Review of October 30 PUC Hearing on HB 1365

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Environmentalist Energy Plan: No Energy

Having covered the deliberations of utility regulatory agencies in other states, I’ve the experience to know that Saturday PUC hearings are wastelands. Like everyone, regulators are loathe to extend the workweek past Friday, so they relegate marginal witnesses to the weekend, knowing that superfluous testimony won’t engender much cross examination, and will therefore occur faster.

Before a mostly empty room, Western Resource Advocates, the environmentalist interveners, presented their case for cross examination. WRA’s star witness was Dr. Jeffrey Palermo, a contract consultant whose direct testimony critiqued Xcel’s preferred plan to build two combined cycle natural gas power plants to replace the coal power it would shut down. Dr. Palermo believes that the utility can reliably serve its customers with only one power plant.

Dr. Palermo’s made-to-order testimony of course comports with WRA’s mission to reduce hydrocarbon energy production, but it has been dismissed by grid reliability witnesses offered by the other parties. In particular, Dr. Palermo has been faulted for conducting an airy analysis that didn’t actually look at the Xcel power system. Under cross examination, Dr. Palermo repeatedly conceded that more generation might prove necessary.

The PUC’s Impossible Mission

Commissioner Matt Baker asked a great question today: How should the PUC handle “asymmetries of information”? After all, the three PUC Commissioners are a mathematician (Chairman Ron Binz), a lawyer (Commissioner James Tarpey) and an environmental advocate (Commissioner Matt Baker). With those backgrounds, how are they supposed to responsibly adjudicate resource decisions pertaining to engineering issues that they can’t possibly understand?

Consider a hot topic today—electricity reliability (i.e., avoiding blackouts). This impossibly complex engineering issue has been very controversial. Each of the parties maintains an interpretation of grid reliability that advances their narrow interests. Here’s a breakdown of which party is arguing what:

• Xcel claims that two new sources of generation at the Cherokee site northwest of Denver are essential to maintain the integrity of the grid. This supports the utility’s goal of building as much new generation as possible (the more it builds, the more profits it is awarded under the rate scheme set by the PUC).
• On behalf independent power producers (electricity generators that compete with Xcel on the wholesale power market), Dr. Keith Malmedal testified that grid reliability is best achieved by increasing the amount of power purchased from IPPs.
• Western Resource Advocates, as we saw today, believes that only one new source of generation is necessary at the Cherokee site. This analysis supports WRA’s mission to lower greenhouse gas emissions.
• Dr. Warren Wendling, a witness for Peabody Energy, argues that any changes to the Cherokee site would jeopardize reliability. Peabody supplies coal to the power plants currently at Cherokee, so maintaining the status quo is to its benefit.

On what grounds is the PUC competent to choose among these experts? As I’ve noted elsewhere (see here and here), the PUC’s heavy handed control of the electricity industry is an outdated relic of the Progressive era. It’s well past time to introduce competitive discipline into the industry, so that these complicated resource acquisition decisions are dictated by the market, rather than overmatched PUC Commissioners.

William Yeatman is an energy policy analyst at the Competitive Enterprise Institute