Xcel Energy filed a plan for a $312 million electricity rate increase last year, but as hearings on the bill hike open this week at the Colorado Public Utilities Commission the figure has been whittled down to $45 million.
The new rate proposal is the result of negotiations by Xcel Energy with more than a dozen parties — including state regulators, consumer advocates, major commercial and industrial customers and municipal governments.
Those negotiations took place against the backdrop of soaring utility bills last winter that prompted consumer outrage, concern from legislators and Gov. Jared Polis and a new law aimed at resetting the ratemaking process.
The increase would amount to $1.54, about 1.7%, on the average, 600 kilowatt-hour residential bill, raising it to $91.60 a month.
The settlement also puts caps on the amount Xcel Energy’s Colorado subsidiary, Public Service Company of Colorado, or PSCo, can charge customers for the attorney and consultant fees it runs up seeking the rate increase and on executive bonuses.
“The settlement agreement does result in just and reasonable rates and approval of the settlement agreement is in the public interest,” Joseph Pereira, deputy director of the Colorado Office of the Utility Consumer Advocate, said in a filing to the PUC. The UCA represents consumers and small businesses in rate cases.
However, the City of Boulder, one of the parties in the negotiations, says that the increase is still too much and will challenge the settlement during the PUC hearings, which are slated to run through the week and can be viewed online.
A hearing for public comment is scheduled for Tuesday at 4 p.m. People wishing to comment must register via Zoom.
Xcel Energy, the state’s largest electricity provider with about 1.5 million customers, filed the $312 million rate increase request with the PUC in November.
The company wanted a 10.5% guaranteed return on its investment and to use future estimates of costs rather than past costs in calculating its revenue requirements. Xcel Energy has repeatedly pushed, without success in Colorado, to use a “future test year” for costs.
Groups such as Colorado Energy Consumers, which represents some of the largest industrial and commercial customers, have opposed the use of estimated future costs as leaving too much discretion to the utility
Under the settlement, the company will get a 9.3% return on investments and will continue to use past, established costs, a so-called historic test year.
Xcel Energy had also requested to include about $2.5 million in rate case expenses in the rate hike. This has been capped at $2 million, with a further restriction that the company may only recover the actual expenses incurred on rate cases.
The company’s annual incentive plan for employees will be limited to 15% of base salary, calculated for each employee.
“This settlement agreement represents a compromise,” said Steven Berman, Xcel Energy’s regional vice president for regulatory and pricing. “The diversity of interests represented in this proceeding helped ensure that this negotiated settlement agreement serves the public interest.”
Record profits, record consumer hardship
In cross examination of Berman during Monday’s hearing, PUC Chairman Eric Blank noted that Xcel Energy was exceeding its 8% to 10% shareholder return and that Colorado, which has 38% of the company’s total equity, provided nearly 42% of its record $1.74 billion 2022 profits.
“It seems by these metrics you are doing fine while there is significant hardship for your customers,” Blank said.
The City of Boulder is challenging the settlement saying $45 million is still too much and questioning whether Xcel Energy needs a rate increase at all.
While the agreement trims the return on equity to 9.3%, equal to the return it is already getting t, which Boulder does not believe to be justified, Matthew Lehrman, the city’s policy advisor for energy utilities, said in a PUC filing.
PSCo has actually averaged an 8.51% return on equity and other Xcel Energy subsidiaries — the company operates in eight states — have also not achieved their authorized rate of returns, Lehrman said.
Still, Xcel Energy outperformed a peer group of utilities between 2017 and 2021 and the company’s share price rose, the Boulder filing said. Xcel Energy posted record profits of $1.74 billion in 2022.
Lehrman said “2022 was a year of record Xcel Energy profits, record customer requests for bill pay assistance, a record amount of customer bills in arrears and an unprecedented number of ratepayer comments and complaints regarding high bills, to say nothing of the record setting year of renewable curtailments that increased costs to customers.”
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Finally, Lehrman noted that in both Colorado and Minnesota, Xcel Energy’s other large service area, the company filed for large electricity rate increases, $312 million in Colorado and $600 million in Minnesota, but ended up with much less.
The ruling by the Minnesota PUC gave the company a little more than half of what they sought and in Colorado the $312 million figure was trimmed by the company to $258.4 million in May and $45 million in June.
“This trend is disturbing as it very much raises questions about what is, in fact, driving the need for these rate cases, which are exceedingly expensive to prepare and litigate,” Lehrman said. “Specifically, it puts into question whether these rate increase requests are simply a tactic to secure more return for investors, rather than justifiable requests to ensure the safe and reliable delivery of service to customers.”
There are two other issues in dispute. A proposal by the Utility Consumer Advocate would defer $48 million in costs associated with closing of five coal-fired power plants until the last plant, Comanche 3, in Pueblo is shuttered in 2031. At that time all the costs could be rolled into a securitized bond, which would be a cheaper way to pay off the closures.
The PUC staff has challenged the idea and wants to include the costs in the rate hike, raising the total rate increase to more than $93 million and adding another $1.36 onto the average residential monthly bill.
A second dispute over transmission costs adjustments could add another $1 on the average bill.