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Update on PUC Hearings for HB 1365: Another Long Day of Cross Examinations

Today Will Be Another Long Day of Cross Examinations

The Colorado electricity industry is regulated such that investor-owned utilities like Xcel cannot make any significant decisions without approval from the PUC. As a result, electricity businesses don’t compete with one another on the market, but rather in PUC hearings. For these companies, profits are dictated by PUC decisions, not the forces of supply and demand. It is this dynamic I was describing on Tuesday evening, when I riffed on Clausewitz’s famous quotation by saying that PUC deliberations are mere industrial war by other means.

I’ll continue the militaristic metaphor to describe PUC proceedings. First, the stakeholders file direct testimony to advance their respective positions. This is the salvo. Then, they file rebuttals to one another’s direct testimony. This is the riposte. Finally, at the hearings, witnesses are brought before lawyers to defend or explain their testimonies. The hearings are the trenches.

Highlighted Testimonies from Yesterday’s Hearing

Xcel witness Robert K Johnson, Principle Operations Engineer

Mr. Johnson’s rebuttal testimony, filed October 8, addressed the importance of the Cherokee power generation site to Denver’s electricity grid.  This gets to the heart of the conflict between Xcel and independent power producers, which are electricity generators that compete with the utility on the wholesale electricity market.

There are four relatively old coal fired power plants at the Cherokee site on the outskirts of Denver, and the retirement of at least three of them is a part of every HB 1365 implementation plan now being considered by the PUC. Both IPPs and Xcel want to supply the energy demand created by the closure of coal fired power plants. IPPs argue that the best possible plan is to import power (from IPPs), while Xcel argues that Xcel-owned replacement generation at Cherokee is essential for system reliability.

While cross examining Mr. Johnson, IPP counsel Mark Detsky got flustered with the witness’s repeated deferral of questions to Gregory L Ford, another Xcel engineer, who had already been crossed. Mr. Detsky implied that Xcel was using overly specialized witnesses in order to confuse the cross examination.

PUC Staff Witness Gene Camp, Chief of the Energy Sector

In Mr. Camp’s September 17 Direct Testimony, and also in his October 8 Cross Answer Testimony, he showed how Xcel was trying to maximize the preferential rate treatment that the utility is afforded under HB 1365. In particular, Mr. Camp noted how Xcel’s proposed pollution control retrofits at the 139 megawatt Hayden 1 coal plant and the 98 megawatt Hayden 2 coal plant (both plants are in Hayden, CO) were already mandated by the State’s Regional Haze State Implementation Plan. Mr. Camp concluded, “it thus appears that the only reason the Company [Xcel] has included these units in its plan is to be able to receive the special rate recovery treatment provided by the Act [HB 1365].” According to analysis by the Air Pollution Control Division (within the Colorado Department of Public Health and Environment), the combined capital cost of these pollution controls at Hayden 1 and 2 exceed $130 million.

Under cross examination by Xcel, Mr. Camp conceded that there is nothing in HB 1365 that would prohibit the utility from trying to receive the special rate recovery treatment provided by the HB 1365 for the pollution control retrofits at Hayden 1 and Hayden 2.

Study of the Day: Xcel Grossly Overestimates Construction Costs

The PUC Staff commissioned an independent analysis of Xcel’s estimated construction costs, and the results suggest that Xcel grossly overestimated the costs of pollution controls. According to the study, which was performed by Harris Group Inc and filed on September 17, “The SCR [SCR is a top-of-the line nitrogen oxides pollution control] retrofit costs for Cherokee 3 and Cherokee 4 are three to four times higher than we would expect based on other SCR retrofits with which we are familiar.” SCR retrofits are very capital intensive, often exceeding $100 million per coal plant. Overstated SCR costs on existing coal power plants would make replacement natural gas generation seem more cost-effective. As I have noted before, Xcel’s profits are a function of how much the utility spends, so it has a financial incentive to build replacement natural gas generation.

Review of Xcel’s New Plans
Running Timeline

William Yeatman is an energy policy analyst at the Competitive Enterprise Institute, a free market think tank in Washington, D.C.