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Coopted, corrupted and busted: OCC, regulatory process need fixing

Coopted, corrupted and busted: OCC, regulatory process need fixing

The regulatory space at the Colorado Public Utilities Commission (PUC) is the playground of corporate lawyers, unelected bureaucrats, and well-funded special interest groups. They have “stakeholder” meetings that include only themselves. Then they issue press statements slapping each other on the back for their hard work securing a “settlement” that forces Colorado working families and small businesses to pay more while a monopoly utility lines its pockets and special interest groups claim victory. ~ Amy Cooke, October 2017

Xcel Energy’s recently proposed Colorado Energy Plan (CEP) is the best example of it. It’s why our Coalition of Ratepayers,* a Colorado nonprofit concerned about the impact of rising electric rates on residential and small business consumers, petitioned to intervene. With legal fees and expert testimony, the cost is well into six figures. That’s what it takes to get an official seat at the regulatory table. No wonder it’s an exclusive club.

When Xcel failed to get its carbon reduction, fuel switching plan passed at the State Capitol, Governor John Hickenlooper came to the monopoly utility’s rescue. On July 11, Hickenlooper signed an executive order essentially granting Xcel permission to prematurely close nearly 700 megawatts of coal and replace it with renewables, predominantly industrial wind.

The next day, July 12, I wrote the following:

According to sources at the EO press conference and signing ceremony, Xcel Energy was in attendance while others in the electricity generation industry didn’t even know about it. I don’t think that was by accident because Xcel was behind both increased industrial wind and ratebasing EV infrastructure bills that failed, with industrial wind being the most pressing for the monopoly utility as I have explained here and here.

This begs the questions, was the EO really just an Xcel Energy corporate welfare program masquerading as a climate change initiative? What Xcel couldn’t get in in the state legislature, did get through an EO? In which case, no wonder the Governor kept everyone in the dark.

Little did I know, how close to the mark those questions were.

Several weeks later, a source close to the situation revealed the Governor’s office was putting “major pressure” on state agencies including the Department of Regulatory Affairs (DORA), the Public Utilities Commission (PUC), and the Office of Consumer Counsel (OCC) to reach a “grand settlement” with Xcel Energy to close prematurely two coal-fired power plants in Pueblo that supply nearly 700 megawatts of affordable, reliable electricity.

The source also suggested that Xcel’s David Eves was probably “in the loop.”

A Colorado Open Records Act request of OCC director Cindy Schonhaut’s calendar seems to confirm that.  Schonhaut met with Eves on July 13, two days after the Governor announced his executive order. According to her calendar, the very next day, July 14, Schonhaut spent three hours at Xcel’s Denver headquarters at 1800 Larimer Street.

Schonhaut met with Xcel a total of seven times between July 13 and August 18. Calendar notes include “meeting ERP [Energy Resource Plan] and CEP [Colorado Energy Plan] stipulation.” On August 29, Xcel announced an agreement with 14 groups including the Office of Consumer Counsel.

Xcel doesn’t just have a monopoly on providing electric and gas service, it also has a monopoly on the process.

Why does this matter? Because the OCC is supposed to represent ratepayers. According to its Web site, “The OCC is the sole voice charged with advocating for consumers when utilities seek to raise their rates.”

The state legislature created the OCC in 1984, “to represent the public interest and the specific interest of residential, small business and agricultural consumers in electric, natural gas, and telecommunications rate and rulemaking cases..”

In other words, those who can’t afford to represent themselves in highly complex proceedings would have an advocate as the OCC explains,

…Utility regulatory proceedings are very technical, complex, and complicated, requiring specialized analyses and modeling tools, resources not readily available to the average citizen or small business owner….

The OCC employs financial, economic, engineering, and policy analysts and other professionals to analyze utility rate and service information and intervene in proceedings that involve rate changes, rulemaking, service modifications, and certificates of public convenience and necessity.

The OCC is correct. Proceedings are exceedingly complicated and very expensive. That keeps residential and small businesses customers from intervening in proceedings that impact their rates.  That reality is why Colorado and many other states created some type of consumer protection. In Colorado, ratepayers chip in just under 50 cents per year to fund the OCC.

Given its mission and funding structure, why is the OCC signing on to agreements with a monopoly utility when the plan hasn’t been fully vetted? What is it doing with the “financial, economic, engineering, and policy analysts” it employs?

They couldn’t have actually analyzed Xcel’s plan. If they had, then surely the OCC would have found Xcel’s obvious and egregious assumptions that tilt the CEP in Xcel’s favor. If the OCC was true to its mission, then our Coalition wouldn’t need to intervene in the CEP.

The truth is the Office of Consumer Counsel has abdicated its role as a ratepayer advocate. Governor Hickenlooper appoints the Director of DORA who appoints the OCC Director. Schonhaut’s boss is a Hickenlooper cabinet member and DORA Director Marguerite Salazar, not ratepayers. If the Governor’s office is lobbying  DORA and OCC to get on board with Xcel against ratepayers, then, judging by what happened with the CEP “grand settlement,” the OCC will do what it’s told. Ratepayers be damned.

And damned we will be. The Coalition of Ratepayers expert testimony found that Xcel’s profit scheme will cost between $250 million and $390 million – a far cry from Eves’ claim that it could “save customers money.”

From a ratepayer perspective the process is broken and so is OCC.

The OCC brags on its Web site about saving ratepayers money. But consider that since 2001 electric rates have skyrocketed more than 62 percent, nearly two times the rate of inflation and massively outpacing median income in Colorado.

It gets worse as we showed in our September study of two monopoly utilities:

Even with nearly flat revenue, Xcel’s profits have increased 93.89 percent and profit margins have increased from 12 percent in 2006 to nearly 22 percent in 2016.

…profit per ratepayer increased a staggering 76.7 percent from $178.09 in 2006 to $314.75 in 2016. How? Because the real money is in Xcel’s assets where the monopoly gets a roughly 10 percent rate of return. In 2006 assets per ratepayer were $3,246.24. By 2016 that number increased 61 percent to $5,238.47.

Black Hills Energy customers have suffered even more:

Revenue per ratepayer has increased 165.55 percent from $984.68 in 2008 to $2614.78 in 2016. Assets per ratepayer have increased 173 percent from $5,264.74 in 2008 to $14,368.21 in 2016. And profits? They’ve increased an astounding 780 percent to $451.54 per ratepayer in 2016 from $51.30 in 2008.

Unfortunately for ratepayers, utilities have coopted the Office of Consumer Counsel and political agendas have corrupted the OCC’s role as an independent advocate for utility consumers. The state legislature should respond by doing away with the OCC or demanding institutional reform. At the very least, request an audit of OCC’s mission and its adherence to it.

Fix it or end it. Just stop pretending the OCC’s actions match its mission.

Editor’s Note: The Independence Institute is a member of the Ratepayer Coalition opposing Xcel Energy’s Colorado Energy Plan.

Update: This post was corrected to reflect that the Director of the Office of Consumer Counsel IS NOT appointed by the Governor but rather by the Director of Regulatory Affairs (DORA), according to OCC Director Cindy Schonhaut. Schonhaut does answer to the DORA Director Marguerite Salazar, who IS appointed by and IS a member of Governor John Hickenlooper’s cabinet.