Who should pay for Rocky Mountain Power’s rising insurance costs, Utah customers or Warren Buffett?

$115 million jump in rates came after PacifiCorp was found liable for Oregon wildfire damages.

(Mark Ylen | Albany Democrat-Herald via AP) Chairs stand at the Gates Post office in the aftermath of a fire in Gates, Ore., Sept 9, 2020. The post office was destroyed along with several other buildings in the Santiam Canyon community as a result of the Santiam Fire. A jury verdict found Rocky Mountain Power's parent company PacifiCorp liable for devastating wildfires in Oregon in 2020, and the company is looking to its Utah customers to help cover a jump in insurance costs after the verdict.

Industry and consumer advocates are pushing back on Rocky Mountain Power’s attempt to put millions in added insurance costs on its Utah customers, saying the company needs to show why billionaire Warren Buffett and other stockholders shouldn’t cover those costs instead.

Rocky Mountain, Utah’s largest electricity provider and part of the six-state PacifiCorp system, last summer asked state regulators if it could start accounting for a twelvefold increase in liability insurance costs related to the rise in western wildfires. Such “deferred accounting orders,” as they are called, are how utilities can track unforeseen costs that could possibly be covered by customers.

In this case, PacifiCorp saw its annual liability insurance cost go from $10 million to $125 million. With 44% of PacifiCorp’s customers in Utah, those customers could be asked to absorb about $50 million of that.

“The scale and speed of the increase is extraordinary ... the increase over the years 2019 to 2023 is 1,764 percent,” said Mariya V. Coleman in testimony to the Utah Public Service Commission, which ultimately decides what Utah ratepayers will have to shoulder. Coleman is Vice President of Corporate Insurance and Claims for Buffett’s Berkshire Hathaway Energy Company, parent of PacifiCorp and Rocky Mountain.

‘Accounting for this new reality’

“The continuing risk of wildfire is prompting ongoing review by excess liability carriers that could result in further increases in future years or lead to a continued reduction in the number of carriers offering coverage to the company,” Coleman said. “Accounting for this new reality in PacifiCorp’s costs is urgent … "

But that jump in insurance rates came after PacifiCorp lost a significant lawsuit in Oregon. Last June, a jury found the company liable for $73 million in damages for four Oregon wildfires in 2020 after 17 people sued. The jurors found PacifiCorp liable for gross negligence and recklessness for failing to turn off power in fire-prone areas. The case was also determined to be a class action, so thousands more could file for compensation, potentially reaching billions in damages. PacifiCorp is appealing.

The timing of that rate increase has Utah ratepayer advocates questioning whether PacifiCorp’s stockholders, and not ratepayers, should be paying legal claims for the company’s negligence.

“It is not clear to what extent, if any, the jury verdict or the other litigation against PacifiCorp influenced the size of the premiums the company is being required to pay for excess liability insurance coverage,” said Kevin C. Higgins in his testimony. Higgins represents the Utah Association of Energy Users, which are large, industrial electricity customers.

‘Proper allocation of costs’

Higgins said his group is not opposed to Rocky Mountain starting a deferred accounting order, but it thinks the question of how much Utahns should cover should be handled in a regular rate-setting case, which usually only happens every few years.

“Such a finding should consider all relevant factors, including the proper allocation of costs to PacifiCorp from its parent Berkshire Hathaway Energy Company, as well as the extent to which the increase in insurance premiums may have been caused by PacifiCorp, such as the damages award in which PacifiCorp was found to be grossly negligent and reckless.”

The company is relying on language in state law that allows companies to seek compensation retroactively for extraordinary unforeseen costs, but the state Office of Consumer Services argues that the company also must show those costs have an extraordinary impact on the company’s earnings, as required by a previous court case.

“While the increase in excess liability insurance premiums appears to be unforeseen, RMP has not provided specific evidence that this increase has had an extraordinary impact on its earnings,” said Alyson Anderson from OCS in her testimony. “Thus, the Court was clear that the test is not ‘extraordinary’ by any other measure, but specifically requires an extraordinary impact on earnings.”

The insurance rate increase is small compared to what the company is showing as an impact from wildfires. According to Berkshire Hathaway Energy’s latest 10Q filing with the U.S. Security and Exchange Commission, PacifiCorp is losing more than a half billion dollars this year after making more than a half billion the previous year.

A $1.3 billion change

“Net loss for the first nine months of 2023 was $666 million, a decrease of $1,287 million ($1.287 billion) compared to 2022 net income of $621 million,” the filing says, blaming the decrease on estimated losses of $1.607 billion from the 2020 fires and the 2022 McKinney Fire in northern California, which has also brought a lawsuit against PacifiCorp. The company hasn’t paid that much for the fires yet, but it is recording the estimated losses on its books.

“It is reasonably possible PacifiCorp will incur material additional losses beyond the amounts accrued for the wildfires that could have a material adverse effect on PacifiCorp’s financial condition. PacifiCorp is currently unable to reasonably estimate a specific range of possible additional losses that could be incurred due to the number of properties and parties involved,” the filing states.

As for any impact on the larger company, that is harder to say. PacifiCorp is wholly owned by Berkshire Hathaway Energy, which is itself 92% owned by Berkshire Hathaway, the giant conglomerate controlled by Buffett, the legendary value investor. But the energy unit is a small piece of the empire, and this year Berkshire Hathaway stock is up 15.2%.

Gary Hoogeven, CEO of Rocky Mountain, told The Tribune in September that wildfire liability is an existential threat to utilities across the West. Years of drought have increased the risk, and climate change offers little hope that will change. “This is bigger than Berkshire,” he said.

Hoogeveen also said Utahns for years have gained from being part of a six-state system. “Our six states have benefited from the diversity of the system. Our costs are lower. There is strength of diversity of load.”

But the company recently whiffed on its state-required wildfire plan for Utah. After state foresters pointed out it relied on old data, including 2010 population figures, the company withdrew it and plans to refile a new one.

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