One of the dominant themes during Rocky Mountain Power’s latest double-digit rate increase proposal has been the cost of wildfires, which company officials testified has been driving insurance premiums up exponentially the last few years.
“Wildfires and the liabilities associated with wildfire for utilities have just grown exponentially in the last few years,” Rocky Mountain Power Senior Vice President of Regulation Joelle Steward told the Wyoming Public Service Commission. “I mean, it started in California. We’ve seen it in Wyoming, and in Hawaii. As we’ve seen the incidents and the scale of fires grow in the West, insurers have taken note. They’ve seen more claims come in, and we’ve made claims from our insurance policies as well. Costs have risen across the region.”
Rocky Mountain Power’s initial ask in this latest rate case was for an overall 14.7% adjustments to cover various costs, totaling $123.5 million for Wyoming. That would have added $17 to an average residential rate payers’ bill per month, according to figures from Rocky Mountain Power.
The company has said it needs the money to cover capital investments for transmission, including renewable resources, increased operations and maintenance expenses, and increasing insurance costs due to wildfire risk.
The company has since reached an agreement with Wyoming Office of Consumer Advocates and Wyoming Industrial Energy Customers to take some of the edge off this latest increase. That agreement drops the overall rate increase to 10.2%, an overall cost increase of $85.5 million for Wyoming, with an approved return on equity of up to 9.65%.
That would in turn drop the increase to an average residential rate payer’s monthly bill to $14, according to Rocky Mountain Power.
Either way, the rates must be approved by the Wyoming Public Service Commission, which has allocated three days of testimony to the utility company’s latest rate case.
With wildfires increasing insurance premiums so much, Rocky Mountain Power is now considering the possibility of self-insurance, to get a better handle on the costs. There are elements of the settlement agreement that help establish a baseline for that effort, including a baseline cost of $23.5 million for insurance premiums, spelled out in the agreement. That will give the company a basis for comparison, as it explores whether self-insurance would save ratepayers any money.
“That way, if we move to self-insurance and either decrease the amount of commercial premiums we’re paying, or have to increase it, we know where we’re at,” Steward explained.
The company’s current policies go through February 2026, she added.
“So, I’m targeting, hoping to do a filing June/July so that we can have a proceeding in time to have a sense of what we need to do for the next policy period,” Steward said. “I’m hoping to do a couple more workshops with the (multi-state) stakeholder group. We’ve also been doing some work internally to look at the feasibility of a captive insurance company.”
What Is A Captive Insurance Company?
A captive insurance company is a subsidiary that insures its own, parent company.
“Essentially we’d write our own policies,” Steward explained. “This would still be regulated. We’d have to have a policy approved by the Insurance Commission, and we would fund it. You have to capitalize it, and then you have, it sets its own premiums.”
The advantage to it would include taking the profit motive out of the model, as well as putting the coverage the company pays for more under its own control.
Captive insurance companies aren’t the only approach to enable self-insurance.
“We could also create — we have self-insurance currently, and rates for property and for our self-insured retention for claims under $10 million, the first $10 million of claims,” she added. “We can do it outside of a captive, but a captive is then also regulated by the state.”
One disadvantage to captive insurance is the large upfront cost, Steward acknowledged.
But it otherwise offers many of the same features of a commercial product. The company would still pay a premium to the captive insurance company, and it would still be regulated by the state’s insurance commission.
The self-insurance approach is something that will be the subject of future workshops with the Wyoming Office of Consumer Advocates and Wyoming Industrial Energy Consumers, per a settlement agreement between the three parties that pertains to the current rate case.
“The settling parties agreed to meet for a workshop on the appropriate recovery, treatment, and allocation for insurance expenses, commencing before the earlier of either the company’s external rate case, or filing that puts into effect a new interstate cost-allocation method.”
Wildfire Mitigation Plans
As part of the company’s current rate request, Rocky Mountain Power has also filed a wildfire mitigation plan. That plan, Steward testified, should not be seen as fulfilling Wyoming’s just-passed legislation requiring public utilities to submit wildfire mitigation plans to the commission, and engage with stakeholders involved in fighting wildfires.
“We’ve been doing (wildfire mitigation) for a number of years,” Steward said. “Now we’ve put that plan together, to kind of document it for Wyoming.”
Public Service Commissioners asked if the company had considered withdrawing the plan, pending rule making by that body to set up the newly passed rule. Steward said the company believes it is prudent to go forth with its wildfire mitigation plans, while awaiting implementation of the rule.
“The company anticipates filing a new Wildfire Mitigation Plan in accordance with the law, following a commission rulemaking to implement it,” she said.
Knowledge of wildfire mitigation is a rapidly evolving area, she added.
“So, we do see the need to update (the plan) as well in the future,” she said. “We don’t want to say that this is the plan we would file. We do want to see the commission and stakeholders’ feedback on what they want to see in that plan.”
There’s also other engagement required by Wyoming’s new law, which would be included in that updated plan as well.
Rocky Mountain Power has been doing wildfire mitigation in other states for a while now, Steward said, adding that the cost of that in Wyoming has been about $4.6 million historically.
The wildfire mitigation plan got a thumbs up from Wyoming Office of Consumer Advocate Director Anthony Ornelas.
During his testimony on Wednesday, Ornelas put that item at the top of his testimony.
“As everybody in this room is aware, the risk of wildfire remains front and center, and represents a direct and growing threat to the safety, reliability, and financial stability of Wyoming utility companies,” he testified. “The wildfire mitigation plan submitted by Rocky Mountain Power represents the first of its kind, data-driven risk assessment that identifies fire high consequence areas and employs additional capital investment to harden the transmission and distribution systems that are essential for maintaining safe and reliable service.”
Reliability, however, isn’t free, he added.
“In my opinion, the wildfire mitigation plan strikes an appropriate balance through the inclusion of approximately $14 million of incremental capital investments and about $4 million of incremental vegetation management and operational expenses, targeted within these fire high consequence areas,” Ornelas said.
Ornelas also said the plan lays a strong foundation for compliance with Wyoming’s new wildlife legislation requiring mitigation plans from utility companies.
Renée Jean can be reached at renee@cowboystatedaily.com.
