Legislators grill utility leaders over rising rates

The Joint Select Committee on Rising Utility Rates questions a panel of leaders from Xcel Energy and Black Hills Energy during a March 14 hearing.

A special legislative committee probing rising utility costs questioned several long-standing aspects of Colorado’s rate-setting model Tuesday, including whether for-profit utilities like Xcel Energy should be allowed to make as large a return on investments as they do now.

Democratic members of the Joint Select Committee on Rising Utility Rates, particularly Senate President Steve Fenberg and House President Pro Tempore Chris deGruy Kennedy, also asked whether customers should have to foot the bills for costs ranging from new investments in natural-gas infrastructure to legal fees paid by utilities to experts who help justify rate hikes. The second meeting of the committee, which was the first in which members heard from leaders of Xcel and Black Hills Energy, turned in some sense into a discussion about the very model of granting monopolies to utilities to serve designated areas of the state.

Xcel and Black Hills leaders pushed back, arguing that without being able to show a return on their equity, which for Xcel was 8.23% in 2021, they would struggle to attract the investors that allow them to operate safely and efficiently and allow them to improve infrastructure. Both companies noted Colorado customers have not had to deal with outages due to infrastructure failures as they have during winter storms in other states in recent years, and they said also that the infrastructure needed to modernize the state in ways like electrifying the transportation system is requiring infrastructure improvements that result in base-rate increases.

Legislative leaders put together the committee after significant spikes in utility bills — driven by rising natural-gas prices, increased energy consumption during this cold winter and state-approved rate hikes for Xcel — led to legions of customer complaints. The committee will meet again Monday to begin debating potential legislative actions to curb the increases and volatility in bills, and it’s clear that majority Democrats want to see something done to limit rate hikes that must be approved by the Public Utilities Commission.

Legislators challenge utilities

Fenberg and deGruy Kennedy both asked bluntly how the companies can justify making record profits — driving by rising revenue rather than increasing profit margins — as customers struggle to pay bills, particularly given that the utilities have no market competition.

“In this time when many people are seeing the profits you make while they are paying bills they can’t afford, do we need to revisit the process by which we approve these rates?” deGruy Kennedy, a Lakewood Democrat, asked a panel of utility leaders.

Robert Kenney, president of Xcel Energy-Colorado, responded that the PUC acts as a proxy for competition and approves rate hikes that often are lower than requested only after substantial hearings. While returns on equity are factored into rate hikes, Xcel spends much more building out infrastructure than it pockets in profits, and those transmission lines and energy-generating facilities stabilize electricity delivery and provide jobs and local property-tax revenue, he said.

“We make profits. We make investments. The profits seed those investments,” Kenney said. “It’s that very ability to attract capital and make profits that allows us to install the infrastructure.”

Legal costs an issue

While it’s unknown what major proposals the committee and other legislators make suggest, Fenberg gave several indications that a smaller step he’d like to see could be a ban on utilities recovering from their customers the fees paid to consultants and outside attorneys.

Fenberg pressed Kenney on why Xcel paid roughly $8 million for outside legal help to justify a 2019 rate hike (which Xcel later clarified represented a combination of five rate cases plus a time-of-use customer pilot). Kenney and Nick Wagner, vice president of Colorado regulatory affairs and policy for Black Hills, said the experts ensure that the utilities are asking for no more or less than is needed to operate their businesses and said that if such a ban were in place, they would probably bring such experts onto staff — and raise their overall cost of doing business.

“We’re talking about spending $8 million — I would argue against the ratepayers’ interests — to raise their rates,” Fenberg said. “Something just doesn’t feel just to me.”

Kenney then responded: “I might say that we’re making the case that the investments we’re making are the appropriate investments in our community.”

Utilities seek help

Asked what the Legislature could do to help stabilize utility rates for Coloradans, leaders from the state’s two investor-owned utilities offered a list of regulations that officials could untie.

Wagner suggested that the Legislature could allow the PUC to conduct multi-year rate hearings rather than require the utilities to request rates on an annual basis. Not only would that allow utilities to spread the costs of infrastructure improvements over a longer basis, it would cut down on the repeated hiring of outside experts by utilities, he and Kenney said.

Kenney said he would like the ability to move lower-income customers and customers whose bills are in arrears automatically onto payment plans where bills are estimated and parsed evenly over a 12-month period, to limit cost spikes during heavy-usage winter months. He, like Wagner, also said the Legislature could remove obstacles to utilities storing more natural gas in underground wells, which would build up reserves for use during times of global price volatility.

Fenberg ended a two-hour question-and-answer session with leaders of the utilities by asking whether they should be adding and improving infrastructure for delivering natural gas when state and national leaders want to phase out the resource in favor of renewable sources. His now-toddler children will still be paying off the cost of that investment when they themselves are having children and natural gas is used sparingly if at all, the Boulder Democrat asserted.

But Kenney noted that such infrastructure can be converted in the future to be used with hydrogen or even geothermal energy if those forms of energy overtake the use of natural gas. Wagner noted that natural gas will need to be used for a long time to keep up with energy needs as other resources like coal are being phased out, and he argued that utilities must create an infrastructure to provide customers power in the present, not the more-distant future.

“We don’t have the luxury of saying ‘Well, it could go away in 10 years or 20 years.’ We have to serve our customers now,” he said. “We can’t tell our customers that we won’t hook them up.”