20240531Direct J. Steward.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. PAC-E-24-04
OF ROCKY MOUNTAIN POWER FOR )
AUTHORITY TO INCREASE ITS RATES ) DIRECT TESTIMONY OF
AND CHARGES IN IDAHO AND ) JOELLE R. STEWARD
APPROVAL OF PROPOSED )
ELECTRIC SERVICE SCHEDULES AND )
REGULATIONS )
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-24-04
May 2024

1 I . INTRODUCTION OF WITNESS AND QUALIFICATIONS
2 Q. Please state your name, business address , and present
3 position with PacifiCorp d/b/a Rocky Mountain Power (the
4 "Company") .
5 A. My name is Joelle R. Steward, and my business address is
6 1407 West North Temple, Salt Lake City, Utah 84116 . I am
7 currently employed as Senior Vice President, Regulation.
8 Q. Please summarize your education and business experience.
9 A. I have a Bachelor of Arts degree in Political Science
10 from the University of Oregon and an M.A. in Public
11 Affairs from the Hubert Humphrey Institute of Public
12 Policy at the University of Minnesota. Between 1999 and
13 March 2007, I was employed as a Regulatory Analyst with
14 the Washington Utilities and Transportation Commission.
15 I joined the Company in March 2007 as a Regulatory
16 Manager, responsible for all regulatory filings and
17 proceedings in Oregon. On February 14, 2012, I assumed
18 responsibilities overseeing cost of service and pricing
19 for PacifiCorp. In May 2015, I assumed broader oversight
20 over regulatory affairs in addition to the cost of
21 service and pricing responsibilities . In 2017, I assumed
22 the role as Vice President, Regulation for Rocky
23 Mountain Power; in November 2021, I assumed my current
24 role as Senior Vice President, Regulation and
25 Customer/Community Solutions for Rocky Mountain Power.
Steward, Di 1
Rocky Mountain Power

1 Q. Have you appeared as a witness in previous regulatory
2 proceedings?
3 A. Yes . I have testified on various matters in the states
4 of Idaho, Oregon, Utah, Washington, and Wyoming.
5 II . PURPOSE OF TESTIMONY
6 Q. What is the purpose of your direct testimony?
7 A. I provide an overview of Rocky Mountain Power' s general
8 rate case filing and support the Company' s policy
9 positions in the filing. Specifically, I discuss the
10 drivers leading to the requested overall increase in
11 rates of approximately $92 . 4 million or 26 . 8 percent.
12 This change in rates is comprised of a base revenue
13 requirement increase of $81 . 3 million and $11 . 1 million
14 to fund the Company' s proposed Catastrophic Fire Fund.
15 Included in the base increase of $81 . 3 million, the
16 Company proposes to recover $12 . 4 million for excess
17 liability insurance in a new Electric Service Schedule
18 No . 92 - Insurance Cost Adjustment . In order to mitigate
19 the first-year rate impact of the increase, I discuss
20 the Company' s proposal to phase in the base net power
21 cost increase over two years such that the increase on
22 January 1, 2025 would be 19 . 4 percent and the increase
23 on January 1, 2026 would be 7 . 4 percent . Finally, I
24 address the Company' s proposals to better position the
25 Company to respond to the increasing costs and risks
Steward, Di 2
Rocky Mountain Power

1 associated with wildfire liability, which are necessary
2 to support the long-term stability of the Company.
3 Q. How is your direct testimony structured?
4 A. Section III of my testimony provides an overview of Rocky
5 Mountain Power' s last rate case filing. Section IV
6 provides an overview of this rate case filing, including
7 a discussion of key drivers . Section V provides an
8 overview of the Company' s update to the SCAM. Finally,
9 Section VI discusses the Company' s proposals regarding
10 the increasing wildfire insurance costs and how these
11 new regulatory tools respond to the costs and risks
12 associated with wildfire liability.
13 Q. Please summarize the recommendations you make in your
14 direct testimony.
15 A. I recommend that the Idaho Public Utilities Commission
16 ("Commission") :
17 • Authorize an increase of $92 . 4 million or
18 approximately 26 . 8 percent, for recovery of the
19 base revenue requirement, including the excess
20 liability insurance to be recovered through
21 Electric Service Schedule No. 92 and the funding of
22 the Catastrophic Fire Fund through a dedicated
23 surcharge, Electric Service Schedule No . 193 . The
24 support for the increase is set forth in my
25 testimony and the testimony of the other Company
26 witnesses;
27 • Approve the rate mitigation proposal to phase in
28 the base net power cost portion of the increase in
29 two steps, one rate change to be effective January
30 1, 2025 and the second rate change to be effective
31 January 1, 2026 as supported by myself and Company
32 witness Ramon J. Mitchell;
Steward, Di 3
Rocky Mountain Power

1 • Approve as prudent the Company' s request to include
2 the incremental additions to the Company' s rate
3 base, including the Gateway South transmission
4 line, Gateway West Segment D1 transmission line,
5 Rock Creek I wind facility, and the Foote Creek II,
6 III, and IV and Rock River I acquisition and
7 repowering projects, for a total Idaho rate base of
8 approximately $1 . 1 billion, as discussed in the
9 testimony of various witnesses in this rate case;
10 • Approve an overall cost of capital of 7 . 69 percent,
11 which is comprised of a capital structure of 50 . 00
12 percent equity, 49 . 99 percent long-term debt, and
13 0 . 01 percent preferred stock as supported by
14 Company witness Nikki L. Kobliha; and a return on
15 equity ("ROE") of 10 . 30 percent as supported by
16 Company witness Ann E . Bulkley;
17 • Approve the forecasted total-Company net power
18 costs ("NPC") for 2025 of $2 . 382 billion and $136 . 7
19 million on a Idaho-allocated basis as supported by
20 Company witness Mitchell;
21 • Approve the Company' s proposal to recover third-
22 party liability insurance costs through a dedicated
23 surcharge, Electric Service Schedule No . 92 -
24 Insurance Cost Adjustment as supported in my
25 testimony;
26 • Approve Idaho' s participation in and funding of the
27 Catastrophic Fire Fund through a dedicated
28 surcharge, Electric Service Schedule No . 193, to be
29 effective January 1, 2025 as supported in my
30 testimony;
31 • Approve the Company' s proposed modification to the
32 Energy Cost Adjustment Mechanism ("ECAM") as
33 supported by Company witnesses Mitchell and John
34 Tsoukalis;
35 • Approve the Company' s new voluntary renewable
36 energy credit option tariff as supported by Company
37 witness Craig M. Eller; and
38 • Approve the cost of service and rate design
39 proposals set forth in the testimony of Company
40 witness Robert M. Meredith.
Steward, Di 4
Rocky Mountain Power

1 III . PREVIOUS RATE CASE HISTORY
2 Q. Please discuss PacifiCorp' s most recent general rate
3 case and its outcome.
4 A. On May 27, 2021, the Company filed its last general rate
5 case ("2021 GRC") requesting an increase in revenues
6 from Idaho operations of $19 . 0 million or a 7 . 0 percent
7 increase to its revenue requirement. ' The Company and
8 intervenors in the proceeding entered into a stipulation
9 and settlement, whereby the Company was allowed to
10 increase rates by $8 . 0 million or 2 . 9 percent . 2 The
11 Commission entered an order approving the stipulation as
12 filed, effective January 1, 2022 . 3
13 IV. OVERVIEW OF RATE CASE
14 Q. What is the purpose of this section of your direct
15 testimony?
16 A. In this section of my testimony, I discuss the individual
17 components of the Company' s filing, including the cost
18 drivers leading to the filing.
19 Q. What test period is the Company proposing in this rate
20 proceeding?
21 A. The Company is proposing a test period based on calendar
22 year 2023 with known and measurable changes through the
' In the Matter of Rocky Mountain Power's Application for Authority to
Increase its Rates and Charges in Idaho and Approval of Proposed Electric
Service Schedules and Regulations, Case No. PAC-E-21-07, Order No. 35277
at 1 (Dec. 30, 2021) .
2 Id. , at 3.
s Id. , at 11.
Steward, Di 5
Rocky Mountain Power

1 12 months ending December 31, 2024, except for net power
2 costs, which is based on a forecast for 2025 . The
3 testimony of Company witness Shelley E . McCoy discusses
4 the development of the test period.
5 Q. What rate of return ("ROR") is PacifiCorp requesting in
6 this case?
7 A. The Company is requesting approval of an overall ROR of
8 7 . 69 percent . The overall ROR includes a 10 . 3 percent
9 ROE as supported by Company witness Bulkley. As
10 explained by Company witness Kobliha, PacifiCorp is
11 requesting a capital structure that is comprised of
12 50 . 00 percent equity, 49 . 99 percent long-term debt, and
13 0 . 01 percent of preferred stock. Together, this results
14 in a weighted ROE of 5 . 15 percent . Notably, the Company
15 is requesting an authorized ROE at the lower end of the
16 range recommended by Company witness Bulkley. The
17 Company' s proposed ROE balances the impact on customers
18 with the prevailing market conditions that support a
19 higher ROE, as described by Company witness Bulkley, and
20 the Company' s increased need to access capital at a
21 reasonable cost in light of the escalating utility risks
22 as discussed by Company witnesses Richard J. Garlish and
23 Kobliha. Company witness McCoy applies the overall ROR
24 to the Company' s cost of service .
Steward, Di 6
Rocky Mountain Power

1 Q. What allocation methodology is the Company using to
2 allocate costs in this rate case proceeding?
3 A. To develop the revenue requirement in this proceeding,
4 the Company used the 2020 Protocol which the Commission
5 approved on April 15, 2020 . 4 The Commission approved the
6 extension to use the 2020 Protocol through December 31,
7 2025, on June 30, 2023 . 5
8 Q. Please describe the major drivers of PacifiCorp' s rate
9 request.
10 A. As I noted above, the Company is requesting an overall
11 increase in rates of approximately $92 . 4 million. The
12 major drivers of the Company' s requested increase in
13 base rates are : (1) NPC; (2) capital investments; and
14 (3) insurance costs relating to rising wildfire
15 liability. Table 1 quantifies the drivers of the
16 increase .
4 In the Matter of Rocky Mountain Power's Application for Approval of the
2020 PacifiCorp Inter-Jurisdictional Allocation Protocol, Case No.
PAC-E-19-20, Order No. 34640 (Apr. 22, 2020) .
5 In the Matter of Rocky Mountain Power's Petition for Approval of an
Extension of the 2020 Inter-Jurisdictional Allocation Protocol, Case No.
PAC-E-23-13, Order No. 35984 (Nov. 2, 2023) .
Steward, Di 7
Rocky Mountain Power

Table 1
GRC Drivers from 2021 GRC
Net Power Cost $ 50.1
Capital Investments $ 13.5
Cat Fund $ 11.1
Insurance Cost Adjustment $ 9.8
Insurance Premium Deferral (3Yrs.) $ 2.6
Other $ 5.3
$ 92.4
1 I discuss the first two drivers in more detail
2 below. In Section VI of my testimony, I discuss the third
3 and fourth drivers, the costs related to escalating
4 wildfire liability.
5 Q. Please describe the NPC driver.
6 A. As explained by Company witness Mitchell, NPC have
7 greatly increased since the Company' s 2021 GRC. The
8 Company is proposing a forecast base NPC for 2025 to be
9 $2 . 382 billion on a total-company basis and $136 . 7
10 million on an Idaho-allocated basis . This is a
11 significant increase of $1 . 015 billion or 74 percent
12 from 2021 GRC forecasted base total-company NPC of
13 $1 . 368 billion that is currently included in rates . NPC
14 has been trending upward for several reasons, but the
15 largest drivers are the significant increases in
16 regional power and fuel prices . However, the Company has
17 and continues to make long-term investments that respond
18 to changes in the industry to ensure continued operation
19 of a safe and reliable portfolio of resources that are
Steward, Di 8
Rocky Mountain Power

1 least-cost and least-risk for our customers . For
2 example, the NPC increase is mitigated by the Company' s
3 investment in wind facilities and in the Gateway South
4 transmission line because it allows for the deployment
5 of additional capacity from Wyoming wind and coal
6 resources . Further, because of its participation in the
7 Western Energy Imbalance Market ("WEIM") , the Company' s
8 customers have received savings of and reduction to NPC
9 of $819 . 49 million since WEIM' s inception. 6 Further,
10 based on preliminary analysis, participation in the
11 Extended Day-Ahead Market (`EDAM") , which the Company
12 will join in 2026, may realize savings of up to $181
13 million per year. Company witness Mitchell explains in
14 detail the drivers causing the increase in NPC and
15 actions taken by the Company to offset increasing NPC.
16 He also supports the forecasted 2025 base NPC to be
17 included in Idaho rates in his testimony.
18 Q. Please describe the capital investments driver.
19 A. The Company continues to make capital investments to
20 bring safe, reliable and low-cost service to its
21 customers . In this rate case proceeding, the Company is
22 including in capital additions certain significant
23 projects, including the Gateway South and Gateway West
6 https://www.westerneim.com/Pages/About/QuarterlyBenefits.aspx (website
last visited May 20, 2024) .
Steward, Di 9
Rocky Mountain Power

1 Segment D. 1 transmission lines and the Rock Creek I wind
2 project .
3 Q. Please describe the Gateway South and Gateway West
4 Segment D. 1 transmission line projects .
5 A. These transmission projects are key components of the
6 Company' s Energy Gateway Transmission Expansion and have
7 been an integral component of the long-term transmission
8 plan for the region for a decade . Gateway South is a
9 416-mile, high voltage 500-kilovolt ("kV") transmission
10 line that will connect southeastern Wyoming to central
11 Utah. Gateway West Segment D. 1 includes the construction
12 of a new 59-mile, high voltage 230-kV transmission line
13 from the Shirley Basin substation in southeastern
14 Wyoming to the Windstar substation near Glenrock,
15 Wyoming, and a rebuild of approximately 57 miles of the
16 existing Dave Johnston-Shirley Basin 230-kV transmission
17 line . Company witness Richard A. Vail' s testimony
18 provides details regarding these transmission projects .
19 Q. What is the status of construction of the Gateway South
20 and Gateway West Segment D. 1 transmission line projects?
21 A. Construction began on the Gateway South and Gateway West
22 Segment D. 1 transmission line projects in June 2022 and
23 September 2022, respectively. Both transmission projects
24 are expected to be in-service in the fourth quarter of
Steward, Di 10
Rocky Mountain Power

1 2024 . Company witness Vail provides details regarding
2 the construction of these projects .
3 Q. Do the Gateway South and Gateway West Segment D. 1
4 transmission projects provide benefits to customers?
5 A. Yes . As explained by Company witnesses Rick T . Link and
6 Vail, the Gateway South and Gateway West Segment D. 1
7 transmission projects will provide a number of benefits
8 including relieving congestion on the transmission
9 system, enabling additional renewable resource
10 interconnections, and improving overall reliability.
11 Additionally, these resources will help enable the
12 future interconnection of up to 2, 500 megawatts ("MW")
13 of interconnection and transmission requests, including
14 13 executed interconnection service and transmission
15 service agreements for over 1, 600 MW of new wind
16 resources .
17 Q. Please describe the Rock Creek I wind project.
18 A. The Rock Creek I wind project will have a nameplate
19 capacity of 190 MW and is located in Carbon and Albany
20 counties in southeast Wyoming. The project is being
21 developed by Invenergy and was a bid submitted and
22 selected to the final shortlist in the Company' s 2020
23 All-Source Request for Proposal process in the form of
24 a build-transfer agreement . The project is currently
25 under construction. Company witness Jeffrey M. Wagner
Steward, Di 11
Rocky Mountain Power

1 provides further details regarding the Rock Creek I wind
2 project .
3 Q. Does the Rock Creek I wind project provide benefits to
4 customers?
5 A. Yes . As explained by Company witness Thomas R. Burns,
6 the wind projects are cost-effective ways to meet a
7 substantial near-term need for resources at a time when
8 the region is expected to be resource deficient .
9 Q. What is the Company proposing for rate design and
10 tariffs?
11 A. The Company is proposing changes to modernize the rate
12 design for its non-residential time of use option
13 (Schedule 35) and make a handful of changes to its
14 tariffs that relate to large new load requests . For
15 residential customers, the Company continues to
16 implement the five-year transition for rate design
17 approved in Case No . PAC-E-22-15; as such the Company is
18 not proposing residential rate design changes in this
19 case . Proposed cost of service, rate spread, rate
20 design, and tariff changes are discussed by Company
21 witness Meredith.
22 Q. Is the Company proposing a ratemaking measure that
23 mitigates the requested rate increase for January 1,
24 2025?
25 A. Yes . The Company is proposing to phase-in the requested
Steward, Di 12
Rocky Mountain Power

1 $92 . 4 million increase through two rate changes .
2 Specifically, $66 . 7 million or 19 . 4 percent of the
3 overall increase would become effective on January 1,
4 2025, and $25 . 7 million or 7 . 4 percent of the overall
5 increase would become effective on January 1, 2026 .
6 Q. Please explain how the Company proposes to phase in the
7 requested overall rate increase and why it is
8 reasonable.
9 A. The largest driver of the Company' s overall rate
10 increase is updating base NPC, which are approximately
11 $50 . 1 million, or over 50 percent of the requested
12 increase . Differences between actual NPC and base NPC
13 are tracked and recovered annually through the SCAM,
14 subject to a sharing band. Customers have experienced
15 the increases in NPC since the last rate case through
16 the ECAM, most recently in Case No . PAC-E-24-05, with a
17 request to recover $62 . 4 million in NPC deferred in 2023,
18 which is a 10 . 5 percent increase on June 1, 2024 .
19 Resetting the base NPC in this case will hopefully lessen
20 the annual rate changes in the ECAM in the future,
21 however the Company recognizes the compounding effect on
22 rates now of resetting the base NPC in this case while
23 also recovering the prior year deferrals through the
24 ECAM.
25 Therefore, the Company is proposing to phase in the
Steward, Di 13
Rocky Mountain Power

1 increase in the new base NPC over two years . The current
2 base NPC in rates set in the 2021 GRC is $24 . 54 per
3 megawatt hour ("MWh") and the new base NPC proposed in
4 this case is $39 . 34/MWh. To phase in the increase, the
5 Company proposes to increase the base NPC to the mid-
6 point from the current level in rates to the new base,
7 or an increase from $24 . 54 to $31 . 94/MWh on January 1,
8 2025, followed by an increase from $31 . 94/MWh to
9 $39 . 34/MWh on January 1, 2026 . The result is a $25 . 7
10 million reduction in the rate request effective January
11 1, 2025, which reduces the first-year rate impact by 7 . 4
12 percent .
13 However, the Company should not be harmed as a
14 result of application of a sharing band in the ECAM as
15 a result of this rate mitigation approach. Thus, the
16 Company proposes that the application of the sharing
17 band in the ECAM for costs deferred in 2025 should only
18 apply to actual costs in excess of $39 . 34/MWh, not the
19 $31 . 94/MWh in rates that year. Further details on how
20 this phase-in approach would be treated with the ECAM is
21 provided in Company witness Mitchell' s testimony and
22 Company witnesses McCoy and Meredith apply the two-step
23 rate proposal to the overall increase for revenue
24 requirement and rates .
Steward, Di 14
Rocky Mountain Power

1 V. PROPOSED MODIFICATION TO THE ECAM
2 Q. What is the purpose of this section of your testimony?
3 A. In this section of my testimony, I discuss the Company' s
4 proposed modification to the SCAM.
5 Q. What is the ECAM?
6 A. As previously noted, the ECAM is a ratemaking mechanism
7 that is filed annually through which the Company returns
8 to or recovers from customers the difference between
9 Idaho-allocated actual NPC that occur during the prior
10 calendar year and the base NPC, which are forecasted and
11 included in base rates by the Commission in a general
12 rate case. The ECAM also includes the return or recovery
13 of certain other non-NPC items as authorized by the
14 Commission. ? The ECAM includes a sharing band whereby
15 Company returns to or recovers from customers 90 percent
16 of the difference between actual and forecast ECAM
17 costs, and the remaining 10 percent of the difference is
18 retained or absorbed by the Company.
19 Q. What change is the Company proposing to the ECAM?
20 A. The Company proposes to modify the SCAM sharing band for
21 95 percent of NPC variances to be passed through the
' For a list of currently approved elements included in the ECAM, see the
Application In the Matter of the Application of Rocky Mountain Power
Requesting Approval of $62.4 Million SCAM Deferral, Case No. PAC-E-24-05
(April 1, 2024)
Steward, Di 15
Rocky Mountain Power

1 mechanism. The remaining five percent of NPC variances
2 will remain outside the mechanism (95/5 sharing band) .
3 Q. Why is the Company proposing changes to the ECAM at this
4 time?
5 A. Since the ECAM with a 90/10 sharing band was first
6 approved in 2009, the energy policies and the associated
7 impacts on NPC have significantly changed. However, the
8 sharing band first approved approximately 15 years ago
9 has remained unchanged and is now outdated. It is
10 outdated for a number of reasons, including how the
11 Company dispatches resources has changed, an
12 unprecedented level of uncertainty in being able to
13 accurately forecast NPC due to market and fuel prices
14 and to meet state and federal environmental compliance
15 requirements, and the Company' s plan to join the
16 California Independent System Operator' s EDAM.
17 Therefore, the Company is seeking this change in the
18 ECAM to better reflect how the industry and the Company' s
19 operations have changed since the ECAM was initially
20 adopted in 2009 . Company witnesses Mitchell and
21 Tsoukalis support the Company' s ECAM proposal in their
22 testimony.
Steward, Di 16
Rocky Mountain Power

1 VI . WILDFIRE LIABILITY COVERAGE
2 Q. What is the purpose of this section of your direct
3 testimony?
4 A. I describe two proposals the Company seeks to have
5 approved in this proceeding that will help position the
6 Company to respond to financial risk posed by the
7 increasing frequency and severity of wildfires impacting
8 PacifiCorp' s service territories . The proposals
9 complement the Company' s ongoing investments in wildfire
10 mitigation throughout its service territory. The new
11 regulatory tools the Company proposes are necessitated
12 by the rapid changes in the insurance market and the
13 wildfire liability outlook for utilities throughout the
14 West . The Company requests Commission approval of:
15 • An Insurance Cost Adjustment ("ICA") that will
16 recover the costs for excess liability insurance
17 through a separate surcharge. Separating
18 recovery for this expense will enable the Company
19 to annually procure insurance for third-party
20 liability using the most economical combination
21 of commercial insurance and self-insurance
22 through a new Insurance Mechanism that the
23 Company is developing. The Company will seek
24 approval for the Insurance Mechanism through a
25 separate filing but presents the need for and
26 framework of it in this filing to support the
27 approval of the ICA.
28 • A Catastrophic Fire Fund framework that will
29 facilitate creation of a multi-state risk pool
30 for potential catastrophic events where third-
31 party liabilities are in excess of the Company' s
32 insurance coverage .
Steward, Di 17
Rocky Mountain Power

1 Additional testimony supporting the need for the
2 Company' s proposals is provided by Company witnesses
3 Mariya V. Coleman and Frank Graves .
4 The Company has presented the Insurance Mechanism
5 and Catastrophic Fire Fund concepts to stakeholders in
6 multi-state workshops that began in September 2023 . The
7 Company continues to work with stakeholders to gather
8 feedback on the design and implementation of the
9 Insurance Mechanism and the Catastrophic Fire Fund.
10 Q. Why is the Company seeking approval of these proposals
11 in this proceeding?
12 A. The Company presents its proposals in its GRC for two
13 reasons . First, liability insurance is a category of
14 expense that the Commission has considered a necessary
15 part of the Company' s cost of service recovered in retail
16 rates . The Insurance Mechanism will be an innovative
17 vehicle for managing liability insurance expenses as
18 circumstances change with the commercial insurance
19 market, which evidence suggests is becoming strained by
20 coverage demands for wildfires and other extreme weather
21 events around the world. Second, the ICA and
22 Catastrophic Fire Fund involve targeted surcharges that
23 would be incorporated into Idaho rates in this
24 proceeding.
Steward, Di 18
Rocky Mountain Power

1 Subsequent to this filing the Company intends to
2 file for approval of the Insurance Mechanism, including
3 liability coverage level, that the ICA will support. The
4 Company' s insurance coverage comes up for renewal on
5 August 15 of each year. As discussed in my testimony and
6 further explained in the testimony of Company witness
7 Coleman, there is no doubt that commercial insurance
8 covering wildfire liability will be extremely expensive
9 for the coverage that is available when the Company must
10 make its annual coverage decisions . Obtaining reasonable
11 insurance coverage for known wildfire risks will be more
12 feasible if the Company has the Commission' s
13 authorization to implement its Insurance Mechanism that
14 enables the ability to incorporate self-insurance to
15 complement or replace commercial insurance . To
16 facilitate a path to resolution and to support the need
17 for the ICA, my testimony outlines the Insurance
18 Mechanism structure that the Company is continuing to
19 develop with stakeholders and will file for approval
20 subsequent to this case .
21 A. PacifiCorp Initiatives to Mitigate Costs to its
22 Customers Associated with Increasing Wildfire Risk
23 Q. What steps is PacifiCorp taking to mitigate the risks
24 associated with wildfire?
25 A. The increasing incidence and severity of wildfires has
26 had a tremendous impact on PacifiCorp and its customers .
Steward, Di 19
Rocky Mountain Power

1 Working together with regulators, public safety
2 officials, local communities, other utilities, and our
3 customers, PacifiCorp devotes substantial financial and
4 human capital to addressing the risk of wildfires . Our
5 approach to wildfire mitigation involves daily
6 operational activities and major investments to minimize
7 the risk of ignition. PacifiCorp is also taking steps to
8 manage the proliferation of wildfire-related liabilities
9 in order to stem the impact of rising Company costs on
10 customer rates .
11 Q. Please summarize the Company' s actions to mitigate the
12 incidence and severity of wildfires .
13 A. PacifiCorp' s Idaho 2024-2026 Wildfire Mitigation Plan
14 ("WMP") details the Company' s initiatives to date and
15 plans for future mitigation of wildfire risk. $ The WMP
16 describes investments to construct, maintain and operate
17 electrical lines and equipment in a manner that will
18 minimize the risk of wildfire . In evaluating which
19 engineering, construction, and operational strategies to
20 deploy, the Company' s actions are guided by the
21 following core principles :
22 • Systems that facilitate situational awareness
23 and operational readiness are central to
24 mitigating fire risk and its impacts .
$ See, In re Application of Rocky Mountain Power Requesting Approval of
the 2024 Idaho wildfire Mitigation Plan, Case No. PAC-E-24-09, Rocky
Mountain Power's 2024-2026 Idaho Wildfire Mitigation Plan (Apr. 15, 2024) .
Steward, Di 20
Rocky Mountain Power

1 • When a fault event does occur, the impact of the
2 event can be minimized using equipment and
3 personnel to shorten the duration to isolate the
4 fault event .
5 • Frequency of ignition events related to electric
6 facilities can be reduced by engineering more
7 resilient systems that experience fewer fault
8 events .
9 In 2023, guided by these principles, PacifiCorp:
10 • Completed additional vegetation management
11 practices on 67 circuit segments .
12 • Expanded situational awareness through
13 installation of ten weather stations and
14 procurement of new risk modeling tools,
15 datasets, and software .
16 • Implemented modified operational setting and re-
17 energization practices .
18 • Launched the Public Safety Partner portal .
19 PacifiCorp' s Idaho 2024-2026 WMP incorporates the
20 Company' s 2023 experience as well as feedback and
21 recommendations from stakeholders and communities . As a
22 result, in 2024 the Company is forecasting an additional
23 investment in Idaho of $31 . 4 million through 2026 .
24 In addition to the WMP for Idaho, PacifiCorp
25 prepares, and files wildfire mitigation plans in
26 California, Oregon, Utah, and Washington. 9 The Company
9 See, California Office of Energy Infrastructure Safety, Docket No. 2023-
2025 WMPs, PacifiCorp California 2023 Wildfire Mitigation Plan, filed May
8, 2023 (available at
https://efiling.energysafety.ca.gov/Lists/DocketLog.aspx?docketnumber=2
023-2025-WMPs) (last visited May 19, 2024) ; In the Matter of PacifiCorp
Steward, Di 21
Rocky Mountain Power

1 is also preparing to file a wildfire mitigation plan to
2 document the modeled risks and mitigation efforts for
3 its service area in Wyoming.
4 Q. Does PacifiCorp expect its mitigation efforts will
5 eliminate wildfire risks in its service territories?
6 A. No . While utility wildfire mitigation efforts are
7 important and represent good utility practice, they are
8 not sufficient to fully eliminate wildfire risks in a
9 fire-prone regions like that served by the Company. Even
10 if mitigation efforts effectively reduce the risk of
11 ignition, the extreme weather conditions that
12 increasingly accompany fire outbreaks amplify the risk
13 that a wildfire will cause substantial damage once it
14 has started. In addition, responsibility to mitigate
15 wildfires is distributed across numerous agencies and
16 individuals whose action or inaction may result in
17 damages regardless of a utility' s performance . Not all
18 wildfire risks can be resolved by PacifiCorp or by any
d/bla Pacific Power, 2023 Oregon Wildfire Mitigation Plan, Docket No. UM
2207 (filed Dec. 29, 2023) (available at
https://apps.puc.state.or.us/edockets/DocketNoLayout.asp?DocketID=23110
) (last visited May 19, 2024) ; In the Matter of Rocky Mountain Power's
2023 Utah Wildland Fire Protection Plan, Docket No. 23-035-44, Utah
Wildfire Mitigation Plan for 2023-2025 (filed Sept. 25, 2023) (available
at
https://pscdocs.utah.gov/electric/23docs/2303544/329969UTWldfrMtgtnPln2
02320259-25-2023.pdf) (last visited May 19, 2024) ; In the Matter of
Utility Wildfire Preparedness, Docket No. U-210253, PacifiCorp Washington
Wildfire Mitigation Plan, filed April 14, 2022 (available at
https://www.utc.wa.gov/casedocket/2021/210254/docsets) (last visited May
19, 2024)
Steward, Di 22
Rocky Mountain Power

1 utility or regulator. In fact, additional societal or
2 policy changes beyond the utility industry or the
3 Commission' s control are needed to thoughtfully address
4 expected future wildfire impacts . But until those
5 broader societal changes can be accomplished, PacifiCorp
6 needs regulatory solutions now to address this risk to
7 support our ability to obtain reasonable access to
8 financing required to ensure adequate, reliable service .
9 Q. In those occasions where wildfire damages occur, what
10 steps is PacifiCorp taking to manage risk of liabilities
11 and attendant impacts on customer rates?
12 A. Exposure to various types of liability has always been
13 inherent in a utility' s broad obligation to serve and
14 its operation of facilities distributed throughout large
15 geographic service areas . The Company manages the
16 unpredictable financial impacts of such claims in
17 several ways : situational awareness and system hardening
18 to prevent occurrence of damages and the use of insurance
19 to cover liabilities .
20 These risk mitigation methods protect customers
21 from exposure to rate impacts resulting from a utility' s
22 need to incorporate extraordinary damages expense in its
23 revenue requirement . As detailed in the Company' s 2024-
24 2026 WMP, PacifiCorp continues to expand the situational
25 awareness and system hardening tools available to
Steward, Di 23
Rocky Mountain Power

1 mitigate wildfire risk. Insurance procurement costs have
2 historically been authorized by the Commission. Most
3 recently, the Commission reiterated that it "believes
4 that liability insurance is a prudent expense that
5 protects both utilities and their customers . "10 The
6 Company is taking steps to update insurance procurement
7 with the goal of providing financial and rate stability
8 during this time of unprecedented volatility stemming
9 from growing wildfire liability risk.
10 Q. How is the Company seeking to address the impacts of
11 wildfire issues on its procurement of liability
12 insurance?
13 A. The Insurance Mechanism and Catastrophic Fire Fund both
14 offer tools for adjusting traditional protections
15 against claims volatility to the new realities of the
16 Company' s wildfire risks . The remainder of my testimony
17 will focus on the development and proposed
18 implementation of these tools .
19 B. Development of the Company' s Insurance Mechanism and
20 Catastrophic Fire Fund Proposals
21 Q. What prompted the Company to develop an Insurance
22 Mechanism and Catastrophic Fire Fund proposal?
23 A. Over the last few years the landscape for obtaining
io See, In the Matter of Rocky Mountain Power's Application for a
Deferred Accounting Order Related to Insurance Costs, Case No. PAC-E-
23-18, Order No. 36045 at 4 (December 29, 2023) .
Steward, Di 24
Rocky Mountain Power

1 commercial insurance to cover wildfire risk has
2 radically changed and seems likely to continue to become
3 more challenging. Regional claims for third-party
4 liability for past wildfires, combined with increasing
5 uncertainty about the financial impacts expected from
6 future fire events, drove PacifiCorp' s commercial
7 insurance costs to unprecedented levels . When it renewed
8 commercial liability insurance policies in August 2023,
9 the Company experienced an increase from the $32 . 7
10 million currently in rates to $122 . 6 million (a $89 . 9
11 million increase) for the policy period starting August
12 15, 2023 .
13 Q. How does the Company' s 2023 renewal compare to
14 historical experience with commercial liability
15 insurance coverage and costs?
16 A. Like many utilities, the Company purchases insurance
17 with Associated Electric & Gas Insurance Services
18 Limited ("AEGIS") as the primary insurer and builds a
19 follow-form tower above to build up insurance limits .
20 "Follow-form" means the insurers higher in the tower
21 follow AEGIS policy provisions with some minimal
22 modifications at each layer. AEGIS coverage indemnifies
23 insureds for claims arising from sudden and accidental
24 third-party bodily injury and property damage, meaning
Steward, Di 25
Rocky Mountain Power

1 general liability, inclusive of wildfire liability. " The
2 coverage is specifically tailored for all activities in
3 which an electric or gas utility may engage . Prior to
4 2020, many of the Company' s insurers included all
5 wildfire coverage within the utility excess liability
6 tower.
7 In 2022-23, PacifiCorp' s policy year expenditure
8 for excess liability insurance was $34 million. General
9 utility risk limits within the coverage were for claims
10 up to $530 million. The 2022-23 policy had a primary $10
11 million self-insured retention and various layers of
12 self-insurance including $35 million in California
13 wildfire limits and $55 million in utility risk limits .
14 The increased costs for commercial excess liability
15 insurance for the 2023-24 policy year were far beyond
16 anything the Company has experienced before . Excess
17 liability insurance costs were up 269 percent in one
18 year, and the 2023-24 policy year represents a 1, 888
19 percent increase over the last five years . 12 At the same
11 AEGIS coverage is available only to electric, gas and water utilities
and adds some areas of coverage that are in addition to general liability.
The expanded coverages include auto liability, employer's liability,
products liability, completed operations liability, failure to supply,
sudden and accidental pollution, medical malpractice, and aircraft
liability, amongst others.
12 PacifiCorp additionally purchased $123.75 million in third-party
insurance for property damage-only caused by wildfire. This indemnifies
PacifiCorp for claims from homeowners and business insurers who are
seeking to recover costs they paid to their insureds and claimants who
had property damage that was uninsured or underinsured.
Steward, Di 26
Rocky Mountain Power

1 time, coverage limits have not kept pace, with similar
2 limits to 2019 now costing the Company an incremental
3 $116 million annually. The changes in costs and coverage
4 since 2018 are detailed in Table 2 .
5 Table 2 : Historical PacifiCorp excess liability insurance
6 costs and limits, with breakouts for wildfire coverage
7 (2018-23)
Total Costs
for Excess
Liability $122.6m $33.1m $9.5m $6.2m
Total
Excess
Liability
$542.5m $530m $515m $517.5m $517.5 m $485m
Wildfire
—Sub limits:
$344.8m $145m $145m $95m $98m $147.5m
•' OR$348.3m
WA$363.3m $188m $170.5m $415m $415m
' $458.3m $232.5m $215m $427.5m $427.5m
Year over 270% 20% 189% 54% 78%
Year
Increase xn
Costs
Increase in 1,888% 438% 346% 54%
Costs from
2019
8 Based on the 2023 experience, it was clear to the Company
9 that it must seek workable alternatives for future
10 renewals .
11 Q. In addition to the increasing insurance costs, were
12 there other developments in 2023 that drove the Company
13 to develop the Insurance Mechanism and Catastrophic Fire
14 Fund?
15 A. Yes . Recent developments in the utility and insurance
16 industries regarding wildfire events are making it
17 increasingly clear that, barring legal or regulatory
18 interventions : (a) commercial rates for wildfire
Steward, Di 27
Rocky Mountain Power

1 liability coverage will continue their dramatic rise and
2 (b) utilities should expect that wildfire liability
3 coverage will become less available from commercial
4 insurers, if it is offered at all . As reported in the
5 trade publication Insurance Journal in July 2023,
6 insurers have taken note of the fact that " [l] liability
7 on the scale imposed by the Oregon jury [in the James
8 litigation] presents an existential threat to an
9 industry that faces increasing wildfire risk from more
10 extreme weather fueled by climate change . "13 Company
11 witness Coleman provides support for the expected
12 increase in premiums .
13 Q. Have the increased wildfire liability risks had
14 additional impacts on PacifiCorp?
15 A. Yes, credit ratings agencies cited wildfire risk, in
16 particular potential losses associated with the fires in
17 September 2020 and the 2022 McKinney fire, as the direct
18 cause of a ratings downgrade for PacifiCorp in the second
19 half of 2023 . In its June 20, 2023, notice that it was
13 Joel Rosenblatt, Utility Investors Wary of Exposures After Buffet's
PacifiCorp Held Liable for Wildfires, INSURANCE JOURNAL (July 19, 2023) ,
available at:
https://www.insurancejournal.com/news/national/2023/07/19/731224.htm.
See also, S&P Global Ratings Direct, A Storm Is Brewing: Extreme
Weather Events Pressure North American Utilities' Credit Quality, Nov.
19, 2023) , available at:
https://www.spglobal.com/ratings/en/research/articles/231109-a-storm-
is-brewing-extreme-weather-events-pressure-north-american-utilities-
credit-quality-12892106 (online registration required) .
Steward, Di 28
Rocky Mountain Power

1 downgrading PacificCorp, Standard & Poor' s ("S&P")
2 stated: 14
3 • "...we believe the operating risks for PacifiCorp
4 have significantly increased. "
5 • "To incorporate the increasing event risk that
6 may depress credit metrics over our forecasts
7 associated with the potential litigations, we
8 revised our financial policy modifier to
9 negative from neutral . Overall, we assess
10 PacifiCorp' s stand-alone credit profile (SACP)
11 at 'bb+ ' , reflecting our revised view of
12 PacifiCorp' s business risk profile and financial
13 policy modifier. "
14 Similarly, a Moody' s analysis issued on June 23, 2023,
15 included the following: 15
16 • "Wildfires are a significant risk for
17 PacifiCorp' s service territory in Oregon, Utah,
18 and California. While such wildfire risk has not
19 been on the scale of its California investor-
20 owned utility peers, it could still
21 substantially impact its credit profile . "
22 • "Moody' s could stabilize PacifiCorp' s rating if
23 there is more clarity on the potential claims
24 emanating from the outstanding class action
25 lawsuit regarding the 2020 Labor Day fires, the
26 claims are settled or largely resolved and that
27 any litigation liability is financed in such a
28 way that does not result in significantly higher
29 debt leverage and maintains PacifiCorp' s credit
30 metrics at current levels . "
14 S&P Global Ratings, Research Update: PacifiCorp Downgraded to BBB+,
Outlook Revised to Negative: Berkshire Hathaway Energy Co. Outlook Also
Negative, June 20, 2023, p. 2.
is Moody's Rating Action: Moody's revises PacifiCorp's outlook to
negative, affirms ratings, June 23, 2023.
Steward, Di 29
Rocky Mountain Power

1 In November 2023, Moody' s downgraded PacifiCorp' s senior
2 unsecured issuer rating to Baal from A3 . 16 In December
3 2023, Moody' s noted that wildfire risk was a significant
4 risk for the Company and has a substantial impact on its
5 credit profile . 17 Company witness Kobliha discusses the
6 Company' s credit metrics further in her testimony.
7 In December 2023, the Commission approved
8 PacifiCorp' s application for deferred accounting for
9 2023-24 insurance expenses . 18 In approving the
10 application for deferred accounting, the Commission
11 stated that "although allowing the Company to defer
12 incremental insurance costs above those already included
13 in rates would not guarantee their future recovery,
14 outright denial of the Application at this point could
15 undermine the Company' s ability to obtain financing in
16 the future necessary to provide safe, reliable
17 service . "19
18 Q. How will the Insurance Mechanism and the Catastrophic
19 Fire Fund address the challenges facing the Company?
20 A. The growing risk of wildfire liability is driving
21 negative financial outcomes that have impacted the
16 Moody's Rating Action: Moody's downgrades PacifiCorp to Baal, outlook
stable, at 1.
17 Moody's Investors Services, Credit Opinion, PacifiCorp, Update
following a downgrade to Baal, December 4, 2023, at 1.
18 In the Matter of Rocky Mountain Power's Application for a Deferred
Accounting Order Related to Insurance Costs, Case No. PAC-E-23-18, Order
No. 36045 (Dec. 29, 2023) .
19 Id, at 4.
Steward, Di 30
Rocky Mountain Power

1 Company' s financial stability and will influence
2 PacifiCorp' s future ability to provide service at
3 reasonable rates . PacifiCorp' s proposals in this
4 proceeding are focused on an issue that is central to
5 maintaining financial stability: how to supplement, or
6 perhaps replace, the current combination of self-
7 insurance and commercial liability insurance that no
8 longer provides sufficient coverage—at a reasonable cost
9 or at any cost—to address wildfire liability claims . The
10 Insurance Mechanism and Catastrophic Fire Fund seek to
11 alter the existing insurance tower framework, moving
12 PacifiCorp from the "Current" to "Proposed Future"
13 states summarized in Table 3 :
Steward, Di 31
Rocky Mountain Power

Table 3 : Current vs . Proposed Regulatory Mechanisms for
Liability Coverage
Current State Proposed Future State
Catastrophic Fire Fund
A pool of funds drawn on only
Uncovered Risk for extremely large claims
that exceed insurance
Limits on wildfire coverage. Creates a multi-
coverage will leave large state, Company-wide vehicle
potential liabilities for managing the largest
uninsured. Carrying such liabilities without sustaining
unbounded financial negative credit impacts that
exposure is not could lead to major rate
sustainable. increases for customers .
Insurance Mechanism
Provides more economic
Commercial Insurance sustainable cost for wildfire
Used for all excess liability coverage through use
liability coverage but of commercial insurance and/or
exorbitant costs and sub- self-insurance, funded by a
limits for wildfire targeted surcharge.
coverage - or
unavailability of wildfire
coverage - will force Commercial Insurance
reduced reliance on Commercial insurance will
commercial policies . continue to be used for non-
wildfire related needs.
Self-Insured Retention
Self-Insured Retention The Company expects an
A retention for smaller insurance retention similar to
claims continues to make today' s level - covering
economic sense even as claims up to $10 million -
other arrangements change. remains a prudent approach in
the future.
1 The goal of the regulatory tools proposed by PacifiCorp
2 is to create some stability in an increasingly
3 unsustainable legal, regulatory, and financial
4 environment, while maintaining flexibility to adjust
Steward, Di 32
Rocky Mountain Power

1 liability coverage as circumstances change and policy
2 responses evolve .
3 Q. What steps has the Company taken to develop its
4 recommendations?
5 A. PacifiCorp gathered information from its own experience
6 with wildfire mitigation and insurance issues . In
7 addition, the Company examined responses to increasing
8 climate change risks in other states . The Company drew
9 from models such as the California Utility Wildfire Fund
10 and the disaster mitigation framework adopted by Florida
11 regulators, which was established to protect utility
12 credit quality in light of increasingly extreme
13 hurricane events . The Company retained The Brattle Group
14 to evaluate and support the Company' s development of
15 regulatory tools . As discussed in more detail later in
16 my testimony, PacifiCorp is also working on additional
17 analysis to assist in informing the liability coverage
18 level that should be supported by the proposed Insurance
19 Mechanism and Catastrophic Fire Fund.
20 Q. Has PacifiCorp discussed its proposals with
21 stakeholders?
22 A. Yes . PacifiCorp recognized that the proposed solutions
23 would benefit from input from all of the states in which
24 it operates . To facilitate input, PacifiCorp has
25 convened an ongoing series of meetings and workshops
Steward, Di 33
Rocky Mountain Power

1 with the participants in the Multi-State Process
2 ("MSP") . To date, the Company has met with stakeholders
3 in conjunction with MSP meetings in Portland and Salt
4 Lake City and provided remote participation options for
5 all of the workshops . Additional workshops are scheduled
6 through July 2024 to be able to incorporate evolving
7 information into the proposals . The participants include
8 stakeholders who are involved in PacifiCorp' s MSP. This
9 group regularly addresses, and has developed substantial
10 expertise in, cost allocation issues in PacifiCorp
11 states . The MSP consideration of traditional cost
12 allocation issues shares similarities with the issues
13 that will arise in allocation of insurance and liability
14 costs under the new proposals . Moreover, the MSP
15 includes a broad representation of regulators, consumer
16 representatives, and other participants in the Company' s
17 state regulatory proceedings . 20
18 Q. What has been the outcome of the workshops?
19 A. The workshops have provided an opportunity for the
20 Company and stakeholders to "level set" on the nature of
21 the challenges posed by unbounded wildfire liability and
22 the diminishing options for wildfire insurance . In its
20 To the extent they are not already attending, PacifiCorp will invite
intervenors to this proceeding to participate in future workshops (subject
to agreement to confidentiality protections applicable to settlement
discussions) .
Steward, Di 34
Rocky Mountain Power

1 presentations, PacifiCorp has discussed options for
2 addressing the challenges, with a focus on reaching
3 consensus on actionable and effective regulatory
4 mechanisms that could be timely implemented. As noted
5 above, the workshop process will continue after this
6 filing. PacifiCorp has committed to provide further
7 information and details associated with the Insurance
8 Mechanism and the Catastrophic Fire Fund proposals in
9 future workshop sessions as more information becomes
10 available .
11 Q. How does PacifiCorp view the interplay of the ongoing
12 workshops and this Idaho rate proceeding?
13 A. PacifiCorp has included a forecast of commercial
14 premiums for the test period in this case, along with
15 the proposed amortization (over three years) for the
16 deferred costs approved in Case No. PAC-E-23-18 . The
17 Company is seeking to recover the excess liability
18 premium costs through a separate rider, the ICA, to be
19 effective January 1, 2025 . Recovery of these costs
20 through a separate adjustment tariff will facilitate the
21 new Insurance Mechanism, discussed later in my
22 testimony, which the Company intends to file for
23 approval separately. Filing for approval of the
24 Insurance Mechanism separately allows for the Company to
25 incorporate additional data and stakeholder feedback
Steward, Di 35
Rocky Mountain Power

1 into the filed proposed mechanism. Filing separately
2 will also allow for a different procedural schedule for
3 the Insurance Mechanism in the event the current
4 commercial insurance market provides insufficient
5 coverage at a reasonable cost for the next renewal
6 period, which next occurs in August 2024 .
7 The Company acknowledges that it is unusual to have
8 solutions that it advocates for in a general rate case
9 being simultaneously further sharpened in a multi-state
10 collaborative process . In substance, however, the
11 setting is not so different from parties' normal process
12 of seeking settlement on issues during the pendency of
13 a contested case . A separate filing for the Insurance
14 Mechanism provides a procedural vehicle that the parties
15 and the Commission can utilize to advance consideration
16 of liability insurance issues in light of a dynamic
17 commercial insurance market and with the potential need
18 to support resolution to ensure coverage for the next
19 policy year while the forecast costs of the policies
20 continue to be part of the GRC for ratemaking.
21 Second, as noted above, the "Proposed Future State"
22 summarized in Table 3 involves regulatory structures
23 that must necessarily include all PacifiCorp states . For
24 example, current insurance costs are allocated based on
Steward, Di 36
Rocky Mountain Power

1 the "System Overhead" factor in the 2020 Protocol . 21 If
2 PacifiCorp' s proposal for additional insurance options
3 are adopted, those changes will need to flow through the
4 MSP allocation process . It is thus imperative to
5 continue the multi-state collaboration and information-
6 sharing that has characterized the ongoing workshop
7 process .
8 C. The Insurance Mechanism Offers a New Least Cost
9 Insurance Coverage Option and Promotes Financial
10 Stability
11 Q. Why is the Company developing a new insurance mechanism
12 to address the wildfire insurance challenges you have
13 identified?
14 A. Commercial insurance is an excellent option for managing
15 liability risk, but only when it provides sufficient
16 coverage at a reasonable cost . If a business can
17 adequately capitalize it, a self-insurance program can
18 provide several benefits . First, a company can customize
19 its insurance for coverage that may not be readily
20 available in commercial markets . This is the situation
21 PacifiCorp faces with the changes in options available
zi The 2020 Protocol "describes the way all components of PacifiCorp' s
regulated service, including costs, revenues, and benefits associated
with generation, transmission, distribution, and wholesale transactions
should be allocated and assigned among the six States during the Interim
Period." 2020 Protocol, § 1. The "Interim Period" refers January 1, 2020,
to December 31, 2025, the period during which the approved 2020 Protocol
remains in effect. Id. at 4 (2020 Protocol, § 1) . See Case No. PAC-E-23-
13, Order No. 35984 (Nov. 2, 2023) (extending the effective date of 2020
Protocol through December 31, 2025) .
Steward, Di 37
Rocky Mountain Power

1 for insuring wildfire liability risk. Second, self-
2 insurance avoids overheads, transaction costs, and risk
3 premiums associated with commercial insurance . If
4 PacifiCorp' s proposal is adopted, the Company would have
5 more control over its insurance expenditure, and more
6 flexibility to adapt what it spends on insurance to
7 changing circumstances . Moreover, when claims are low a
8 self-insurance reserve can provide customers a better
9 value because every dollar collected remains available
10 for use in the future versus paying annual premiums
11 regardless of claims made .
12 Q. What are the key design elements of the proposed
13 Insurance Mechanism?
14 A. There are three fundamental design elements important to
15 any insurance program. To summarize it at a high level,
16 there are three questions the Company must answer to
17 design and implement a successful Insurance Mechanism.
18 (1) What is the amount of annual coverage the
19 mechanism will provide?
20 (2) What is the source and amount of the funds
21 available to pay claims?
22 (3) How will any self-insurance program be managed,
23 and the reserve funds invested?
24 The participants in the workshops have discussed these
25 issues and continue to work with the Company toward
Steward, Di 38
Rocky Mountain Power

1 optimal answers to each of the key questions . In
2 formulating its proposal PacifiCorp is assuming the
3 Insurance Mechanism would be structured to use a self-
4 insurance reserve to fill any gaps in the insurance tower
5 and replace commercial insurance for wildfire coverage
6 in the event commercial insurers no longer offer
7 sufficient wildfire coverage at a reasonable price . My
8 testimony also provides an illustrative example of the
9 Insurance Mechanism that includes both commercial and
10 self-insurance .
11 Q. How will the Company determine the amount of coverage
12 the Insurance Mechanism will provide?
13 A. A critical aspect of developing the new insurance
14 mechanism is to identify what is the appropriate amount
15 of insurance coverage to target obtaining through
16 commercial and/or self-insurance . The first step in
17 determining coverage amounts is to prepare estimates and
18 probabilities for losses . In the case of wildfire
19 liability exposure, loss estimates would be comprised
20 of, at a minimum, estimated third-party property damage,
21 bodily injury, wildfire suppression, and legal costs .
22 However, developing reliable loss estimates is a complex
23 task that will benefit from other analysis inputs which
24 will take additional time .
Steward, Di 39
Rocky Mountain Power

1 Q. What is the Company' s proposal regarding the source and
2 amount of the funds available to pay claims?
3 A. The Insurance Mechanism would be comprised of both
4 commercial products and self-insurance, to the extent
5 that the cost and availability of commercial products
6 remains a prudent component for achieving the targeted
7 coverage amount . PacifiCorp proposes using the ICA
8 proposed in this GRC as the funding source . The ICA would
9 be set to collect a reasonable amount to pay for the
10 targeted liability coverage amount . Annually the Company
11 would continue to try to obtain commercial insurance
12 products to meet that coverage level . If commercial
13 products are not available at a reasonable cost to meet
14 the coverage target, the Company would use the ICA
15 collections that are in excess of the annual commercial
16 premiums to fund a self-insurance reserve . As such, all
17 payments into the Insurance Mechanism would provide an
18 equivalent type of coverage as insurance premiums for
19 commercial insurance but at a potentially lower annual
20 cost . The self-insurance reserve would build over a
21 number of years up to the coverage target amount and
22 once collections to the self-insurance reserve reach the
23 targeted coverage level, the self-insurance collections
24 would cease until replenishment was needed. The Company
25 will make more specific recommendations on how to
Steward, Di 40
Rocky Mountain Power

1 establish a level of contribution to the self-insurance
2 reserve when it separately files the Insurance Mechanism
3 for approval . In this case, however, the Company is
4 seeking approval of the ICA with the underlying and
5 minimal expectation that it will be used to fund
6 commercial premiums that will be in effect for the test
7 period. After the test period, the ICA surcharge could
8 support a self-insurance program in lieu of higher cost
9 commercial premium products .
10 Q. Commercial insurance policies usually include a
11 deductible amount paid by the insured. Would the
12 Insurance Mechanism include a deductible amount paid by
13 the Company?
14 A. Yes . In typical insurance policies, deductibles provide
15 an incentive to minimize claims and reserve coverage
16 expenditures for more significant events . Low- or no-
17 deductible policies usually come at a much higher cost
18 to insureds . PacifiCorp' s existing $10 million self-
19 retention serves this purpose : covering smaller claims
20 without calling on insurance in a way that could lead to
21 higher premiums in the future . PacifiCorp proposes the
22 Insurance Mechanism include an additional deductible, or
23 co-insurance, component. PacifiCorp proposes a
24 deductible arrangement where the Company would pay
25 2 . 5 percent of claims over $350 million (total Company) ,
Steward, Di 41
Rocky Mountain Power

1 with an annual cap of $10 million (total Company) . The
2 inclusion of this co-insurance component is in direct
3 response to feedback from stakeholders in the workshop
4 process to incorporate an incentive for the Company to
5 prudently manage decisions to pay claims to third
6 parties .
7 Q. How will the self-insurance program be managed and
8 invested?
9 A. In any insurance program, payment of claims relies on
10 the insurer prudently investing premium payments .
11 Interest and other earnings from investing premiums is
12 essential to building an insurance reserve capable of
13 paying claims up to coverage limits . The Company
14 proposes to invest the surcharge amounts paid into the
15 self-insurance reserve in an interest-bearing account
16 held outside of the Company to make sure the collected
17 funds receive a market-based time value of money.
18 Q. How does PacifiCorp propose the self-insurance program
19 handle investment decisions, claims review, and other
20 functions typically handled by an insurer?
21 A. PacifiCorp is evaluating creation of a captive insurance
22 company to administer the self-insurance component of
23 the Insurance Mechanism. Captive insurers are companies
24 typically owned and controlled by their insureds . A
25 captive' s purpose is limited to insuring the risks of
Steward, Di 42
Rocky Mountain Power

1 its owners . The Company would retain an experienced
2 insurance administrator to manage the captive company.
3 Captive insurance companies are subject to regulatory
4 requirements, with particular focus on protection of
5 funds devoted to payment of claims . 22 A regulated captive
6 insurer arrangement may be ideal to ensure transparency
7 and confidence that the Company' s surcharge-funded
8 Insurance Mechanism is managed prudently.
9 Q. Assuming the design elements proposed by PacifiCorp,
10 please provide an illustrative example of how the
11 Insurance Mechanism would work.
12 A. Table 4 below provides an illustrative example of the
13 workings of the Insurance Mechanism on a total-Company
14 level, from its inception through a 10-year period. The
15 example assumes : (1) an annual total-Company coverage
16 limit of $750 million; (2) a surcharge-funded total-
17 Company premium of $183 . 9 million per year ($150 million
18 of which is used for commercial premiums) ; (3) a 2 . 5
19 percent deductible for claims over $350 million, capped
20 at $10 million per year; (4) interest earnings of 5
21 percent per year on balances in the self-insurance
22 reserve; and (5) the Company utilizes a combination of
zz See, National Association of Insurance Commissioners Center for
Insurance Policy and Research, Captive Insurance Companies (April 3,
2023) , available at: https://content.naic.org/cipr-topics/captive-
insurance-companies.
Steward, Di 43
Rocky Mountain Power

1 commercial insurance and self-insurance to pay claims .
2 The example also includes varying amounts of claims
3 assumed to be paid each year, including a potential
4 catastrophic event in year 8, which trigger the use of
5 the proposed Catastrophic Fire Fund discussed in the
6 next section.
Table 4 : Insurance Mechanism - Year 1-10 Illustrative
Example (Commercial excess liability insurance and self-
insurance reserve funded by ICA)
Total Claims Self- Self- Total
Collections Total Paid- Insurance Insurance Collections- Claims Paid Ending
Comm Claims Self- Comm Deductible Beginning Self -Self Self-Ins
$millions Insurance Paid Retention Insurance Pd by Co Balance Insurance Insurance Interest Reserve
Year 1 150.0 - - - - 33.9 0.8 34.7
Year 2 150.0 15.0 10.0 5.0 34.7 33.9 2.6 71.2
Year 3 150.0 10.0 10.0 - 71.2 33.9 4.4 109.5
Year4 150.0 - - 109.5 33.9 6.3 149.8
Year 5 150.0 100.0 10.0 90.0 149.8 33.9 8.3 192.0
Year 6 150.0 15.0 10.0 5.0 192.0 33.9 10.4 236.3
Year 7 150.0 50.0 10.0 40.0 - 236.3 33.9 - 12.7 282.9
Year 8 150.0 2,000.0 10.0 490.0 6.3 282.9 33.9 243.8 8.9 82.0
Year 9 150.0 5.0 5.0 82.0 33.9 4.9 120.8
Year 10 1 150.0 1 8.0 8.0 120.8 33.9 6.9 161.6
7 The illustration in Table 4 assumes commercial premiums
8 remain stagnant at $150 million per year, which past
9 experience shows is not likely to happen. However, this
10 illustration demonstrates how the Insurance Mechanism is
11 proposed to operate .
12 D. The Proposed Catastrophic Fire Fund Offers a Source of
13 Liquidity Where Wildfire Liability Exceeds Commercial
14 Insurance Coverage
15 Q. How will a Catastrophic Fire Fund address the wildfire
16 liability challenges the Company has identified?
17 A. The Insurance Mechanism creates a cost-efficient
18 alternative to the increasing insurance expenses
Steward, Di 44
Rocky Mountain Power

1 associated with wildfire liability. The extraordinary
2 liability risk posed by more and increasingly severe
3 wildfires may nevertheless exceed amounts recoverable
4 from insurance . Regardless of a utility' s prudent
5 actions, utilities could face claims in the billions of
6 dollars and may have to reach beyond insurance proceeds
7 to meet those liabilities . Such massive claims on
8 utility assets could compromise the financial stability
9 that utilities require to maintain and expand
10 infrastructure to meet both customer needs and state
11 policies . The Catastrophic Fire Fund proposed by the
12 Company would provide a backstop fund available to
13 facilitate managing what could be an existential
14 financial risk. The Company would use the Catastrophic
15 Fire Fund in the event there are claims in excess of the
16 annual insurance coverage limit .
17 Q. Is there a model for the Company' s proposed Catastrophic
18 Fire Fund?
19 A. Yes . The most prominent example is the California
20 Wildfire Fund, created in 2019 by the California
21 Legislature (AB 1054) . The California Wildfire Fund was
22 created to support the solvency of California investor-
23 owned utilities that were facing massive wildfire
24 liability claims . Notably, AB 1054 was only a part of
25 California' s response to growing wildfire risk.
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Rocky Mountain Power

1 California enacted laws that created new legal
2 requirements for wildfire mitigation plans and
3 authorized securitization for cost recovery under
4 certain circumstances . The California Assembly and
5 courts have also provided additional limits on utility
6 liability and opportunity for cost recovery for
7 wildfire-related claims . 23
8 Q. Did the creation of the California Wildfire Fund improve
9 financial stability for California utilities?
10 A. Yes . The California Wildfire Fund currently is available
11 to the three large investor-owned utilities ("IOUs") in
12 the state . 24 Credit rating agencies view the creation of
13 the Fund as a positive step for IOU creditworthiness . In
14 a 2021 report, S&P stated:
15 We [S&P] view AB 1054 as generally supportive
16 of the IOUs' credit quality. AB1054 created a
17 vehicle for tempering California IOUs'
18 financial exposure to wildfire liability
19 California utility wildfire experience could
23 See, e.g. , See, Gantner v. Pacific Gas & Electric Co. (Nov. 20, 2023,
5273340) , _ Cal. 4th _ [p. 24] (Cal. Supreme Court 2023) (Ruling that
the California Public Utility Commission, rather than the courts, has
exclusive jurisdiction over the "supervision and regulation of [Public
Safety Power Shutoff] PSPS implementation and review.") ; Cal. Pub. Util.
Code, § 451.1; § 1701.8 ( Requires that the CPUC allow cost recovery of
just and reasonable costs and expenses arising from a wildfire caused by
an electric utility. Costs are "just and reasonable" if "the conduct of
the electrical corporation related to the ignition was consistent with
actions that a reasonable utility would have undertaken in good faith
under similar circumstances.")
24 Those utilities are Pacific Gas & Electric; Southern California Edison;
and San Diego Gas & Electric.
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Rocky Mountain Power

1 serve as a template for utilities in other
2 fire-prone states to follow. 25
3 As noted by S&P, creation of a similarly purposed
4 backstop fund in other states could help utilities like
5 the Company, who have experienced ratings downgrades due
6 to wildfire liability risk.
7 Q. Would PacifiCorp' s Catastrophic Fire Fund be designed
8 like the California fund?
9 A. There are similarities in the purpose behind
10 PacifiCorp' s proposal, but significant differences in
11 how PacifiCorp proposes to design a catastrophic event
12 fund. Like the California Wildfire Fund, PacifiCorp' s
13 proposal would establish a risk pool for potential
14 catastrophic wildfire events where the Company' s
15 liabilities exceed available insurance . The availability
16 of the risk pool provides liquidity and supports credit
17 quality, similar both to the California Wildfire Fund
18 and the storm reserves used by utilities in high-risk
19 areas states like Florida. Because PacifiCorp operates
20 as a multi-state utility with costs and benefits of the
21 PacifiCorp system shared across all six states, the
22 Company is proposing a multi-state fund that cost-
23 effectively diversifies risks across the shared system
zs S&P Global, Credit FAQ: How Are California's Wildfire Risks Affecting
Utility Credit Quality (June 3, 2021) . See also, Moody' s Investor Service,
California utility wildfire mitigation efforts have reduced liability
exposure (Nov. 10, 2022) .
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Rocky Mountain Power

1 and provides customer benefits through the financial
2 stability of the utility. Other key differences in the
3 design of the PacifiCorp Catastrophic Fire Fund proposal
4 involve (1) the size of the fund, (2) how it is funded,
5 and (3) the governance of the fund.
6 Q. What is the target size of the PacifiCorp Catastrophic
7 Fire Fund?
8 A. PacifiCorp proposes an initial target level of $3
9 billion, total Company, for the Catastrophic Fire Fund.
10 The ultimate size of the fund will need to be informed
11 by the underlying level of insurance coverage and
12 additional analysis that considers the potential
13 uninsured risk in PacifiCorp' s states .
14 Q. What is PacifiCorp' s proposed funding mechanism?
15 A. The Company seeks a balance between fully funding the
16 Catastrophic Fire Fund and moderating the impact of the
17 surcharge needed to fund it . PacifiCorp proposes that
18 the target reserve level be collected over 10 years, at
19 $300 million per year, total Company. The Company
20 proposes to contribute 20 percent of the target fund
21 amount, along with a per event deductible, described
22 below. Customer collections would be funded through a
23 new surcharge, Electric Service Schedule 193-
24 Catastrophic Fire Fund. The Company proposes
25 implementation of funding as part of the rates that go
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Rocky Mountain Power

1 into effect in in this proceeding on January 1, 2025 .
2 For Idaho, the Company is proposing annual contribution
3 of $11 . 1 million. The proposed jurisdictional cost
4 allocation for customer contributions to the fund is
5 addressed later in my testimony. For rate stability, the
6 Company proposes to fix allocations for five years with
7 an update to the allocation inputs for year 6 of the
8 collection period.
9 Because collections to the fund would occur over a
10 number of years, the fund would act as a balancing
11 account and would only begin to provide meaningful
12 liquidity once a material balance is available in the
13 reserve . A near-term event where uninsured liabilities
14 exceed the reserve balance could require cash funding by
15 PacifiCorp and could result in a liquidity event for the
16 Company. In this scenario, the Catastrophic Fire Fund
17 would be recorded as a regulatory asset on the PacifiCorp
18 financial books and amortized using existing
19 Catastrophic Fire Fund collections until the reserve was
20 fully funded.
21 As with the Insurance Mechanism, funds would be
22 held in interest-bearing accounts or other appropriate
23 investments independent from the Company' s operations to
24 grow the fund balance over time . As the fund nears its
25 target level, a regulatory review would examine the
Steward, Di 49
Rocky Mountain Power

1 funding level necessary, the level of the supporting
2 surcharge, and the continued need for the fund based on
3 future developments regarding wildfire liability. If at
4 some point in the future it is determined that the fund
5 is no longer needed, any remaining funds after pending
6 claims have been accounted for, including the Company' s
7 contributions, would be returned to customers .
8 Q. Would the Catastrophic Fire Fund include a deductible
9 amount like the Insurance Mechanism?
10 A. Yes, PacifiCorp proposes a per-event deductible,
11 applicable to each event in which the Catastrophic Fire
12 Fund would be drawn upon to fund claims in excess of the
13 insurance coverage limit . The Company proposes a 5
14 percent co-insurance per event, capped at $50 million
15 for the life of the fund. The inclusion of a Company
16 funded deductible in addition to its 20 percent
17 contribution to the fund ensures that the Company will
18 prudently manage the claims process .
19 Q. Assuming the design elements proposed by PacifiCorp,
20 please provide an illustrative example of how the
21 Catastrophic Fire Fund would work from a financial
22 perspective.
23 A. Table 4 provides an illustrative example of how funds
24 would flow in Year 1-10 of the Catastrophic Fire Fund.
25 As with the example in Table 3, the illustration here
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Rocky Mountain Power

1 includes hypothetical claims paid during the 10-year
2 period to demonstrate the impact of the outflow of claims
3 payments on the accumulation of the target fund balance .
4 The Catastrophic Fire Fund would work in conjunction
5 with the Insurance Mechanism, with all components of the
6 Insurance Mechanism being exhausted before utilizing the
7 Catastrophic Fire Fund. As shown in Table 5, both
8 customer and Company contributions begin to accumulate
9 in the fund balance in an interest-bearing account . In
10 the instance of a catastrophic event, the accumulated
11 balance is then debited, less the proposed co-insurance,
12 for that event . If no event occurs, the fund will
13 continue to grow.
Table 5 : Catastrophic Fire Fund
Year 1-10 Illustrative Example
$-Millions Fixed Contribution Claim Paid
Total Recoverable Total
Beginning Customer Company Claims Co- Claim Ending Company %of Co
Balance Contribution Contribution Paid' Insurance Amount Interest' Balance Contribution Contribution
Year - 240 60 8 308 60 20%
Year 308 240 60 15 623 60 20%
Year 623 240 60 23 946 60 20%
Year 946 240 60 31 1,277 60 20%
Year 5 1,277 240 60 39 1,616 60 20%
Year 6 1,616 240 60 48 1,964 60 20%
Year 7 1,964 240 60 57 2,321 60 20%
Year 8 2,321 240 60 1,250 50 1,200 36 1,456 110 31%
Year 9 1,456 240 60 - - 44 1,800 60 20%
Year 10 1,8001 240 601 53 2,153 60 20%
Total 1 2,400 6001 650 21%
Target Fund 3,000
Interest Rate 5%
r
s paid are assumed to be made in December 31 of each year.
st is not paid on regulatory liability balance.Company would fund regulatory liability and need to be reimbursed for cash outflow.
3)Interest rate is used for illustration purposes only.Funds would be held in interest bearing account and earn actual interest.
Steward, Di 51
Rocky Mountain Power

1 Q. What governance issues does the Company believe should
2 be addressed as part of Catastrophic Fire Fund
3 formation?
4 A. As previously noted, as a multi-state risk pool the
5 PacifiCorp Catastrophic Fire Fund needs to consider
6 regulatory review and surcharge funding from all states
7 in which PacifiCorp operates . The Company proposes to
8 address this through creation and approval of an
9 Advisory Board appointed to oversee the Catastrophic
10 Fire Fund.
11 Q. What would be the role of the Advisory Board?
12 A. PacifiCorp proposes the Advisory Board would review
13 wildfire events where PacifiCorp seeks to draw on the
14 Catastrophic Fire Fund and issue reports and
15 recommendations to state regulatory commissions . At a
16 minimum, the Board would review: (1) whether the
17 Company' s actions were in accordance with documented
18 operational policies and approved WMPs in the state (s)
19 where the event occurred; and (2) whether the claims
20 paid were reasonable . The Board would also be empowered
21 to make recommendations regarding:
22 • Whether the fund should be replenished back to
23 its target level after claims are paid from the
24 fund;
25 • Changes in operational policies or mitigation
26 efforts for future wildfire events;
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Rocky Mountain Power

1 • When to conduct new studies or reports on the
2 size and operations of the fund. New studies may
3 be triggered when legislative or regulatory
4 changes materially alter liability risk in
5 particular states . (Studies would be funded from
6 the reserve balance in the fund) .
7 The Board' s recommendations would be advisory and not
8 legally bind either state commissions or the Company.
9 Additionally, the Company would have the option to seek
10 Advisory Board input prior to paying wildfire liability
11 claims from the fund.
12 Q. How does PacifiCorp propose the Advisory Board be
13 composed?
14 A. The Company suggests that the Advisory Board be composed
15 of up to nine members : one member would be appointed by
16 state commissions in each PacifiCorp state (six members)
17 and three non-Company employees appointed by PacifiCorp.
18 The Company recommends the Advisory Board meet at least
19 once yearly, and perhaps more often as the Catastrophic
20 Fire Fund is being organized and established.
21 Q. How does PacifiCorp propose to structure the
22 Catastrophic Fire Fund claims process?
23 A. The Company proposes that it would notify participating
24 states and the Advisory Board when a potential
25 triggering wildfire event occurs . No more than 90 days
26 after the conclusion of the triggering event (or sooner
27 if feasible) , PacifiCorp would file a report detailing
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Rocky Mountain Power

1 the event and PacifiCorp' s action during the event . The
2 report would include an estimate of damages and the
3 status and expected timing of known or anticipated event
4 investigations . The Company would provide updated event
5 reports every six months until final resolution, subject
6 to direction from state commissions . All of the event
7 reports, to the extent necessary, would be subject to
8 confidentiality protections .
9 Q. How would the Company provide notice of its intent to
10 draw from the reserve fund?
11 A. PacifiCorp would provide notice to state commissions and
12 the Advisory Board at least 30 days prior to drawing
13 from the fund. The Company' s notice would provide
14 documentation that: (1) the funds will be used to pay
15 for wildfire liability damages; (2) the claims from the
16 wildfire event exceed insurance coverage (whether self-
17 insurance or commercial policies) ; and (3) PacifiCorp
18 acted in accordance with documented operational policies
19 and approved WMPs .
20 E. State Allocation of Costs and Rate Impacts of
21 Insurance Mechanism and Catastrophic Fire Fund
22 Q. How are liability insurance costs currently allocated in
23 the 2020 Protocol?
24 A. As a general expense in the administrative and general
25 category, the 2020 Protocol allocates excess liability
Steward, Di 54
Rocky Mountain Power

1 insurance costs among the PacifiCorp states using the
2 System Overhead ("SO") factor.
3 Q. Has PacifiCorp evaluated other options for allocating
4 the costs of the Company' s proposals?
5 A. Yes . The Company has explored nine potential options for
6 allocating costs among the PacifiCorp states . The cost
7 allocation categories and respective state-specific
8 percentages are provided in Table 6 :
Table 6 : Cost Allocation Proposals26
Option# Description CA OR WA UT ID WY
1 System Overhead 2.62% 27.43% 7.32% 44.46% 5.45% 12.72%
2 Distribution Line Miles 4.58% 30.02% 6.07% 37.17% 8.70% 13.46%
3 OH Distribution Line Miles 5.62% 33.67% 7.46% 27.08% 9.53% 16.64%
4 T&D Line Miles in State 4.51% 27.54% 5.63% 38.16% 9.93% 14.24%
5 SG Alloc T Line Miles,State D Miles 3.93% 29.38% 6.36% 38.75% 8.06% 13.52%
6 SG Alloc T Miles,State O/H D Miles 4.41% 31.73% 7.47% 32.17% 8.40% 15.82%
7 50%each SO and Dist OH Line Miles 4.12% 30.55% 7.39% 35.77% 7.49% 14.68%
8 1/3 each-SO,OH Dist Lines,EFR Reclosers 14.07% 33.04% 5.57% 32.54% 4.99% 9.79%
9 1/3 each-SO,SG T/OH D,EFR Reclosers 13.67%1 32.40% 5.57%1 34.24%1 4.62% 9.51%
9 Q. Did the Company consider additional allocation options
10 beyond those listed in Table 6?
11 A. Yes . While numerous allocation options were theorized,
12 it is important the Company prioritizes options that are
13 readily available and quantifiable . For example, while
14 population density or property values may be factors in
15 wildfire liability risk, the source of the data would be
16 externally provided and subjective . These options were
17 eliminated due to these factors .
26Allocation proposals calculated using year-end 2023 data and projected
SO and System Generation (SG) allocation factors for 2025.
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Rocky Mountain Power

1 Q. What is PacifiCorp' s recommendation for allocating the
2 costs in the ICA?
3 A. Historically, the Company' s insurance costs are
4 considered corporate overhead expenses and are allocated
5 using the SO factor (Option 1) . Since the Insurance
6 Mechanism is proposed to provide a cost-effective option
7 for liability insurance coverage, PacifiCorp recommends
8 continued use of the SO allocation factor for allocating
9 costs of the ICA. 27 The state-by-state percentage
10 allocation of costs using the SO factor is shown for
11 Option 1 in Table 6 .
12 Q. What is PacifiCorp' s recommendation for allocating the
13 costs of the Catastrophic Fire Fund?
14 A. The Catastrophic Fire Fund is a new regulatory tool and
15 provides a level of liquidity support in excess of what
16 the Company would otherwise seek through insurance . In
17 the workshop discussions, PacifiCorp and stakeholders
18 have discussed an allocation framework that acknowledges
19 the fund is in part a form of insurance but will also
20 have the most utility in the states where the largest
21 and most destructive wildfires are most likely to occur.
22 In examining the Company' s service territory, a larger
23 allocation appears appropriate based on two factors .
27 The proposed ICA currently includes the costs for all excess liability
premiums because wildfire coverage is not a readily distinguishable cost
in all of the policies.
Steward, Di 56
Rocky Mountain Power

1 First, the SG allocation of overhead transmission lines
2 plus overhead distribution line mileage in the state
3 since utility wildfire risk is correlated with the
4 presence of overhead line infrastructure . Second, the
5 total Elevated Fire Risk Reclosers ("EFR") in a state is
6 a quantifiable representative of higher fire risk areas,
7 therefore the investment in EFRs is appropriately
8 considered in assessing each state' s share of wildfire
9 liability risk. To recognize a balance between these
10 factors, the Company proposes to allocate Catastrophic
11 Fire Fund Costs :
12 • 1/3 System Overhead: SO factor calculation used
13 to allocate system overhead cost including
14 insurance premiums;
15 • 1/3 SG Transmission/Overhead Distribution -
16 System Generation allocation of total
17 transmission line miles + total distribution
18 overhead line miles for each state; and
19 • 1/3 Elevated Fire Risk Reclosers - Total
20 installed reclosers by state
21 Applying this proposed allocation to Catastrophic
22 Fire Fund Costs results in the state-by-state
23 allocations depicted in Table 7 :
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Rocky Mountain Power

Table 7 : State allocation percentages for proposed
Catastrophic Fire Fund costs .
Description I CA I OR I WA I UT ID WY
1/3 each -SO,SG T/OH D, EFR Reclosers 1 13.67%1 32.40%1 S.57%1 34.24%1 4.62%1 9.519d10
1 Q. If the Commission approves the ICA as well as the
2 Catastrophic Fire Fund recommended by the Company, what
3 would be the overall estimated impact on Idaho customer
4 rates?
5 A. The estimated impact to Idaho customers is shown in
6 Table 8 . It includes the assumptions and cost
7 allocations discussed in my testimony.
Table 8 : Idaho Rate Impact of Insurance Mechanism and
Catastrophic Fire Fund
($millions) Idaho Estimated
Allocated Rate Impact
Estimated 2025 Insurance $9 . 8 3 . 50
Premiums
Amortization of Insurance $2 . 6 0 . 9%
Deferral
Total Insurance Cost Adjustment $12 . 4 4 . 4%
Catastrophic Fire Fund $11 . 1 4 . 0%
8 Additionally, removing liability premiums set in
9 the 2021 GRC, Case No . PAC-E-21-07, decreases base rates
10 by $12 . 4 million, or (4 . 4) percent . If the ICA is not
11 approved for cost recovery, then the full costs of the
Steward, Di 58
Rocky Mountain Power

1 2025 insurance premiums and amortization of the deferral
2 should be included in base rates .
3 Q. Does the Company make a recommendation on the class
4 allocation and rate design for the ICA and Catastrophic
5 Fire Fund surcharges?
6 A. Yes . Class allocations and rate design for the new
7 surcharges are addressed in the direct testimony of
8 Company witness Meredith.
9 VII . CONCLUSION
10 Q. Please summarize your recommendations .
11 A. I recommend that the Commission approve the proposals
12 described in Section II of my testimony, including the
13 Company' s overall requested rate increase in this docket
14 of approximately $92 . 4 million or 26 . 8 percent, with the
15 increase in base NPC to be phased in over two changes .
16 Q. Does this conclude your direct testimony?
17 A. Yes .
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Rocky Mountain Power