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Xcel getting fat off Colorado ratepayers

The cost of the New Energy Economy is just being felt by Colorado ratepayers and enjoyed by Minnesota-based Xcel Energy as proved by the chart below, which is based on the energy company’s third quarter earnings report.

But first a few facts about the economics of utility companies:

  • Investor-owned utilities such as Xcel Energy operate government-sanctioned monopolies, in exchange for providing electricity to all residents within the service areas.
  • Because of this monopoly, there is no market to determine the price of electricity. Instead, state regulators — the PUC — dictate the price of electricity.
  • Variable costs such as fuel generally are passed through directly to customers. Capital costs are the basis for a utility’s “return on equity” (a phrase that means “regulator-approved profit”). The more the utility is allowed to build, the greater the “return on equity,” a.k.a. profit.
  • Regulators also decide the speed with which utilities may recoup investments. Traditionally, regulators haven’t awarded cost-recovery until an investment is “used and useful.” Nation-wide, utilities have been pushing to accelerate the process.
  • Thus, Xcel Energy’s profits are determined by the governments of the states in which it operates. If Xcel does well, it’s because of favorable treatment.

As it turns out, four individual, investor-owned utility companies make up Xcel Energy.  On Xcel’s financial statement the Colorado energy company is called Public Service Company of Colorado (PSCo). And it is doing very well:

  • PSCo services 1.36 million Colorado ratepayers, which represents 25.7 percent of the company’s total ratepayers.
  • Through the third quarter 2010, PSCo accounts for 51 percent of the company’s total earnings per share. (SEE CHART BELOW)
  • PSCo’s 36 percent YTD increase in earnings per share versus the same time last year, is the second highest of the four separate companies but the 50 percent increase from NSP — Wisconsin is almost irrelevant because its EPS is so low. (SEE CHART BELOW)
  • PSCo’s long-term unsecured debt rating has increased — during the worst economic crisis since the Great Depression. When Governor Bill Ritter took office, Standard & Poor’s rated PSCo’s long-term unsecured debt on the low end at BBB-. Now, it is rated at A-, which puts it at the high end for investor-owned utilities.

Earnings Per Share First Three Quarters 2009 versus First Three Quarters 2010

Company Through 9/30/09 Through 9/30/10 % increase % of total earnings
Public Service Company of Co (PSCo) 0.51 0.69 36% 51%
NSP — Minnesota 0.48 0.48 0% 36%
SW Public Service Company (SPS) 0.14 0.16 15% 12%
NSP — Wisconsin 0.02 0.03 50% 2%
Total 1.11 1.34 21% 101% due to rounding

The bottom line is that Minnesota-based Xcel is enjoying great financial success on the backs of Colorado ratepayers courtesy of Colorado’s PUC commissioners and Governor Bill Ritter.  The New Energy Economy is an economic boom for Xcel, and it just started.

Both Amy Oliver Cooke and William Yeatman contributed to this blog post.