Consumers went 2-0 in important decisions at the Colorado PUC this week in cases involving the state's dominant utility, Xcel Energy. One decision, yesterday's rejection of Xcel's request for interim "rate relief" (right, not really sure who is in need of the relief but that's what they called it) made the papers and the blogosphere this morning. The other, an equally if not more important decision on Tuesday concerning the utility's request to keep 40% of the proceeds from the trading of what are known at Hybrid RECs (docket 11A-510E), received little if any notice because a) it is far more difficult to understand and b) the impact is less noticeable to consumers.... note, I said less noticeable, not less important.
So, let's start with the 510E docket. As I've written about here previously and in testimony before the commission as well as some other public arenas, the PUC has allowed Xcel to acquire "too much, too soon, at too high a cost" with the ultimate impact that the 2% rate impact limitation in the renewable standard statute has been circumvented by the adept use of misdirection, accounting chicanery, and political decision making. But, why would a utility that fought the imposition of the renewable standard so vigorously then turn around and spend more than necessary to blow the compliance targets away and brag that it has met its compliance obligation more than a decade early? There is no way to fully explain the volumes of PUC Staff analysis and testimony in this small space, but the bottom line answer is that Xcel (aka Public Service Company of Colorado or PSCo) has figured out how to make money at it! Keep in mind that the utility has invested none of its own money (zero, nada) in renewable energy and is promised full recovery of every dime -- plus interest -- of consumer funds that it does spend. The unfortunate impact has been that consumers are being saddled with costs in excess of the statutory 2% rate cap. Another impact that only a few understand is that, as I explained in testimony way back in the 2007 RES Compliance Plan docket, it would and -- and indeed has -- lead to a boom and bust in the Colorado renewable energy market.
Hence, being flush with more RECs than needed for compliance under any scenario, Xcel saw an opportunity to sell its excess RECs to utilities in California that were having difficulty complying with that state's RPS. The term "hybrid REC" came about because California, ever hungry for electricity, required that RECs generated outside the state be bundled with energy from another source that could be imported into the state. In the process, the company has made an obscene profit from the sale of these excess RECs that have been bought and paid for by Colorado consumers with interest. In return for employing its "skill" in effectuating such transactions, Xcel thought that it should be allowed to retain an astonishing 40% of the proceeds with the remainder being used to buy down the deficit in its renewable accounts (known as the RESA deferred account) so that it could.... you guessed it.... acquire even more RECs at consumer expense for it to sell at a profit using OPM (that's Other People's Money). Keep in mind that we're talking about margins well into the eight and approaching nine figures here (that's without the decimal point) so this was not exactly pocket change (OK, that's tens and approaching hundreds of millions of dollars in play). This was about as close to a perpetual motion money making machine as I've ever seen.
The PUC's staff, the Office of Consumer Counsel, large industrial customers and others did recognize that the company should be credited with some finder's fee for identifying these trading opportunities but nowhere near 40%. They also differed on the mechanism through which the customer share should be returned to ratepayers. On Tuesday, after volumes of testimony submitted by all sides and aborted settlement negotiations that failed to yield an acceptable outcome, the commission deliberated and made its decision. Where did they come down?
The ultimate decision awarded Xcel even less than the 20% share proposed by the PUC staff and most of the other intervenors. The outcome was that Xcel could retain 20% of the first $10 million in margins, 15% of margins greater than $10 million and up to $30 million, and only 10% of margins beyond $30 million -- proof that it doesn't pay to be greedy. These sharing percentages are to remain in effect through 2014 after which the PUC could reevaluate the situation. As to the mechanism for returning the customer share, here is where the PUC could have done a better job. Concerned about the deficit in the RESA deferred account that is well into the tens of millions of dollars (see my RPS rate cap presentation posted elsewhere on this blog), the commission elected to first use the proceeds to pay down the RESA, but I am a bit less concerned about that now that the commission has indicated its intent to keep a closer eye on this. As is typical we'll have to wait for the final written decision, to be followed by the inevitable RRR (that's application for rehearing, reargument, and reconsideration) before we're fully comfortable with this outcome. And, unfortunately, none of this completely mitigates the boom and bust I spoke about earlier or the need to transition to clean energy in a sustainable manner as the utility, in its active resource planning docket, has made it clear that it doesn't need any more renewable generation for some time to come.
As for Xcel's application for interim rate relief (docket 11M-951E) that was rejected by the commission on Wednesday, Chairman Epel said it best when he noted that without some showing of adversity, "there is no need for rate relief." Though their reasons differed, the three commissioners came down on the side of rejecting the interim rate hike. Commissioner Tarpey noted that the company is already close to its authorized rate of return and Commissioner Baker was the closest to granting the request noting that "regulatory lag could be considered a form of adversity." Fortunately, neither of the other two commissioners bought that argument. And, while this is encouraging, Xcel still has before the commission its request for a $142 million rate increase (docket 11AL-947E) which has yet to be adjudicated. All this decision did was prevent the utility from collecting the lion's share of that request prior to a final decision in that case. Thus, continued vigilance by the public is still necessary.