I may have underestimated the outrage over two recent Xcel Energy rate increase requests.
The first, an attempt to recover the final $16.5 million in cost for Boulder’s Smart Grid City program. Ratepayers are not thrilled about paying for a Boulder project with massive cost overruns.
Check out these comments:
From Phil Carson, editor of the online energy resource Intelligent Utility:
Investor-owned utilities will do whatever they can to pass costs along to the ratepayer, no matter whether those costs are the result of bad decisions, cost overruns or faulty execution. And public utility commissions merely aid and abet this abuse of customers of regulated monopolies by rubber stamping this outrage.
A strong statement, perhaps? I wouldn’t rush to reject it. For one thing, it isn’t mine. It is the precise upshot of statements by dozens and dozens of ratepayers in Colorado in general and Boulder in particular over Xcel Energy’s attempt to recoup another $16.6 million on its SmartGridCity outlays, after succeeding in recovering $27.9 million earlier this year.
Email comments to the Public Utilities Commissions (thanks to Phil for providing the link) share that sentiment:
Mr. William Newell
As I recall the residents of Boulder wanted the smart grid. There was discussion about who would pay for this in 08. Now Excel wants all of the state consumers to pay for Boulders [sic] desire. Boulder Excel [sic] customers alone should pay for the cost of the smart grid. Our rates have already increased much higher than the inflation rate due to government regulations.
Gladys Rey Mendez
Subject: Cash Cow=Customer
When will utilities, both private and public, and their respective regulators, take responsibility for the cost over-runs of projects undertaken…Now the utility want to rate-base the balance of the cost of an experiment and collect from customers who have no association with the experiment. At the end of the day customer costs do not go down. Any real energy saving or efficiencies which dilute revenues and returns, the utilities are right back before regulators proposing rate increases….
Ms. Mendez is onto something. If ratepayers become conscientious energy consumers and use less electricity, then why does the utility come before the PUC looking for another rate increase?
Take Xcel Energy’s requested $142 million rate increase. Nearly 37 percent of that rate increase, $53 million, is to pay for excess capacity that Xcel no longer sells wholesale to Black Hills Energy, resulting in increased costs for both utilities that they pass along to ratepayers. The Denver Post‘s Mark Jaffe explains:
In 2004, Xcel, with 1.3 million Colorado customers, told Black Hills it would not extend the contract and would use the 300 megawatts of generation for its own service area.
Black Hills, which serves 93,300 electric customers in southeastern Colorado, built two gas-fired power plants in Pueblo to fill the gap and got a $23 million rate hike — which takes effect Jan. 1 — from the PUC to recoup the costs.
But it turns out Xcel has excess generating capacity and doesn’t need the 300 megawatts at this time.
As part of its $142 million rate request, Xcel is asking for $53 million to cover the carrying costs of the excess capacity.
Jaffe also quotes Xcel’s Karen Hyde who blames the recession for “damped demand.” But I suspect that some of Xcel’s own policies also “damped demand.”
How about tiered rates? How about Xcel Energy’s own conservation program Responsible By Nature, which enjoys a massive marketing campaign, that encourages decreased electric usage and provides information about rebates for energy saving appliances (for which ratepayers also pay)?
Isn’t less energy usage exactly what everyone — the PUC, Xcel Energy, the environmentalists — wanted? Now they get it, and ratepayers are punished.
Customers, including businesses and consumer advocacy groups, are lining up in opposition to the latest rate increase. The money quote comes from Wal-Mart Stores, Inc., which also submitted comments against Xcel’s rate increase.
An affidavit from Steve Chriss, the Senior Manager of Energy Regulatory Analysis for the Bentonville, Arkansas based corporation questioned why the PUC would grant a $100 million plus rate increase without thorough public vetting process.
Chriss also addresses the gigantic electric elephant in the living room. Why is Xcel “guaranteed” a 10.5 percent rate of return:
6. PSCo claims that the interim rate relief is necessary because in 2010 that Company earned “only” a 10.23 percent return on equity during 2010, which is below their current authorized return on equity of 10.5 percent.
7. To the extent that PSCo claims that its financial circumstances are exigent the Commission should consider that according to the Edison Electric Institute, the average return on equity awarded in 2010 by utility regulatory commission was 10.29 and for the first three quarters of 2011, the average return on equity awarded was 10.24….
8. Additionally, the Commission should consider that ratemaking principles do not guarantee the Company’s approved rate of return. Instead, rates are set in such a way that the Company has the opportunity, but not a guarantee, to earn their approved rate of return.
HB 1365 allows for it. Colo. Rev. Stat. § 40-3.2-207 (3) reads:
Current recovery shall be allowed on construction work in progress at the utility’s weighted average cost of capital, including its most recently authorized rate of return on equity, for expenditures on projects associated with the plan during the construction, startup, and preservice implementation phases of the projects.
As William Yeatman and I pointed out in our paper exposing the collusion between Xcel, the PUC, and former Governor Bill Ritter’s office, the current rate of return is 10.5 percent. Anything to do with implementing it (and that’s pretty much everything) is subject to the same rate of return.
The PUC may give lip service to caring about ratepayers, but the commissioners, Gov. Ritter, and a majority of state legislators, made a deal with the devil. As we wrote in October 2010:
As mentioned earlier, the Ritter administration led negotiations for the fuel- switching bill, but the PUC was also a willing participant in brokering a deal to assure Xcel’s cooperation. Peter Blake, writer for the popular Colorado politics blog Face the State, exposed the collusion:
Binz was trading flurries of e-mails on the pending bill with Ritter aide Kelly Nordini, natural gas lawyer Russell Rowe, and Xcel executives Karen Hyde, Roy Palmer and Paula Connelly. Xcel, seeking immediate and complete cost recovery for their capital costs, wanted to be sure the PUC would support that.
Even more damaging revelations come from Binz’s emails from earlier this year:
- March 8: “We will agree to using the extraordinary cost recovery in proportion to pressure that the approved plan puts on the company’s financial health.”
- March 9: “The Commission and Xcel have agreed on language for cost recovery.”
- March 11: “I was working with Karen Hyde up until 9:00 last evening to hammer out the final language in a couple of areas.”
Blake noted the bill “was introduced four days later and rushed through the legislature in a couple of weeks.” Denver Post columnist Vincent Carroll makes the same case for collusion: “As early as last December ,” two PUC Commissioners Baker and Binz, “had talked with natural gas interests about possible legislation and have been touting it since.”
Earlier this year, PUC Chairman Ron Binz withdrew his name for consideration of a second four-year term in the wake of an ethics investigation over questionable travel expenditures.
Xcel likely will get what it wants on the Smart Grid project because it already settled with the PUC on cost back in 2009. As for the rate increase, the PUC and the state legislators who have enabled Xcel walk a fine line. Xcel likely will get most of what it wants because it has lobbyists and ratepayers don’t.
While I’m grateful that there is some outrage over these latest rate increases, I can’t help but wonder why now when HB 1365 will cost ratepayers more than a $1 billion, the State Implementation Plan another $100 million, and this year renewable energy mandates add another $100 million plus.
The New Energy Economy is a very expensive economy. It’s about time ratepayers realized it.