A new analysis from the nonprofit RMI reveals that Utah utility customers could have saved an estimated $21.6 million between 2020 and 2024 if a fuel cost-sharing policy had been in place. The study indicates that moving away from traditional 100% pass-through models would have provided Rocky Mountain Power ratepayers with significant financial relief during periods of price volatility.
Projected Savings Across States
The findings are part of a broader assessment by RMI, an independent nonpartisan nonprofit founded in 1982 as the Rocky Mountain Institute. The organization focuses on transforming global energy systems through market-driven solutions to secure clean and resilient energy futures. According to RMI's utility transition hub, the analysis specifically targeted vertically integrated states that do not currently utilize fuel cost sharing.
In Utah, the estimated net cumulative savings of $21.6 million stands alongside significant projected savings in other states. For example, Georgia saw potential savings of $43.7 million, Nevada recorded $36.7 million, and Virginia showed $20 million in savings during the same 2020–2024 period. New Mexico's estimated savings were lower at $12.4 million.
The Problem of Moral Hazard
The core of the issue lies in how utilities manage fuel costs, such as natural gas purchases for power generation. In most states, utilities use Fuel Adjustment Clauses (FACs), which are rate riders that allow companies to pass 100% of their actual fuel expenditures directly to customers. RMI researchers note that this practice creates a situation economists call "moral hazard," where the utility makes procurement decisions while the customers bear all the financial risk.
Under the current 100% pass-through model, utilities have little incentive to manage costs or explore alternatives because they are insulated from price fluctuations. If fuel prices rise, customers pay the full difference; if prices fall, the utility retains the savings without any benefit to the ratepayer.
Mechanics of Cost Sharing
A fuel cost-sharing mechanism seeks to address this imbalance by giving utilities "skin in the game." Under such a policy, the utility and the customers share the risk of price volatility. The utility sets a predicted fuel budget at the start of the year; if actual costs deviate from that expectation, the utility absorbs a portion of the difference based on a predetermined sharing rate.
Using a hypothetical 90/10 sharing rate as an example, RMI explains that if a utility expects $1 million in costs but spends $1.5 million, customers would only pay 90% of that $500,000 increase. This leaves the utility responsible for the remaining $50,000, creating a direct financial incentive for the company to pursue strategies like hedging or investing in fuel-free resources such as wind, solar, and energy storage.
North Carolina Case Study
The RMI analysis also examined North Carolina, where a similar study found that fuel cost-sharing could have saved customers nearly $89 million between 2020 and 2024. In North Carolina, the mechanism is known as the Fuel Charge Adjustment Rider (FCAR). The research, authored by RMI principals Xavier Zheng, Oliver Tully, and Joe Daniel, noted that even during high volatility years, such a mechanism would not materially threaten utility revenues.
Joe Daniel, a principal on RMI's Carbon Free Electricity team, has extensive experience in modeling energy use and utility proceedings. His work focuses on the development of quantitative tools to accelerate affordable decarbonization pathways. The study suggests that expanding cost-sharing to include purchased power and integrating audits or clean energy investments could further reduce volatility and improve accountability.
Utah Regulatory Oversight
The debate over utility regulation and cost management is a long-standing issue in Utah. The Utah Office of Consumer Services (OCS) is tasked with advocating for residential and small business customers to promote fairness and advance the public interest within the state's utility services. This includes oversight of regulated utilities that provide essential power and water services.
Legislative leaders in Utah also play a role in the oversight of these industries. Representative Carl R. Albrecht, who represents District 70—covering Sevier, Piute, Beaver, and portions of Iron County—serves on the House Public Utilities and Energy Committee. A retired utility executive with a 40-year career at Garkane Energy Cooperative, Albrecht brings significant industry experience to the committee's discussions regarding energy policy.
Future Economic Benefits
While the RMI model provides a roadmap for potential savings, the organization notes that its estimates are likely conservative. The analysis does not account for secondary benefits, such as increased utility investment in solar, battery storage, or energy efficiency, which could result from a shift in policy. Such investments would likely create even greater long-term financial benefits for both utility customers and investors by further reducing exposure to volatile fossil fuel markets.
