustments proposed by UAE and other parties.

Rocky Mountain Power REC Revenues
As in 2010, UAE was instrumental in capturing for ratepayers the true value of RMP’s RECs. In the rate case settlement, approximately $35 million of 2010 REC revenues that were deferred as a result of UAE’s deferred accounting order will offset the 2011 rate case increase by 3.7% for Schedule 9 customers between September 2011 and May 2012. In addition, by bringing under-reported REC revenues to the attention of the Utah Public Service Commission, UAE’s actions resulted in an $18.5 million reduction in base rates. A REC tracker will be utilized in the future to ensure that REC revenue is accurately reported.

Rocky Mountain Power Energy Balacing Account
The Commission approved RMP’s 2009 request for an energy balancing account (EBA) in Utah in early 2011. The Commission relied primarily on UAE’s arguments to implement a “70%/30% sharing mechanism” to balance some of the power cost risk between the utility and the customers. UAE succeeded in having the 70/30 split applied to the 2010-2011 deferred net power costs, which resulted in a $40 million reduction of the utility’s claim in net power costs spread over three years. Other issues related to the design of the EBA will be addressed in 2012.

PacifiCorp Integrated Resource Plan/RFP Process
In mid 2011, UAE was asked by the Commission to participate in the selection of the Independent Evaluator (required under Senate Bill 26 as requested by UAE) for PacifiCorp’s next resource procurement process. PacifiCorp issued a draft “All-Source” Request For Proposals (RFP) seeking 600 MW of energy based on its Integrated Resource Plan (IRP). The final solicitation will be issued in 2012. UAE will closely monitor the process and file comments as necessary in areas of concern, e.g., credit methodology and security required, alleged imputed debt and other issues to ensure PacifiCorp is providing a more level playing field for bidders. The IRP is a critical part of the utility’s determination of the optimal available resources from which it identifies the mix of resources to be acquired by the utility. PacifiCorp filed a new IRP in April 2011. UAE filed comments in September on the proposed increase in the Planning Reserve Margin from 12% to 13%, transmission and environmental upgrades, and the rate impacts on large Utah energy users. The 2011 IRP is currently waiting for acknowledgement by the Oregon and Utah Commissions.

GreenHouse Gas Issues
Greenhouse gas (GHG) issues continued to be a focal point at the federal level in 2011, as a number of Environmental Protection Agency (EPA) rules were either issued or pushed back by the EPA, or the court system intervened. The Best Available Technology rule to be effective 1/1/2011 which required reporting and reducing GHG was pushed back into 2012, while the Cross State Air Pollution Rules were slated to go into effect 1/1/12, but were stayed by a District Court order on 12/30/11, and the Mercury and Air Toxics Standards were approved 12/21/11 to go into effect in 2015. UAE continued to monitor and evaluate GHG issues throughout 2011. UAE represented industrial interests in both regional and statewide greenhouse gas related initiatives. At the regional level, UAE tracked developments of the Western Climate Initiative (WCI) and federal legislation, and how they might impact Utah industries. UAE also kept members abreast of actions taken by the EPA on carbon issues as they evolved.

Multi-State Process
As the only Multi-State Process (MSP) participant representing Utah businesses in the MSP process, UAE remained very involved in efforts to return Utah to rolled-in interstate cost allocations. UAE was instrumental in negotiating a settlement with RMP and filed testimony supporting the MSP 2010 Protocol and the RMP settlement and participated in the November 2011 hearing. UAE believes that the MSP Agreement reduces the risk that various jurisdictions will adopt inter-jurisdictional cost allocation methods that are materially inconsistent and therefore harmful to Utah customers. The Protocol adopted by the Commission will be in place until 2016. The “MSP Rate Mitigation Cap,” which was adopted as a direct result of UAE’s efforts early in the MSP process, has protected Utah customers from paying a greater share of total company costs than initially anticipated. This cap expires in 2013. A second MSP issue evolved in 2011 when the Idaho Public Utilities Commission requested that PacifiCorp treat its irrigation program as a system resource, rather than a situs resource, because the peak-reducing program is cost effective on a system basis, but is too expensive for the state to continue to individually support. Under the MSP Protocol, demand-side management programs must be considered situs resources, with costs assigned to the state the programs are operated in. UAE participated in discussions with other parties in PacifiCorp’s jurisdiction to determine the impact on other states if the program became a system resource. The issue will continue to be discussed in 2012.

Questar Gas Cost of Service
Questar Gas Company (QGC) initiated a rate case in December 2009, seeking a rate increase of $17.2 million. In 2010, UAE was instrumental in negotiating a settlement that limited the rate increase to all classes to 1%. The Stipulation also created a task force to resolve issues related to disputed cost allocation, cost of service and rate design issues. UAE made key recommendations during 2011 for more favorable treatment of transportation and interruptible customers. Negotiations toward a settlement of these difficult and contentious issues are continuing.

Legislation
UAE took an active role in Senate Bill 284, sponsored by Senator Stephenson in 2011. SB 284 required Salt Lake County to replace its “police fee” with a 6% tax on energy users in unincorporated Salt Lake County. Because the affected UAE members would have paid more under the 6% tax, UAE became involved in discussions with legislators. The issue was also significant because passage would have most likely initiated a similar action in other unincorporated counties. Ultimately, SB 284 was pulled from consideration. In addition, UAE monitored legislation and activities driven by Governor Herbert’s Utah “Energy Initiative” announced in his 2010 State of the State Address. The Initiative includes a 10-year strategy regarding access to low-cost and clean energy, developing and utilizing new energy technologies through Utah universities, fostering economic development, and energy conservation.

For information about current regulatory activity that impacts your company, contact Kelly Francone @ 355-4365 or kFrancone@energystrat.com