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Economy

Rural Colorado is footing the bill for February’s deep freeze — even if rural Colorado never got very cold

Angry utility customers in places like Grand Valley and Grand Mesa pen poison letters: “It’s a monopoly! Reduce obscene CEO pay!”

A high-tension power line in Mesa County traverses Grand Valley Power's co-op territory near Grand Junction, Colorado. (Christmas Wharton, Grand Valley Power)
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When Grand Valley Power CEO Tom Walch gets worked up explaining what he sees as the avarice and ignorance of Xcel Energy and worries he is not conveying his rage, he pulls out a letter from an angry co-op customer and starts reading. 

“They shouldn’t unload this blunder on customers who happen to be on their electrical grid,” Walch recites. 

“This is going to hurt a lot of businesses here and elsewhere that are already hurting due to the Covid pandemic. It could put them out of business.”

“We really don’t have a choice! It is a monopoly!” 

“Xcel is a huge corporation! Reduce obscene CEO and executive pay!” 

Surcharges from the February freeze week have already hit 18,000 co-op customers in the rural Grand Valley near Grand Junction, even as direct customers of Xcel on the Front Range are shielded by the delays and protections of a Public Utilities Commission storm investigation and intervention by consumer advocates. Because Grand Valley and other co-ops like it buy their electricity in bulk from Xcel and are regulated by federal authorities, they must charge their customers extra for the February storm right now. 

The indignities don’t stop there. 

Xcel is passing on runaway costs of February electricity generation to places that weren’t cold and didn’t need extra energy. On Feb. 14, the heart of the storm that froze Texas and surrounding states, the low in Denver was minus 11 degrees. The low in Grand Junction? A balmy 18 degrees. T-shirt skiing. 

TODAY’S UNDERWRITER

And because Grand Valley’s pass-through charges from Xcel are spread out over all the kilowatt hours a customer uses that month, Grand Mesa-area residents were charged extra for every moment of February. That includes before and after the storm, and whether they conserved energy or not — even if they were away from home with the thermostat turned down. Bottom line, CEO Walch says, is that Xcel is making Western Slope residents and small businesses pay big surcharges for February because the massive, publicly traded utility couldn’t figure out how to buy natural gas for its power plants at a decent price. 

“We pay them to do that, and they failed, and they failed miserably,” Walch said. 

“We had no clue any of this was going on until basically the last business day of the month. I had a call from the wholesale accounts manager in Xcel and said, ‘Hey, your fuel costs bill is going to be pretty high,’” Walch said. In fact, it was triple the usual month, he said. He looked back over 120 months of fuel-cost adjustments from Xcel, and they rarely exceed one-tenth of a cent per kilowatt hour. This adjustment? Nearly 12 cents per kilowatt hour.

Charges spike across state 

At least three other Colorado co-ops that buy electricity through Xcel are in the same position, Grand Valley Power says: Yampa Valley Electric Association, Holy Cross Energy and the much larger Intermountain Rural Electric Association. 

Yampa Valley General Manager Steve Johnson was more reserved in responses to emailed questions, but did mention that the co-op’s bill from Xcel for February fuel was more than triple the normal amount, ballooning it to nearly $10 million. That’s 30% of what Yampa Valley budgets for power purchases for the entire year. 

“We are disappointed in how we were not notified about this event and disappointed in how this fuel was purchased within the market,” Johnson said. 

The co-ops don’t have any formal avenue for contesting the pass-through fuel charges, but they are trying to negotiate within their existing Xcel power contracts. Yampa Valley said it is currently spreading the Xcel surcharges over seven months of bills for its 28,000 ratepayers across five northwest Colorado counties and parts of southern Wyoming. 

The surcharges will amount to an average of $93 for residential customers and $288 for small commercial customers in Yampa Valley’s service area.

The average boost to Grand Valley Power customers’ bills will be $93.72, with some major commercial customers seeing surcharges in the five figures. 

Xcel responded to questions about the co-ops with a statement that said in part, “While we follow natural gas price hedging policies to reduce the impact of price surges, we are not immune from extraordinary spikes in costs, such as those in February.”

In filings at the PUC, Xcel has said it switched to cheaper fuels when possible, interrupted service to those who had agreed to it, and used previously stored, cheaper gas as much as possible.

“Since the February cold-weather event, we have worked closely with our wholesale customers – who have contracts with us that are regulated by the Federal Energy Regulatory Commission, not the Colorado Public Utilities Commission – to offer flexibility by extending the timeframe over which the co-ops could pay February’s fuel costs to the extent possible to provide immediate relief. Yampa Valley may choose to spread out those costs as they are passed on to its own customers, consistent with its own governance, similar to what Xcel Energy has proposed for its retail customers in several states.” 

Grand Valley executives and other utility watchers note that some large utilities, such as Tri-State Generation and Transmission, appear to have done a lot better job hedging their gas-generated electricity costs before the storm and therefore avoided large surcharges to customers. The PUC has the power to demand more information about pass-through fuel surcharges sought by large, investor-owned utilities like Xcel and Black Hills Energy. The PUC is asking how they bought gas during the storm, how they hedged ahead of time, and whether they used all the cheaper stored gas they could to avoid price spikes. 

For the co-ops, said Colorado Office of Consumer Counsel deputy director Joseph Pereira, “we’re concerned they will all suffer from actions that Xcel did not take during the winter storm event.” Because co-ops are regulated by the Federal Energy Regulatory Commission, though, the PUC and the OCC don’t have any oversight. 

Did Xcel give fair warning? 

Besides the actual cash question, the co-ops are also incensed that Xcel as their supplier made no effort ahead of, or during, the storm to warn that gas costs were skyrocketing and that distant co-op customers could protect themselves by conserving energy. 

“There was absolutely no indication, just from looking at the weather, that we would be facing a natural gas shortage that would impact our rates, and Xcel didn’t do anything to tell us about it,” Walch said. “And this is the crazy thing, they didn’t even tell us about it until almost two weeks after the event.”

Yampa Valley has the same concerns. 

“Had we been given more notice, we would have been able to advise our members on ways to shave their electrical usage, in order to avoid using additional kilowatts during this extreme storm system,” Johnson said. As with the Grand Junction and Grand Mesa area, Yampa Valley’s low temperatures during the storm were normal, he added. 

The PUC is currently in the discovery stage for its investigation into surcharges sought by Xcel and other shareholder-owned and municipal utilities after the freeze. The probe has been cheered on by Gov. Jared Polis and Attorney General Phil Weiser, who also say they want to know more about how the utilities hedged costs ahead of time and whether they did all they could to protect consumers. 

Xcel has said it would try to soften the impact on direct customers of the state’s largest utility by spreading the extra costs over 24 months of bills. Xcel said its request would add $7.50 monthly to average gas customers’ bills and $3.50 to electricity users, for a total of $264 from the typical customer in that time. Under Colorado law, Xcel and the other utilities have the right to seek pass-through costs for the fuel portions of their business, but the PUC also has the right to review and demand changes.

Walch hastened to add one more frustration about Xcel, when he remembered his conversation with them about interest rates. Xcel offered Grand Valley six months to pay the big fuel surcharge, but then said they’d have to treat it like a loan and charge 5.25% interest. 

To cover its own costs for storm fuel, Xcel added $300 million to a 10-year bond it was already in the middle of issuing. The interest rate Xcel pays on those bonds is 1.875%.

Xcel told Walch there was nothing they could do, that 5.25% interest rate was in the co-op contract, and FERC requires an involved administrative process to change such agreements.

Walch responded that all contracts can be renegotiated, especially in challenging times.

“And they made no effort to do that, even when we asked for it,” he said.

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