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Extending Demand Side Management is irresponsible by ratepayers

Extending Demand Side Management is irresponsible by ratepayers

Riddle me this. Based on the following clues, can you guess the product/service, the company, and the program?

  • It’s an out-of-state private monopoly that enjoys most favored corporation status under the Gold Dome.
  • The favored monopoly has more supply/capacity than its customers use and anticipates this to be the case in the near future.
  • The legislature financially incentivizes its favored monopoly to shame customers into using less of the product the favorite sells.
  • The legislature claims the shaming will save customers money, and the favored monopoly won’t have to build or purchase additional capacity to serve its customers. (Remember, the favorite monopoly already has enough to meet the needs of customers)
  • Recognizing that using less of the product is antithetical to the favored monopoly’s business model, the legislature allows the favorite to recover the cost of shaming customers, plus a little extra to the tune of $30 million.
  • That additional cost is passed on to the monopoly’s customers, who have no choice but to pay for the program because they have no options to purchase the product elsewhere.
  • Passing on the cost drives up the price so customers pay more for the product of which there is plenty of supply.
  • At the same time the legislature incentivizes – even mandates – the favored monopoly to build more very expensive “capacity” that the its customers don’t demand or need and to pass the costs on to customers, who, again, have no choice but to pay the additional costs. The monopoly is happy to build because it gets to charge its customers more and enjoys a guaranteed rate of return on its mandated investment.
  • Even though the favored monopoly has an abundance of capacity, the cost skyrockets and customers use less of it.
  • The out-of-state favored monopoly’s top executives get awarded handsomely for profiteering off of Coloradans who have no choice but to pay the costs because they must have the product/service.
  • The legislature and the monopoly claim success, so much so that some lawmakers decide to renew the program!
  • The real reason for the program is to use less coal and natural gas.

If you answered the Demand Side Management (DSM) program and electricity service from Xcel Energy, a.k.a. the legislature’s favored monopoly, give yourself an “A” for understanding the sheer stupidity of the Colorado legislature’s attitude toward energy policy and corporate favoritism.

This is a head scratcher. The legislature incentivizes its favorite private monopoly to shame customers into using less of something customers desperately need and the favorite has plenty of, which drives up the price, but lawmakers claim they do it to save customers money.

IT MAKES NO SENSE…until you discover the real reason is to get Coloradans to use less coal and natural gas, the most efficient and cost effective sources for electricity production.

If you are an Xcel Energy customer, look on your bill. The “Demand Side Mgmt Cost” rider is the result of HB07-1037, one of the original New Energy Economy bills passed by a Democrat controlled legislature and signed into law by Governor Bill Ritter. Not a single Republican signed on as a sponsor. Below are two key passages from the original bill:

THE COMMISSION [PUC] SHALL PERMIT ELECTRIC UTILITIES TO IMPLEMENT COST-EFFECTIVE ELECTRICITY DSM PROGRAMS TO REDUCE THE NEED FOR ADDITIONAL RESOURCES THAT WOULD OTHERWISE BE MET THROUGH A COMPETITIVE ACQUISITION PROCESS.

Yet, the legislature still encourages Xcel to build and pass the cost onto ratepayers who have no choice and no voice.

This second passage describes the PUC’s unlimited authority to incentivize the monopoly utility, which then passes the cost onto ratepayers who have no choice and no voice.

THE COMMISSION SHALL ALLOW AN OPPORTUNITY FOR A UTILITY’S INVESTMENTS IN COST-EFFECTIVE DSM PROGRAMS TO BE MORE PROFITABLE TO THE UTILITY THAN ANY OTHER UTILITY INVESTMENT THAT IS NOT ALREADY SUBJECT TO SPECIAL INCENTIVES. IN COMPLYING WITH THIS SUBSECTION (5), THE COMMISSION SHALL CONSIDER, WITHOUT LIMITATION, THE FOLLOWING INCENTIVE MECHANISMS, WHICH SHALL TAKE INTO CONSIDERATION THE PERFORMANCE OF THE DSM PROGRAM:

(a)AN INCENTIVE TO ALLOW A RATE OF RETURN ON DSM INVESTMENTS THAT IS HIGHER THAN THE UTILITY’S RATE OF RETURN ON OTHER INVESTMENTS;

(b)AN INCENTIVE TO ALLOW THE UTILITY TO ACCELERATE THE DEPRECIATION OR AMORTIZATION PERIOD FOR DSM INVESTMENTS;

(c) AN INCENTIVE TO ALLOW THE UTILITY TO RETAIN A PORTION OF THE NET ECONOMIC BENEFITS ASSOCIA TED WITH A DSM PROGRAM FOR ITS SHAREHOLDERS;

(d) ANINCENTIVETOALLOWTHEUTILITYTOCOLLECTTHECOSTSOF DSM PROGRAMS THROUGH A COST ADJUSTMENT CLAUSE;

(e) OTHER INCENTIVE MECHANISMS THAT THE COMMISSION DEEMS APPROPRIATE.

DSM is also one of the leading cost drivers responsible for the rise in electric rates. In 2012 alone, Xcel Energy ratepayers paid nearly $80 million to Xcel so the company could lecture them on using less electricity.

As with so many government mandated programs that are for our own good, the goals change. Instead of saving ratepayers’ money being paramount, the latest DSM proceeding shed some light on the real motivator for it. Notice what is listed first:

Public Service [Xcel] currently has surplus generation capacity, the primary purpose of DSM in the early years of the 2015 through 2020 planning period is to reduce fossil fuel use and help ratepayers lower their energy bills.

The secret is out. DSM is primarily about using less coal and natural gas. If this were any kind of a normal market environment, with surplus capacity our electricity rates would be dropping, but Colorado’s Kafkaesque world of regulated electricity service and generation is anything but normal.

Fear not little ratepayer, the PUC is looking out for you. It established a $30 million annual cap on the combination of the bonus and the performance incentive, to prevent “Public Service from earning excessive margins on DSM.”

I’d love to know the PUC’s official definition of “excessive.” Remember, the state legislature wants $15 million in taxpayer money to help low income Coloradans pay their high electricity bill.

The good news for ratepayers is this utterly insane program is set to expire in 2018. The bad news is that lawmakers from both the State House and the State Senate want to continue the insanity and have signed on as sponsors to extend DSM.  HB17-1227, the “Electric Demand-side Management Program Extension” enjoys support from Democrats and three Republicans, so far.

This type of legislation is a defacto tax increase. If the legislature wants Coloradans not to use coal and natural gas and thinks raising electric rates is the appropriate policy path, then lawmakers should do it honestly. Stop mislabeling it “Demand Side Management” and ask voters for permission to raise their rates.

Further, the legislature should require shareholders to have skin in the game. Make them pick up some of the cost rather than throwing it all on the backs of low income Colorado ratepayers with no choice and no voice.

Lastly, revoke Xcel’s most favored monopoly corporation status under the Gold Dome and the socialized costs and privatized profits that go along with it.

What will happen with HB17-1227 to extend the insanity? It gets heard in the Democrat controlled House Transportation and Energy Committee on Wednesday, March 29, and good money says it will pass and probably passes out of the whole chamber.

The only opportunity to stop the madness is in the State Senate, but it will be up to the Republican majority to do so. Will they capitulate to the favorite monopoly or stand up to ratepayers? We will be there to testify on behalf of Colorado electricity consumers and keep you updated.

Amy Cooke
ADMINISTRATOR
PROFILE