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After collecting $610 million from Colorado customers, regulators say it’s time to end Xcel’s pipeline repair fee

The Pipeline System Integrity Adjustments fee was supposed to be temporary. A decade on, it now accounts for 16% of Xcel’s natural gas revenue in Colorado.

An Xcel Energy natural gas pipeline running through Rio Blanco County was endangered by the Oil Springs fire that started from lightning on June 18, 2021. (The Rio Blanco Herald Times)
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What was supposed to be a quick way to raise money to address pipeline safety issues, a little add-on of about $3 a month for the average household, has lingered on Xcel Energy natural gas bills for a decade – but it may finally end.

Xcel has since 2011 raised nearly $610 million, or three times the initial revenue estimate, from the add-on fee known as a rider. 

The company wanted to extend the charge – the Pipeline System Integrity Adjustments or PSIA rider – to 2024, but faced opposition from the state’s Utility Consumer Advocate, the Colorado Energy Office and the staff of the Colorado Public Utilities Commission.

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In a settlement agreement now pending before the PUC, Xcel has agreed to strike the rider from bills at the end of 2021. Future pipeline investments would be part of rate cases, which the PUC staff argued, provide more oversight.

The PUC is slated to rule Oct. 27 on the settlement, which was reached between Xcel and the PUC staff and is supported in full by the Colorado Energy Office and in part by the consumer advocate.

“Ongoing state and federal regulations require continued investment in operating and maintenance in safety and integrity, all which benefits our customers,” Michelle Aguayo, an Xcel spokeswoman, said in an email. “The current settlement gives us a path to transition the recovery of these critical investments from the PSIA rider to base rates.”

The story of the PSIA, critics say, is a cautionary tale of the use and potential abuse of riders, which are attached to monthly bills and allow utilities to pass specific costs – for items such as transmission line construction and fuel costs – directly on to customers without having to wait for a rate case, in which the PUC reviews charges in more detail.

“Riders can take on a life of their own,” said Cindy Schonhaut, director of the state Office of Utility Consumer Advocate, previously known as the Office of Consumer Counsel. “Riders should be limited and be used sparingly and the name of the rider should be clear so consumers know what it is.”

Some of the riders on the Xcel electricity and gas bills are listed as CACJA, ECA, GRSA and DSMCA. An explanation for each is listed in small print on the back of the bill.

“If you look at your electric bill there are seven riders and they can add up to half the bill,”  said Bill Levis, the former director of the Office of Consumer Counsel, and a consultant for AARP, which represents retirees and older citizens.

The counterargument is that consumer dollars are going to fixed projects and funding programs that often have broad support, from closing coal-fired power plants to increasing renewable energy and promoting energy efficiency.

As for the PSIA rider, Schonhaut said “enough is enough. This has been going on longer than the commissioners intended it should.”

The PSIA went into effect in 2011. When then PUC Commissioner Matt Baker, acting as the hearing officer, approved the rider he said he expected it to expire in three years “in order to adequately protect the ratepayers of Colorado,” according to a filing.

The rider was intended to address federal mandates issued under the 2002 Pipeline Safety Improvement Act. The law was prompted by fatal pipeline explosions in Bellingham, Washington, in 1999 and in Carlsbad, New Mexico, a year later, and by concerns about pipelines being targets in the wake of the Sept. 11, 2001, terrorist attacks.

Xcel embarked on a comprehensive program to replace mains and pipelines, inspect and repair lines and upgrade equipment. Since its initial approval the PSIA rider has been extended four times and Xcel, which serves about 1.3 million residential electric customers and 1.2 million gas customers,  was seeking a fifth extension to raise another $438 million.

“While the company has made great strides in improving public safety, the final three years of the PSIA are necessary to achieve important system integrity and safety improvement goals.” Luke Litteken, Xcel Energy’s senior vice president for gas, said in PUC testimony.

PUC staff, however, objected to the extension for a number of reasons, including what they said was a lack of oversight.

“Cost recovery through rate riders enables a utility to pass increases or decreases in costs to customers without the necessary review of a general rate case can affect the utility’s efficiency incentives,” PUC economist Fiona Sigalla said in written testimony.

The percentage of revenue Xcel was receiving from its natural gas base rates in Colorado dropped to 34% in 2020 from 42% in 2011, while the revenue from PSIA went to 16% from zero, Sigalla said.

“The PSIA has outlived and outperformed the commission’s initial intent for this rider, contributing to my concerns about the use and abuse of riders,” she said.

The state energy office opposed renewing the ride because it places major energy investments outside the planning and review for the state’s push to reduce greenhouse gases and move away from fossil fuels, including a law requiring gas utilities to develop “Clean Heat” targets to cut emissions.

“Current state policy requires a transition to a lower-carbon economy, including deep emission reductions from fossil gas use in buildings,” the energy office’s policy director Keith Hay said in testimony. “CEO is concerned that maintaining the current approach of using the PSIA rider to recover safety and integrity investment costs does not provide sufficient opportunity for the commission to assess the company’s gas infrastructure spending.”

Cory Skluzak, a Utility Consumer Advocate rate analyst, said the rider had led to “mission creep” and that Xcel had benefited from extraordinary cost recovery.

Under the settlement agreement, Xcel would transition to filing for pipeline investments in rate cases by being allowed to about get an agreed upon return on $143 million in gas pipeline investments.

This element is opposed by the Utility Consumer Advocate. 

“They don’t need a soft landing,” Schonhaut said. “By now they’ve addressed the riskiest safety issues.”


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