Oil and gas leaders say electric rate hike would shrink Wyoming production

Despite long-term forecasts for continually declining markets, Wyoming oil and natural gas producers have enjoyed a reprieve from the financial devastation of the 2020 pandemic shock, with production approaching pre-pandemic levels, according to the state’s analysis.

But industry leaders say a portion of those gains could be wiped out if Rocky Mountain Power is awarded its full 30% electric rate increase proposal currently being contested at the Wyoming Public Service Commission.

Vaquero Big Horn LLC, for example, is completely reliant on electricity from Rocky Mountain Power for its operations, according to regulatory manager Niko Welch. Its electricity bill is about $300,000 a month — by far its largest monthly expense. A 30% rate increase would add another $90,000 to its electric bill monthly, pushing the narrow profit margin for some wells into the negative.

Shutting down just 6% of Vaquero Big Horn’s production would result in a loss of about $150,000 in tax and revenue to the state, Welch estimated. That begins to add up quickly considering the hundreds of other small oil and gas operators in the state that are reliant on Rocky Mountain Power to electrify their operations.

“We have no pricing power,” Welch said. “We’re not grocery stores or gas stations where we can pass on the cost burden to our consumers.”

Even oil and gas companies that are only partially reliant on electricity from Rocky Mountain Power would see increases that might force them to shrink operations.

Casper-based Bridger Pipeline, which transports oil and gas to markets, would see its electric bill jump by about $1.5 million annually, according to a company representative. Casper-based Kirkwood Oil and Gas LLC, another small independent operator, would also likely have to close some of its “marginally” producing wells, land manager Steve Degenfelder said.

“There are hundreds of smaller oil and gas producers in Wyoming just like Kirkwood,” Degenfelder told commissioners during public comment on Tuesday. “The average production of our wells is less than five barrels per day. That doesn’t sound like very much, but in 2022, the company paid over $7 million in royalties, severance taxes and ad valorem taxes to the state and various counties in Wyoming.”

Merit Energy Co., one of the largest oil producers in Wyoming, pays about $70 million in annual electricity bills, according to the company’s Dan Zilmer, and the “vast majority” of that goes to Rocky Mountain Power.

“There’s not a lot we can do about that” reliance on electricity, Zilmer said. “​​We will have to flip the switch off on some of our production if this increase goes through as planned.” He estimated a 30% increase in electricity rates would result in a loss of 9 million barrels of oil that Merit Energy would otherwise produce in the future.

The Public Service Commission’s courtroom-like hearing regarding Rocky Mountain Power’s rate hikes began Oct. 25 and is expected to wrap up this week, though a determination isn’t expected until sometime before the end of the year. In addition to the potentially devastating financial implications for households and small storefronts, the commission has heard a full-throated condemnation of the utility’s proposed rate increases and cost-sharing proposals from large industrial customers. 

Perhaps most prominent among the five intervening parties arguing against the utility’s rate hikes is the Wyoming Industrial Energy Consumers coalition.

Industry influence

About 70% of the electricity that Rocky Mountain Power provides in the state is consumed by “industrial customers,” including ExxonMobil’s LaBarge natural gas plant, at least two oil refineries owned by Sinclair Oil LLC and a handful of trona mines and trona processing facilities near Green River. 

The Wyoming Industrial Energy Consumers coalition represents more than a dozen such industrial customers, and it has a long record of picking apart how Rocky Mountain Power balances its costs and risks with its clients. The coalition is represented by the high-profile law firm Holland and Hart, and it boasts blocking some $900 million in proposed costs that the utility has attempted to pass on to its clients, as well as other Rocky Mountain Power customers in the state, since 1996.

“As a group of large Wyoming businesses that collectively consume the majority of electricity sold by Rocky Mountain Power in the state of Wyoming, whose business operations are critical to the long-term economic success of the state of Wyoming, our members — and frankly …all of the Wyoming electric consumers of Rocky Mountain Power — are facing a proposed rate increase that is, frankly, staggering,” Holland and Hart attorney Thor Nelson said in his opening statement.

Though the coalition and its attorneys are focused on advocating on behalf of industrial clients, the group’s scrutiny generally benefits all Rocky Mountain Power customers, according to insiders familiar with Wyoming’s electrical-rate-setting process.

Over the course of the hearing, Nelson and his team of Holland and Hart attorneys have cross-examined more than a dozen witnesses to challenge everything from the utility’s returns to its investors, how it calculates taxes in rates, how it balances seasonal power demand fluctuations and, ultimately, what costs it can legally pass on to customers. Rather than Rocky Mountain Power’s proposed $140.2 million rate hike, Nelson said, the utility might be entitled to an increase of only $14.9 million.

“Because the utility is a monopoly,” Nelson told commissioners, “you can see why the law in Wyoming gives the commission the difficult job of carefully matching the costs incurred by the utility with the benefits delivered to customers to make sure that the price paid by customers is not unreasonable or unjustly high.”

Update: The graphic in this story depicting rate comparisons was updated to clarify that Rocky Mountain Power is a division of PacifiCorp. —Ed