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Rate increase request exposes hypocrisy of tiered rates

Xcel Energy’s recently denied $142 million interim rate increase request exposes the hypocrisy of tiered rates, which were implemented out of fear that high demand would require the building of additional power plants. Yet, more than 37 percent or $52.6 million of Xcel’s request was to cover the cost of excess capacity. In other words, Xcel has too much supply and not enough demand.

A bit of history.

Several years earlier, Xcel decided not to sell some 300 megawatts of power to Black Hills Energy because it claimed it need the additional capacity to meet ratepayers’ electric demands. Apparently, Xcel overestimated demand because it no longer needs the power and now wants to recover the cost of NOT selling that power to Black Hills. Black Hills subsequently built a $487 million plant to supply power it once purchased from Xcel, the cost of which was passed along to Black Hills’ ratepayers. If Xcel has its way, its own inability to correctly estimate demand will Colorado electric consumers nearly $540 million.

Why do ratepayers have to pay more for Xcel’s boneheaded management decision? Colorado News Agency columnist Peter Blake brilliantly explains how the basic law of supply and demand doesn’t apply to a state-regulated monopoly:

When a department store buyer somehow decides that the taste of today’s teenagers is even lower than it is, and orders too many low-rise ripped jeans or abbreviated tank tops, what does the store do?

It puts the slut-chic clothing on sale and hopes the lower price will shrink the inventory.  It will make less profit, or even lose money on each item.  That’s the price a store pays when it miscalculates consumer tastes.

But what does Xcel Energy do when it finds itself able to generate more electricity than the customers are using?  Instead of cutting the price of power, it asks the Public Utilities Commission to authorize higher rates on all its customers to pay for the surplus.

Being a utility means never having to say sorry to stockholders; you can just stick your mistakes on the ratepayers’ bills.

What does this have to do with Xcel’s tiered rates? As mentioned earlier, the rational for tiered rates is that those ratepayers who use more energy should pay more because their demand will force Xcel to build additional power plants.

Tiered rate supporter Randy Fischer, democrat legislator from Fort Collins, explained last legislative session during a committee hearing that tiered rates are “a fair way of distributing the cost of energy. People that drive the need for more plants should pay for them.”

Another green zealot State Rep. Max Tyler (D-Lakewood) made similar claims, which the Grand Junction Daily Sentinel reported:

The utility’s summertime rates are designed to encourage people to conserve energy, preventing Xcel from having to build expensive new power plants that customers ultimately finance.

If the pretense for tiered rates is to avoid the expense of building costly power plants, then why charge more when Xcel is carrying excess capacity? It’s obvious that the power plant argument is fallacious. The real reason for tiered rates is because green eco-evangelicals such as Max Tyler and Randy Fischer want to control the amount of energy that Coloradans consume.

Even though the PUC denied the interim rate increase, doesn’t mean it won’t approve passing on the cost of excess capacity to ratepayers in the near future. Either way ratepayers get stuck with the bill. In the case of tiered rates, they’ll be charged for using too much and not using enough at the exact same time. Only government thinks that is a great energy policy.