Xcel Energy and the Polis administration hashed out the shape of a $30 million electric vehicle rebate program, the most generous in the country, behind closed doors. And then in September state officials presented it to utility regulators as their own.
In a bit of regulatory theater, Xcel executives then commented on and critiqued the plan before the Colorado Public Utilities Commission.
“The whole process is a little troubling,” Gene Camp, a PUC staff deputy director, said in commission testimony. “Xcel rebutted its own proposal.”
The private discussions between Xcel and administration officials are detailed in a series of emails made public in a PUC staff discovery motion during the commission’s review of Xcel’s proposed transportation electrification plan.
The PUC, which must rule on the plan, is faced with balancing three Colorado priorities: boosting electric vehicle use, a particular goal of Gov. Jared Polis; helping to cut greenhouse gas emissions; and limiting the impact on customer rates.
The transportation electrification plan would add 20,000 new residential, commercial and high-speed charging stations and help support 450,000 EVs, the company said. It would add about 67 cents a month to residential utility bills.
But the late addition of the $30 million rebate program, apparently at the suggestion of administration officials, to the $100 million transportation electrification plan Xcel filed with the PUC last May, has sparked concern from consumer advocates and lawmakers.
“It was filed at the last minute,” said Cindy Schonhaut, executive director of the state Office of Consumer Counsel. “There is no evidence in the record on how the rebates would work, who would get them.”
The OCC was informed of the rebate plan the day before it was filed with the PUC as part of the written testimony of Keith Hay, director of policy at the Colorado Energy Office, the agency that took the lead in developing the administration’s rebate proposal.
State Sen. Chris Hansen, a Denver Democrat and a co-sponsor of 2019 legislation that promoted charging infrastructure and enabled Xcel to develop its plan, voiced concern about “a situation of escalating costs.”
“The PUC will have to make that decision … making sure you don’t have a program that is going to load inappropriate costs on customers,” Hansen said.
Alice Jackson, CEO of Xcel’s Colorado subsidiary, said in a statement to The Sun that “while the timing of this presentation in the regulatory proceeding is a bit unusual, it shows the agility in which, at times, we must respond to market signals and economic realities.”
Getting more EVs on the road has been a Polis priority. One of his first executive orders, in January 2019, set a target of 940,000 EVs on Colorado roads by 2030. There are about 1.8 million passenger vehicles licensed in Colorado.
EV sales have accounted for 3% of new car sales in Colorado through September, down from 5.7% in 2018, according to the Colorado Automobile Dealers Association.
In August 2019, state air quality regulators, with the governor’s support, adopted the California zero-emission vehicle (ZEV) mandate, requiring that a set percentage of ZEVs be sold in Colorado each year.
In 2019, legislation was also passed setting a goal of reducing Colorado greenhouse gas emissions, mainly carbon dioxide, by 50% by 2030 and 90% by 2050. Transportation emissions have become the largest single source of CO2 in the state.
This fall, Jackson and Polis administration officials began discussing the addition of a rebate plan to the utility’s transportation electrification plan.
“Alice was talking with the administration and the administration was talking with Alice,” Hay said in an interview. “It is an interest of the administration.”
In the face of the pandemic and recession, Xcel said in a statement, it saw multiple benefits to adding the rebate program for customers.
“We collaborated with state officials to develop an innovative EV rebate in the transportation electrification plan that can help Colorado stay on the path to meet its strong carbon objectives during this challenging and difficult time for the state’s economy,” Jackson said.
The email chain, revealed by the case before the PUC, traces discussions over six weeks in September and October.
A Sept. 22 email from Jack Ihle, Xcel’s director of regulatory and strategic analysis, to administration officials, included a “rebate concept,” which Ihle said “balances the objectives we have discussed. Talk to you tomorrow.”
The proposal by the Colorado Energy Office filed with the utilities commission six days later reflects that concept.
“I don’t think it was inappropriate, but it wasn’t transparent,” Camp said in commission testimony. “It is not unusual for parties to collaborate in the background. … If this was a collaborative proposal it would have been helpful for CEO to state it.”
Hay said there were substantial differences in the Colorado Energy Office proposal and Xcel’s plan. The Colorado Energy Office suggested a range of $15 million to $30 million and Xcel chose $30 million. (Although the $15 million to $30 million range was in Ihle’s email.)
The energy office also proposed restricting rebates to vehicles costing no more than $55,000. Xcel did not include that cap.
“We felt there was a case to be made that a TEP should address infrastructure and the upfront cost of vehicles for consumers,” Hay said. “We brought it forward the first chance we got.”
Working with Xcel was necessary to make sure that any proposal could be implemented logistically and financially, Hay said.
The state already offers a tax credit for EV purchases – which dropped from $5,000 to $4,000 in 2020 and will drop to $2,500 in 2021. That program requires applying for the credit after buying the vehicle.
Xcel is proposing an upfront, “cash on the hood,” rebate, which it says is a more direct and effective incentive.
The idea leaves many unanswered questions, Schonhaut said. “Who gets the rebate? The customer or the car dealer? And who administers the program, Xcel, auto dealers?”
Plan offers the most generous rebate in the U.S.
Xcel’s proposed rebates would start at $4,000 for each new EV and $1,500 for a used EV, along with an additional $1,500 for income-qualified buyers.
This would be the most generous utility-offered rebate in the country, according to surveys by several companies in the sector, such as ClipperCreek, an electric vehicle equipment supply company.
Xcel said its proposed rebates are in line with the state tax incentives, extending the $4,000 level to 2023 and then dropping it to $3,000 in 2023.
Most utility-offered rebates are between $500 and $1,500, according to the ClipperCreek survey.
A program for Marin and surrounding California counties offers a $3,500 rebate. The Texas Commission on Environmental Quality administers a $5,000 rebate limited to 1,000 applicants each year who have purchased an alternative-fuel vehicle, including compressed natural gas.
The New Jersey Board of Public Utilities offers state residents a rebate of up to $5,000 on EVs priced at less than $55,000.
One of the pitches Xcel made in its emails for the cash rebate program was that it could replace the tax incentives and free up $6 million or more in the state budget. The energy office chose not to use that talking point in its filing with the PUC.
The PUC staff has raised the question of whether it is even appropriate to include a rebate program in the transportation electrification plan since the enabling legislation, Hansen’s Senate Bill 77, was clearly focused on developing charging infrastructure.
The energy office and Xcel cite language in the law calling for “customer education, outreach, and incentive programs that increase awareness” and say the EV rebate is “complementary” to other programs in the TEP.
Hansen said the decision of whether to include the rebates and at what level is a decision for the PUC. “I don’t have a problem with subsidizing people who need help,” he said. “I am concerned about cross-subsiding people who don’t need it.”
Camp also expressed concern that the program could become “a subsidy for the well-to-do.”
Xcel runs a number of rebate programs for items such as energy-efficient appliances, in which the rebates are treated as operating costs and the utility is reimbursed for those costs.
For the EV rebate, however, Xcel is seeking to include the payments in its rate base so that it will get the cost of the rebate, plus interest.
If the rebates are treated as operating costs, customers would pay for them in the year they are issued, but putting the costs into the rate base and spreading them over 10 years will reduce the impact on customer bills.
“This approach reduces initial cost impacts on customers and allows the TEP to meet a cost cap applied by the statute, as we interpret it,” the company said.
Rebates, however, do not commonly end-up as something upon which utilities earn interest. “It is not the type of monetary item that usually ends up in the rate base,” Schonhaut said. “It is very unusual for something that is not a capital asset ending up in the rate base.”
Senate Bill 77 permits regulated utilities to make investments in EV infrastructure and charge customers for it, but capped the cost of the program. But there is now a dispute over how to calculate the cap.
The bill said the cost of the program should be no more than one-half of 1% of the utility’s annual revenue requirement, but added that additional revenues could be considered in calculating the cap.
Xcel and the CEO are interpreting this broadly, increasing the cap, while the PUC staff and others have a more limited definition that lowers the cap.
The impact of the transportation electrification plan on customer bills, even with the high estimate, would be small, Hay said, adding that the rebate program would account for 9 cents of the plan’s 67-cent charge on an average residential customer’s bill.
Still, in a letter to the PUC, Hansen and fellow EV bill co-sponsor State Sen. Kevin Priola, a Henderson Republican, said their intent was there be a “verifiable hard cap on the total ratepayer impact.”
“We wanted to be sure that the rate impact of the all-in costs of an approved plan did not exceed this limit,” the legislators said.