Opinion: PUC - It’s time to fish or cut bait

The following is a modified version of testimony I sent to the Colorado Public Utilities Commission for their current hearing on what will happen to Xcel’s coal plants and who should pay.

It’s time for the Colorado Public Utilities Commission to fish or cut bait. Either you all work for the ratepayers, or you work for Xcel — but you can’t have it both ways.

The fundamental way a regulated utility like Xcel makes money is by investing its equity and receiving a return commensurate with what a company in an equivalent but competitive position would make, given the risks associated with such a competitive position.

Xcel has been earning over 9% on its equity, which constitutes over 50% of its invested capital. The rest is mostly callable bonds, and so are relatively expensive.

The key element of all of this is the word “risk.” If such a company makes a bad decision, then it should bear the cost.

The big issue is Comanche 3, Xcel’s huge coal-fired power plant built near Pueblo, and finished a bit over a decade ago. Clearly that coal plant should never have been built right in the face of global warming, even if it functioned perfectly, which is has not come even close to doing.

It has provided zero benefits regarding reliability, and is just a CO2-producing sinkhole for the ratepayers’ money.

PUC, it’s time for you to decide. Either Xcel has risk, in which case you should make it accept the loss of its $700-plus million of still-invested capital plus the returns on it. Xcel should not receive another dime on this plant. And it should shut the plant down now.

Or Xcel doesn’t have risk, in which case, cut its return on its invested equity to risk-free levels of a few percent. And do that on all its investments, including every piece of generation, transmission and distribution hardware. And make it refinance its investments, so that most of it is cheap, fixed-term bonds, with only a small share being equity.

As to Xcel’s attempt to get you to commit to allow it to invest hundreds of millions of dollars in future power plants at its exorbitant rate of return, that’s simply ridiculous. Require Xcel to bid everything out, including existing plants, so that ratepayers are not stuck with overpriced resources. Anything else is simply scamming the ratepayers to pad Xcel’s executives’ salaries and stockholders’ returns.

The use of discount rates is done to compare present and future costs to the ratepayers, not to Xcel. So force Xcel to use consumer discount rates, not its own rate of return. All this current system does is make fossil fuel plants look cheaper than they really are.

The PUC should immediately require Xcel to implement the hardware and software that allows management of peak demand. The technology of managing air conditioning so that units are not all on at the same time is well developed, as are peak rate structures that provide an incentive to limit on-peak use. So go in that direction, so we don’t have to pay for new gas plants that will only run a few hours a year, as current planning seems to suggest.

That’s the end of my testimony. Of course others submitted, and some with very important numbers. Here’s what the Colorado Renewable Energy Society had to say:

“The Updated Partial Settlement is largely dominated by the ‘Coal Action Plan’ and includes ‘full return’ cost recovery provisions for the following coal plants with these estimated numbers:

  • Craig Coal Plant (Paragraph 27) — $27.4 million
  • Hayden 1 Coal Plant (Paragraph 28) — $22.4 million
  • Hayden 2 Coal Plant (Paragraph 28) — $55.4 million
  • Brush Coal Plant (Pawnee) (Paragraph 30) — $179.1 million
  • Comanche 3 Coal Plant (Paragraph 35) — $732.0 million
  • Total: $ 1016.3 million 

“Footnote 15 in the Updated Partial Settlement defines ‘full return’ as the ‘full return of and on at the Company’s weighted average cost of capital.’ Public Service company of Colorado witness Ms. Jackson further clarified during Colorado Renewable Energy Society’s cross-examination at the May 17, 2022, hearing that PSCo intended to seek full recovery from its customers.”

If ever there were a time for the PUC to make the move to stop being the tail wagged by the dog, this is it.

We need a full proceeding in which the subjects of cost recovery, bidding versus guaranteed investments, discount rates, etc., get fully discussed and vetted, and where the PUC focuses on protecting the ratepayers and the environment, and holding Xcel accountable.

Steve Pomerance is a former member of the Boulder City Council and was nominated to the PUC in 1983 by Gov. Richard Lamm, but was rejected by the State Senate, apparently because he was against any new coal-fired power plants.

 

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