Xcel Energy-Colorado’s proposed electric rate increase draws objections

Xcel Energy is seeking a $312 million increase in revenue in an electric rate case, but the state agency that represents the public wants regulators to instead cut the utility’s revenue by $26.6 million and block it from recovering millions of dollars of investments for transmission projects.

If approved, Xcel Energy’s rate request would raise residential monthly rates an average of 8.2% and monthly rates for small businesses an average of 7.7%. Xcel, Colorado’s largest electric utility, says the increase would pay for investments in its distribution and transmission systems and information technology and ensure it can meet the state’s targets for cutting greenhouse-gas emissions.

The Colorado Public Utilities Commission is considering the rate increase in the aftermath of skyrocketing natural gas prices that sent heating bills soaring this winter for customers of Xcel and other utilities. The outcry over the huge spikes led to hearings by a select legislative committee and passage of a bill intended to buffer ratepayers from future price shocks.

The PUC has scheduled a meeting May 31 to take public comments on Xcel Energy’s proposed revenue increase.

Xcel’s requested increases are “significant and on an individual and collective basis are much greater than what the rate of inflation has historically been,” the Colorado Office of the Utility Consumer Advocate said in a May 3 filing in the case.

The volume of public comments filed in the case is one of the largest the PUC has seen and people have consistently asked regulators to not raise rates again because they can’t afford it, Ronald Fernandez, a financial analyst with the consumer advocate’s office, said in the filing. Comments have also noted Xcel’s record profits, he said.

Xcel Energy, which is based in Minneapolis and serves eight states, reported $1.74 billion in profits for 2022, up 8.75% from 2021. The company’s net profits in Colorado were $727 million, up from $660 million in 2021.

Colorado contributed more to Xcel’s earnings per share than its other subsidiaries.

The Colorado consumer advocate’s office is recommending that regulators set Xcel Energy’s authorized return on equity, or the return on its assets, at 9.3% rather than the 10.25% sought by the company. The office is also asking regulators to not allow Xcel to recover more than $200 million it spent on transmission improvements, saying the final costs for projects over the last few years were double the estimates when the developments were approved.

In filed testimony, Chris Neil, a financial analyst with the consumer advocate’s office, said allowing Xcel Energy “to recover these substantially higher than estimated costs from its customers adversely affects affordability in its customer rates.”

The group Colorado Energy Consumers, made up of large commercial and industrial Xcel customers, has recommended a net decrease of about $37 million in the utility’s revenue as opposed to an increase. The business group as well as the consumer advocate’s office and the utilities commission staff questioned Xcel’s use of projected rather than historic costs and revenue to determine how much money it will need.

Xcel Energy spokesman Kevin Coss said in an email Thursday that the company is committed “to providing the safe, clean, reliable, and affordable energy our customers depend on, while aggressively moving forward with the investments needed to meet Colorado’s energy goals.”

This review of the rate request aims to align customers’ bills with the cost of service, and the company believes its case accurately reflects the effort, Coss said.

Coss declined to comment on the consumer advocate’s testimony before Xcel files its response with the PUC.

In recent testimony submitted to the PUC, Steven Berman, Xcel’s regional vice president of regulatory administration, said achieving the state’s goal of making the transition to renewable energy requires “significant ongoing investment,” but the company’s recovery of related costs has lagged, Berman said. He added that Xcel Energy’s electric rates are competitive compared to other utilities across the country.

However, the consumer advocate’s office and other critics have accused Xcel of “pancaking” its rate requests, seeking numerous gas and electric increases in a row. In a filing in December, the PUC staff  expressed concern that Xcel had proposed a previous electric rate hike about 18 months before the current case. The staff has recommended just a $21 million increase for the utility.

Gov. Jared Polis signed a bill into law Thursday that is meant to shield customers from the kinds of price spikes seen this winter due in part to cold weather and big jumps in wholesale natural gas prices. In February, Polis directed state agencies to find short- and long-term find solutions. 

The legislature formed a joint select committee to investigate why heating bills were so high and how to avoid future price shocks. The legislation, Senate Bill 23-291, set a cap on how much of a regulated utility’s increased fuel costs it could pass on to customers. Regulators could spread out the costs over a period of time.

Other provisions include examining whether new investments in natural gas facilities will burden ratepayers with expensive plants and pipelines they won’t need as Colorado uses more renewable energy.

“The bill strikes a balance between working in the short term to provide customers some relief and in the long term making sure we’re making the right investments in our energy infrastructure. In particular, it starts to examine what we’re spending on the gas side,” said Meera Fickling with the Boulder-based environmental group Western Resource Advocates.

Xcel Energy and Black Hills Energy initially criticized the bill as flawed. Xcel spokesman Coss said several constructive changes were made to the measure, which now provides “additional tools to help us better protect and manage potential price shocks driven by global energy markets and regional energy constraints.”

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