Xcel Energy, Colorado’s largest utility, is asking regulators to sign off the its first electricity rate hike in five years — one that would allow the company to increase its profit margins and pay for the cost of increased wildfire mitigation and the state’s explosive growth.
If approved by the Public Utilities Commission, the increase would raise the average bill of a residential customer in the state by 6.5% starting in 2020.
“The real key thing when you think about this case is the prices that our customers pay today in base rates are based on our costs of providing electric service in Colorado in 2013,” said Brooke Trammell, Xcel’s regional vice president for rates and regulatory affairs. “In terms of our cost of service, it’s quite dated.”
Rates last increased in 2014 by 2% after the utility reached a deal with the PUC. Xcel filed for a rate increase in 2017, but that fell apart in the wake of President Donald Trump’s tax cuts.
Why, specifically, is Xcel once again seeking a bump now that would result in a $158 million annual net increase in revenue?
Namely, the utility says, to cover the cost of a dramatic increase in the number of residential customers in its service area, up 80,000, or 1.2%, in the past five years. There has also been an increase in business customers.
“Residential really is driving the growth in our system,” Trammell said. “From a utility perspective, that means we’ve put a significant amount of utility infrastructure in the ground.”
That includes things like new poles and power lines.
Then there is the $14 million more annually Xcel wants to keep its infrastructure out of the way of wildfire and to also ensure it doesn’t start any forest fires. California’s largest utility, Pacific Gas & Electric, has been blamed for catastrophic wildfires, including the deadly Camp fire last summer that killed 85 people. PG&E filed for Chapter 11 bankruptcy in January, citing $30 billion in wildfire-related liabilities.
Xcel already works to mitigate the areas around its equipment in Colorado’s mountains, but with the new money they are seeking they are hoping to broaden their approach.
“We may inspect a pole for the structure of the pole, how old it is,” Trammell said. “We now also may need to be thinking about wind strength or other factors that might influence the health or viability of that pole in a severe weather event or a wildfire.”
Finally, the publicly traded Xcel is seeking to increase its cost of equity — or its returns — to 10.35% from 9.83%. That will help make the company competitive for what investors are requiring in the market versus other options they might have, Trammell said.
The utility says some of the increase is an administrative shift in costs that customers are already being charged in the form of riders.
Those are already on people’s bills to pay for things like: the Eastern Plains’ Rush Creek Wind Project, which started delivering carbon-free energy in 2018 and produces enough electricity to power about 325,000 homes; new transmission lines; and converting coal plants to cleaner-burning natural gas and installing emissions-reducing technology at generation plants.
Xcel says the rate increase does not have to do with its goal, announced last year, to emit zero carbon emissions across the eight states where it operates by 2050.
“In terms of projects either related to the Colorado energy plan or other future projects related to our December 2018 carbon announcement, those are not reflected in this case,” Trammell said, referring to the company’s pending request to the PUC.
Xcel says the increase, if approved, would cost the average residential customer about $4.46 more on their electric bill each month. For small-business customers, the typical increase would be about 6.7% or $6.79 a month.
A decision on the new rates is expected to be issued by the PUC by the end of the year, according to the agency. The numbers could eventually change as Xcel negotiates with state regulators.