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Proposal would trim Xcel’s sails, start pushing back on natural gas expansion, but falls far short of the major overhaul that some believe is needed

 

by Allen Best

Xcel Energy’s high and wide sails will almost certainly be trimmed by Colorado legislators. SB23-291, the bill crafted in response to spiking natural gas prices this winter, will impose small steps to protect consumer interests.

What this bill won’t do is make Colorado’s largest utility as innovative in this energy transition as it is successful in generating profits for its investors.

The company reported $727 million in profits from its Colorado operations in 2022. Investors in the company’s eight-state operating region earned yields of more than 9%.

Customers were chilled even more during this winter of uncommon cold by natural gas prices that pole-vaulted 75%. Xcel and other utilities protested that they were merely passing along costs.

State legislators leveraged the unhappiness into an investigation of long-standing complaints. Critics have long contended that investor-owned utilities enjoy an uneven playing field at the Colorado Public Utilities Commission, the state agency governing Xcel, Black Hills Energy, and other investor-owned utilities.

The bill’s most important provision would allow the PUC to “consider requiring each investor-owned electric utility to bear a percentage of its total fuel costs in order to incentivize the utility to find efficiencies and reduce fuel waste.” In other words, it puts the company’s own skin in the game. It might heighten accountability.

Senate President Steve Fenberg, a Democrat from Boulder who headed the select committee, said the proposal would not dramatically alter the compact between monopoly energy utilities and consumers. Utilities enjoy monopolies in their service territories, assuring a steady stream of revenues – and profits. State regulators must oversee reliability, affordability and, in recent years, pollution reduction. Fenberg told Senate Finance Committee members that the changes amount to “tweaks” to the regulatory compact.

This bill has disappointed some consumer advocates but stretches hard to achieve a goal of key environmental groups by challenging the expansion of natural gas.

At the committee hearing, Robert Kenney, the president of Xcel’s Colorado division, warned of unintended consequences. Others summoned by the company from Grand Junction to Pueblo to Greeley described a dark picture of hindered economic development or worse. State Sen. Barbara Kirkmeyer, a Republican from Weld County, as she had in the committee hearings in March, challenged Fenberg repeatedly, asking him what this would accomplish to lower consumer bills. Instead of immediate results, he pointed to long-term savings.

Many said that that this bill endangers Xcel’s access to capital to do good things such as its developing emerging hydrogen and geothermal resources. This argument was thin. What more reliable income stream could Wall Street want than that of a monopoly responsible for essential goods and services?

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The natural gas elements have provoked the noisiest opposition. The PUC and Colorado Energy Office would be required to study implications of existing policy that allows utilities to bill existing customers of natural gas lines to pay for expansion of gas lines to new homes and buildings.

Defenders of the policy compared this to extensions of water, sewer, and electric lines, which are also socialized. True. But for Colorado to achieve its mid-century emission reduction goals, it cannot continue expanding natural gas lines to tens of thousands of new homes each year. Meera Fickling of Western Resource Advocates told legislators that gas lines laid in 2023 won’t be paid off until 2080. We need to be more strategic in our investments, she said.

We have alternatives. Electric-powered air-source heat pumps can heat water and buildings in temperatures of down to 22 below zero. They can also cool buildings. Their higher upfront cost will be recouped decades before the mortgage is paid. For new construction, it should be a no-brainer.

Natural gas is also threatened by a provision that would require state regulators to apply a discount rate that, in its long-term consequence, might make natural-gas generation for electricity less economically attractive. Xcel has major plans for natural gas plants.

Energy visionary Amory Lovins decades ago said that consumers don’t care about the energy itself, only the service it delivers. They want their beer cold. It’s just not generating electrons that matters. As we decarbonize, demand-side management and the more wonkish programming of satisfying needs will become far more important.

Xcel has shown it can build big wind and solar projects, as it once built big coal plants. This comports with the regulatory compact that allows the company to reap substantial profits with small risk. To its credit, Xcel is also working on new battery technology, hydrogen and other wrinkles of the energy transition.

But in the customer-interface area, Xcel has been unremarkable. I remember a rare reprimand from the PUC commissioners several years ago when reviewing an Xcel demand-management program at Denver’s Central Park neighborhood. Boulder was to be a demonstration project for innovation. So far, I’ve heard nothing.

Critics say the incentive motive of these investor-owned utilities blinds them to more creative solutions. Companies wanting to earn profits usually must innovate. Monopolies have less incentive to innovate, because they don’t face competition. This bill won’t change that.

Allen Best
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