At an April 6 hearing, Chairman Eric Blank made direct references to public comments about the current case before the commission, which sees the PUC weighing a settlement between Xcel and intervening parties, including several environmental groups and the Office of the Utility Consumer Advocate, that would allow Xcel to turn four retiring coal plants — Craig 2, Hayden 1, Hayden 2, and the coal portion of Pawnee — into regulatory assets.
Those assets would ultimately be deferred on Xcel's balance sheet and eventually securitized togetherwith the Comanche 3 plant in 2030. As a result, customers would see an increase in their rates in order to pay back Xcel for its shuttered investments.
The coal plants are being closed earlier than their initially projected retirement dates as Xcel works to participate in the state’s quest for cleaner energy.
In a March 21 public comment session, residents urged the PUC not to roll over and let Xcel recover all the costs it wants to, arguing that when the plants were built it was already clear that coal was on its way out, and customers shouldn’t have to pay for mistakes they didn’t make.
“Maybe this is a chance to change course a little bit from what's happened in the past,” commenter Paul Culnan said. “I hope you'll be forward-looking in that regard.”
In the settlement, there are direct mentions of selecting options that would decrease the burden on customers throughout the coal plant retirement process, particularly regarding securitization.
“The Settling Parties agree to support the option that produces the lowest [present value of revenue requirements] and lowest bill and rate impacts unless it can be demonstrated there are material customer benefits, or avoidance of material harm to customers, based on additional economic or other considerations,” the settlement reads.
The deal also proposes that Xcel look into possible federal funding from the Energy Infrastructure Reinvestment Program, created in the 2022 Inflation Reduction Act, to help with costs.
The actual cost of decommissioning these coal plants won’t be known until closer to their retirement dates, starting with the conversion of Pawnee by 2026.
According to Jack Ihle, regional vice president of regulatory policy for Public Service Company of Colorado — the name Xcel uses to do business in this state — the company will bring a Certificate of Public Convenience and Necessity to the PUC with the exact costs for each of the facilities at the appropriate time. Those certificates ensure regulatory compliance between the government and private businesses doing public work.
Decommissioning costs include the funds used to bring the plants to a safe shutdown and any environmental remediation that may be needed. Ratepayers regularly pay Xcel back for the depreciation of assets, but since these plants are being retired early, the company needs extra funds that won’t be paid back by the time they retire.
“When you retire early, there's a shortfall,” Scott Watson of Xcel explained at the April 6 hearing.
Blank, citing public comments regarding whether it was wise to build the plants in the first place, asked Watson if the time period should be based on policy risks rather than engineering life to avoid cost recovery proceedings like these in the future.
Watson said the question was hard to answer.
When Blank asked a similar request of Erin O’Neill, chief economist for the PUC, she said hindsight might make it seem like the right solution, but agreed with Watson on the fact that it’s difficult to say.
“It’s easier, obviously, to sit here today in 2023 knowing what the lives of the units were and say that we might have thought about different scenarios or different paths that we might have taken,” O'Neill said, but noted that a more robust analysis of different outcomes — including policy risks — would be a positive in future proceedings.
Joseph Pereira, deputy director of the Office of the Utility Consumer Advocate, agreed.
“We've seen in a lot of contexts, where we are today and the lessons learned, that it makes sense to give strong consideration to policy lives as we think about new investments,” he said.
Craig Station, a coal-fired power plant in Moffat County, will be closed by 2028.
Jimmy Thomas / Flickr
Because of Blank’s concerns that those costs could end up much higher than the estimates proposed in the settlement, he asked if Public Service Company would be open to an agreement that would reward it if costs end up lower than the initial investments, while also seeing the company take on more of the burden if costs end up higher.
Ihle said that was ultimately a question best left for each specific retirement proceeding — but Blank pushed on.
“You're asking us to decide that we're going to accept all prudently incurred costs,” he said. “Instead of just guaranteeing all prudent cost recovery, we'd just set a [performance incentive mechanism], and if you do better than your cost estimates, you win, and if you do worse, you share some of that with customers. It's just a different approach to cost recovery than this commission has used in many other instances but would like to maybe use here.”
The public has repeatedly asked the PUC to take steps to align Xcel’s incentives with ratepayer incentives. In the end, Ihle agreed that such a plan could be considered in the more refined cost proceedings that will come later.
“Staff is supportive of the idea of evaluating a PIM that there are circumstances where it makes a better approach versus retrospective prudence,” O’Neill said, cautioning that it wouldn’t work in all cases. “Creating an incentive for the company to overestimate the costs…it would be a dangerous path to go down.”
Pereira said stricter guidelines around cost estimation would be needed before the UCA would feel comfortable with such a PIM.
“We tend to still think that there are opportunities around enforcement of prudence issues,” he said. “On the front end, pushing for more discipline around project estimation maybe gets us out of the backward-looking challenges around prudence.”
While the technical ins and outs of the hearing might have gone over the head of most residents, the PUC commissioners seemed to have consumers on their minds — asking numerous questions about the company’s plan for keeping public interest at the forefront.
“You propose that Public Service Company will pursue lottery funding if it’s determined to be a value to customers,” Commissioner Tom Plant said to Ihle. “I'm just wondering, how will you make that determination? What would be the process for determining the public interest?”
Ihle said it would become clear whether the company could get better financing rates through private or federal EIR funding. Xcel hasn’t applied for that funding yet, but has conferred with the Department of Defense to see if it’s a possibility, according to Ihle.
“I also wanted to thank all the parties for coming together on this settlement,” Plant concluded. “They were pretty far apart, initially, some of the parties. The level of work that all the parties went to to try and come to some sort of an agreement that was fair for all their concerns was really great work and well appreciated.”
Based on the hearing, all parties will file a statement of positions prior to April 20m before the PUC moves on to its next step.
