Utility rate hikes expected in face of pandemic, energy downturn
April 16, 2020
As COVID-19-related costs mount for utilities, regulators are considering just how ratepayers will ultimately settle the bill.
State orders in response to the pandemic currently authorize electricity and natural-gas suppliers to waive fees and suspend disconnects, but utilities still expect payment in-full at some point in the future.
Regulated utilities are also asking the Wyoming Public Service Commission for permission to charge interest on deferred payments.
“Those bills will still be due and payable when the moratorium on disconnections is lifted,” said Bryce Freeman, administrator of the Wyoming Office of Consumer Advocate. “For that reason, we encourage customers to try very hard to remain current on their payments, even if they need some help doing so.”
However, Freeman said his office is objecting to the “uniform” request among regulated utilities in the state to charge interest on deferred payments due to the pandemic.
At a public hearing last week, utilities and the PSC discussed setting up “deferral accounts” to tally unpaid bills due to the pandemic and the voluntary suspension of disconnects. This will allow electrical power and natural gas utilities to request that any “bad debts” are recovered from the general body of ratepayers at a later date.
Generally, these are reasonable requests, according to Freeman. Regulated utilities must be allowed to recover expenses required to provide service, even in unforeseen circumstances. This allows them to continue to deliver services. But adding interest to delayed or deferred payments that are the circumstance of the COVID-19 emergency isn’t fair to ratepayers, Freeman said.
Deferred payments and shut-offs aren’t the only pandemic-related costs utilities are likely to incur. The need for personal protective equipment for employees and social distancing requirements, for example, are likely to drive up costs.
Another major financial hit to utilities, Freeman said, is lost revenue as a result of crashing demand for electrical power.
Regulated utilities must present mountains of evidence to demonstrate that rates are based on the actual cost of providing reliable low-cost service. Rates are set, in part, according to detailed analysis of foreseeable demand. While that analysis accounts for extreme weather, outages and other typical hiccups, it doesn’t factor in anything like the massive economic shutdown resulting from the COVID-19 pandemic. If there’s a drastic change in that demand, then the rates might not equal the actual cost to provide service.
In other words, Wyoming customers can expect utilities to file proposed rate hikes in the near future to align with the new landscape of demand.
“We want the PSC to be extremely cautious in granting approvals to defer lost revenues because this [the COVID-19 economic shutdown] is the area where we could really see an all-you-can-eat-buffet opened for the utilities,” Freeman said. “We believe that any revenues deferred for later collection should be strictly attributable to the pandemic.”
One complicating factor, though, is today’s historic downturn in Wyoming’s coal, oil and natural gas industries — an economy-altering backslide set in motion before the COVID-19 pandemic, and now intensified by magnitudes unforeseen.
It’s unclear how the suspension of disconnects and fee waivers might apply to industrial consumers, but their electricity use — or lack thereof — has a very real impact on residential ratepayers.
Wyoming coal was on course for an estimated 15% decline in 2020 — an acceleration following more than 10 years of decline. Now with the COVID-19 economic shutdown, Wyoming coal might see a decline more on the order of 18%, according to University of Wyoming energy economist Robert Godby.
Normally, fluctuations among fossil fuel commodities allow Wyoming to leap-frog from coal to natural gas to oil — depending on which commodity gains favor over the other. COVID-19, and other market forces, threaten to kick all three-legs of Wyoming’s fossil-fueled economy all at once, Godby said.
“This doesn’t change the long-term pressures that were already out there,” Godby told WyoFile. “It may have diverted our attention, but [the COVID-19 economic downturn] also makes those pressures much worse.”
This presents a major challenge for some Wyoming electric utilities. Wyoming’s fossil fuel industries are demanding less electricity as they curtail operations. That decreased industrial demand might hurt the average Wyoming utility ratepayer.
By far, the biggest consumer of electrical power in Wyoming is the energy industry itself. It takes a lot of power to produce coal, oil and natural gas in Wyoming.
In northeast Wyoming, draglines and coal shovels are tethered by massive power cables plugged into the electrical grid. In the southwest, natural gas processing plants, as well as coal and trona mines, pull down a lot of electricity. Half of all the electricity that Rocky Mountain Power provides in Wyoming is delivered to “industrial” consumers. Likewise, oil companies plug into the power grid to tap reserves in the Powder River Basin with deep horizontal wells.
One Wyoming utility in northeast Wyoming — the co-op Powder River Energy Corp. — serves at least 14 coal mines and tens of thousands of oil and gas wells. PRECorp, about to celebrate its 75th year in the state, earns approximately 80% of its revenue from industrial consumers.
Serving large industrial loads was a boon to other ratepayers on the system, according to PRECorp. But losing them en masse presents a challenge for a utility whose system also serves residential, rural, agricultural and commercial customers in a five-county region.
PRECorp said it has worked through 14 large member bankruptcies since 2016. Although it took measures to financially isolate its industrial customers from its non-industrial — such as requiring cash deposits and other financial assurances from industrial customers — the unprecedented downturn in energy and grim outlook for Wyoming coal threaten to alter the co-op’s system-wide rate structure.
Last fall, PRECorp CEO Mike Easley told co-op members he expected to see a $1 million operating loss for 2019. “This is in spite of millions of dollars of cost reductions,” he said. Then in October, the co-op filed a general rate increase request of $7 million, which would result in an estimated increase of nearly 9% for its residential customers, according to PSC filings.
“As a result of declining sales to coal-bed methane (“CBM”), oil and gas, and coal customers, PRECorp is facing an immediate revenue shortfall,” the co-op wrote in its filing.
That was before the COVID-19 pandemic.
While acute or trending changes in power demand can be considered justification for system-wide rate changes, it’s unclear how the Wyoming PSC might parse out PRECorp’s rate requests. What will the panel attribute to the market-driven downturn in the Wyoming coal and energy industries, and what to the extra squeeze on industrial consumers caused by the pandemic?
“Retail sales for many of the utilities that have large industrial loads were already declining prior to the outbreak due to the oil price war and declining coal production,” Freeman said. “It would not be fair to customers to defer those revenue losses for later recovery because they cannot be reasonably attributed to the COVID-19 pandemic.”
Wyoming’s appropriation from the CARES Act will include supplemental funding for the state’s Low Income Energy Assistance Program, according to program manager Brenda Ilg. So far, it’s unclear how much the program will receive, but LIEAP is preparing to respond to a big increase in calls for help.
“The phones are going crazy,” Ilg said on Monday. “We know we’re going to have an increase that’s directly related to COVID-19.”
The average household in Wyoming is using more electricity and heating fuel simply because kids are home and taking classes online while many parents telecommute from home.
“We are receiving calls from folks who have been laid off, or had their hours cut, or some impact directly related to COVID,” Ilg said. “Help is on the way. It’s not quite here yet, but we are preparing.”
LIEAP has also extended its crisis application deadline in response to the pandemic, from April 15 to May 31.
Ilg said she’s confident that LIEAP will receive its CARES Act appropriation before the state’s moratorium on disconnects is lifted. Meantime, she expects the level of assistance due to COVID-19 might equal demand during an extreme Wyoming winter — somewhere in the range of 16,000 households.
The LIEAP and Weatherization Assistance Program used to get money from both the federal government and the state. But Wyoming lawmakers cut the programs from general funding in 2016. Now the program relies entirely on Congress, which determines whether it will appropriate funds to the program on a yearly basis. Some years, that has resulted in lowering the maximum amount LIEAP can provide per household, Ilg said.