Xcel Energy is pushing for a record $344 million rate increase it says it needs to build a smarter, greener electric grid. But consumer advocates and state regulators are pushing back over the price tag.
A major concern is that along with an earlier rate increase and other pending requests since the start of 2020, Xcel’s 1.3 residential million Colorado customers could see as much as a 20% increase in their bills.
At the core of the rate case are questions of how much it will cost to move to a cleaner, more resilient electricity system and who will pick up the tab.
The Colorado Public Utilities Commission has rejected a request for an expedited decision on the rate request and set a hearing in August to determine how to proceed in the case, while consumer groups are focused on the size of the request – more than double the company’s last rate case in 2019. Xcel is the largest electricity provider in the state.
“We’ve focused on our core principles leading the clean energy transition,” Alice Jackson, CEO of Xcel’s Colorado subsidiary, said in an interview. “These are all things we are investing in and they do take dollars.”
Xcel is in the process of spending $4 billion on things such as wind farms, solar installations, battery storage, smart meters, cybersecurity and modernizing its distribution system, according to filings to the PUC.
The utility has also submitted a clean energy plan, as required by law, to the PUC that aims to cut the utility’s greenhouse gas emissions 85% from 2005 levels by 2030.
Moving to cleaner energy and reduced carbon emissions are necessary, said Gwen Farnsworth, a policy advisor with the environmental group Western Resource Advocates. But, she added, “we don’t want clean energy and the need for resiliency in the face of climate change used as a blank check.”
The proposed rate hike would add $9.49 to the average residential customer’s bill and bring it to $83.22 a month. Small commercial customers would see a $14.49 increase to $126.62 a month. Each represents about a 13% increase.
That comes, however, after a 2020 residential rate increase of $1.03 per month and also with a pending request by Xcel to add $2.86 a month to residential electricity bills for the next two years to help recover the $650 million in increased fuel costs as a result of February supply disruptions from Winter Storm Uri.
In addition, there are several surcharges, known as riders, that could also increase monthly bills. Taken together all these increases and requests could lead to about a 20% increase in the average bill since the beginning of 2020.
“This could represent a 13% rate increase and coupling that with Storm Uri impacts plus the other new riders we can expect we could be looking at some very significant impacts on customers’ bills,” Commissioner John Gavin said at a recent PUC meeting. “That’s my biggest worry in this whole thing.”
“Here we are emerging from COVID and we have a shaky economy and we want to slam a 20% to 25% increase in rates on ratepayers?” Gavin said. “It is going to be a very, very important thing we deliberate.”
Xcel’s Jackson said that “65% of the investment is something the commission has already seen, walked through, approved.” This includes approving a $24.7 million wildfire mitigation plan and $100 million electric vehicle charging station plan.
PUC Chairman Eric Blank said that while he has voted on some of those individual programs, this approach was becoming “too piecemeal for me and too short term.”
“We’ve never had a record before us that quantified the cumulative impact of these rate approvals,” Blank said. “I’ve been frustrated by the lack of understanding and visibility into where we are going on rate impacts.”
It is something that Blank said he hopes long-term rate impacts over five to 15 years might be able to be addressed in this rate case.
While not discounting Xcel’s cleaner energy goals, consumer advocates express skepticism about the utility’s approach.
“The question is, is there a more cost-effective way to do this,” said Cindy Schonhaut, the executive director of the state Office of Consumer Counsel, which represents residential and small commercial customers in rate cases. “The company isn’t going to put on the table a proposal that costs less. That’s up to us and others.”
There are two parts to establishing the size of a rate increase. First, the company makes investments in projects approved by the PUC – this is called the rate base. It then seeks to get a percentage return – set by the PUC – on those investments or equity. Referred to as ROE, it is not a profit margin.
“There is a relentless drive by the company to add to the rate base,” Schonaut said.
A Minneapolis-based, investor-owned utility, with subsidiaries, including Public Service of Colorado, Xcel serves customers in parts of eight Midwestern and Western states.
In 2020, the company posted nearly $1.5 billion in net income, up 7% from the year before, after an 8.8% rise in profits in 2019 and a 10% increase in 2017. In 2020, Public Service of Colorado, accounted for about 40% of Xcel’s earnings on a per share basis, according to company financial filings.
Among investments Xcel is making and that it wants to see in its rate base are: $735 million for Cheyenne Ridge wind farm; $295.5 million for advanced grid technology; and $495 million in upgrades to the distribution system that carries electricity homes and businesses. Some of its components go back to the 1950s.
Not reflected in the rate case is a projected $120 million in fuel savings that Xcel customers will gain as a result of Cheyenne Ridge’s operations. The 500-megawatt wind farm, located in Cheyenne and Kit Carson counties, went into operation in August.
Xcel is seeking a 10% to 10.5% return for the investments it is placing into its rate base and this leads to the $344 million price tag. Cheyenne Ridge, the advanced grid systems and the distribution system account for 70% of the requested rate increase.
“The commission will have to look closely that those costs,” Western Resource’s Farnsworth said. “We have to be careful of utilities presenting all of their investments as needed for clean energy.”
There are also elements in the rate increase that address Xcel’s transition from fossil fuels, such as $43 million in accelerated depreciation for the early closing of its Comanche 1 and Comanche 2 coal-fired plants in Pueblo, and $13.5 million to deal with Comanche coal ash ponds.
Xcel currently is receiving a 9.3% return on equity. “It is the height of chutzpah to ask for 10%,” Schonhaut said.
If past rate cases are any measure, Xcel will not receive the requested ROE or the dollar figure. In its 2019 rate case Xcel sought $158 million and got $41.5 million.
“It is part of a game,” said Bill Levis, former OCC executive director and now a rate case consultant for AARP, which represents retirees and older citizens. “Xcel usually gets 50% to 60% of what they request.”
“This state has not had a return over 10% as long as I remember,” Levis said. “It seems like the company is not focused on or cares much about the impact on their customers.”
“It is going to be hard for consumers to understand that the transition to clean energy is going to cost them more,” Levis said. “On the other side, costs may go down, but this shouldn’t be used as an excuse for windfall profits.”
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