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Northwest utility focused on regulator, customer concerns about climate, safety

? As the Northwest moves away from coal-fired electricity generation, more coordination may be needed to ensure reliable power supplies.

? Regulators and utilities continue to navigate competing priorities when it comes to addressing climate concerns and managing customer rates.

? Data collection and analysis is playing a growing role in companies' approach to monitoring their systems and predicting where problems may occur.

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Kimberly Harris, Puget Sound Energy president and CEO

Source: Puget Sound Energy Inc.

With an explosion in the recent past and in a region that is decisively moving away from coal, Washington state's largest utility, Puget Sound Energy Inc., or PSE, sees room for improved coordination and increased use of data. PSE President and CEO Kimberly Harris recently sat down with S&P Global Market Intelligence to discuss how her company and her region are responding to gas supply, climate and safety issues. Harris is also the American Gas Association's chair for 2018. The following is an edited transcript of that interview.

S&P Global Market Intelligence: The recession impacted the Northwest's gas demand, but the past half-decade has seen demand recover. Meanwhile, the proponents of the planned Jordan Cove liquefied natural gas terminal are still working to develop that facility. How are these changes to gas supply and demand dynamics affecting your region?

Kimberly Harris: Seattle is in a huge boom. It really is very interesting to watch the impact of not only Amazon, but also the impact of Facebook, Google [and] Microsoft, [which] actually announced the build-out of their headquarter campus. There's just so much growth in Seattle. … As far as supply, I would say [we are seeing] probably 1% to 2% annual growth on the gas side of the business.

As far as Jordan Cove, though … I'm not aware of the region really experiencing or seeing any sort of impact. … Most of our supply either comes from [British Columbia] or from the Rockies, and so we're just not seeing the [price] impact up in the Seattle area, at least in our region, on Jordan Cove.

The region is moving away from coal-fired power generation. Washington state decided back in 2011 to phase out the state's one remaining coal generator, TransAlta Corp.'s Centralia plant, and Portland General Electric Co.'s Boardman plant is closing in 2020. Recently, the Washington Utilities and Transportation Commission updated the depreciation schedule for your Colstrip plant, allowing units 1 and 2 to close by mid-2022 and setting the stage for units 3 and 4 to close in the following years. How do these changes factor into your supply and infrastructure planning and competition for gas?

By 2025, our portfolio will actually be 90% coal-free, and then we also started to work towards what will happen for Colstrip units 3 and 4. That was included in [a recent rate] settlement as far as accelerating the depreciation up to 2027.

We're well down that path. I could see us being 100% coal-free by — it's difficult because we don't have a shutdown date for [units] 3 and 4 — but you're starting to see the Oregon legislature take steps and so forth, so I would say probably somewhere in those 2030s types of numbers.

Looking at supply of how to fill that need: If you look at our current integrated resource plan, when we shut down units 1 and 2 and Centralia, we're actually redirecting transmission. We're not adding a new generation source for that first tranche of coal replacement. We find ourselves actually in a pretty stable resource position to date.

But looking long-term, and we were one of the companies that started to raise the flag: If you look at all these integrated resource plans, we all seem to be relying on this market, and is the region going to have adequate resources? … I think that the discussion needs to occur, but you are seeing great energy efficiency, so we've got to look at that impact and looking at what all the other companies are doing as far as shutting down coal resources. I do get worried, though, on permitting and making sure that we are really focused in on reliability and resiliency for our region, and that's going to take additional investment. It's going to take investment in natural gas resources. The timing is the question.

What other legislative or policy-making priorities are you guys focused on?

Our board has actually established a target of 50% reduction in emissions by 2040. … We've done a lot of work with our customers. We know that 90% of our customers are concerned about climate. We know that approximately 85% of those customers want to do something together — in other words, they don't just want the company to take steps. They also want us to teach the customers how to either save with energy efficiency or make a real contribution as far as carbon reduction. And we also know that customers are not just going to increase rates. It's got to really be done in an opportunistic and affordable way.

There's a myriad of regulat[ions] and legislation that we would either need waivers from, like least cost [which requires utilities to make investments based on comprehensive cost-benefit analyses]. Is the cost of carbon part of the least cost discussion? Not when that statute was actually passed. If you're upgrading … how does the 'used and useful' protocol [which requires assets to benefit ratepayers before the costs are included in rates] play in those decisions? Those are discussions we are currently having.

Because of where we're located, there's always discussions within our legislature, especially with our governor, on carbon tax. I am a West Coast CEO. Those discussions are always going on, and we're always active in those discussions.

At PSE, you've already done a lot to modernize your gas system, but a 2016 explosion in Seattle demonstrated that even highly modern systems can still experience failures. What are your safety priorities at this point?

Cast iron we don't have. … Bare steel is out. Wrapped steel is out. We're really focusing in on the [vintage plastic] DuPont pipe at this time. … A huge focus is on — and we've been doing this for years — a huge focus is on any sort of leak reduction.

And then really looking at taking it to the next level: safety management systems. Not just operating compliance, but how do we make sure we're using technology … to make sure that we're operating one of the safest and most reliable systems? It's been kind of exciting being able to use … [advanced] technology tools and data mining and so forth.

Data collection needs to be paired with data analysis to be effective. Where are you guys in that process?

It is a process, and you're right. We collect a lot of data, but then it's how you turn that data into information that's useful. … One of our service providers, Hydromax, [has] been helping us with our compliance filings. We had the Greenwood explosion [in Seattle], and … we're conducting [the mandated] audit and going out and canvassing our entire system. [That] is allowing us, in that very narrow area, … to see the benefits of the data mining and using the technology.

Now we're starting to have conversations internally on: What else could we use it for? How else can we pull that information? … Where are we on the spectrum of that? I would say we're on the early stages. You have to understand what you're looking at and how it applies to your entire system.