Colorado Bill Increases Utility Accountability — Episode 194 of Local Energy Rules

But aside from the actual dollar impact, the traceable dollar, the amount of money on lobbying or advertising and what that does to your utility bill, I think there’s actually a much more profound impact under the surface. And that is that money is being spent essentially against the interests of the rate payers. Not in every case of course, but when you’re talking about regulatory lobbying and legislative lobbying and lawyers to make the case at the Public Utilities Commission, you often are talking about customers paying for the company to argue to raise rates on the customers.

And I think most people hear that and they’re like, well, that seems perverse. That does not make any sense. A company has the right to go and in the democratic process and argue for increased rates and increased profits and whatever it is, but they shouldn’t be using my money to make that case because it’s not in my interest. And so I think when you explain it that way, a, there’s a principle issue there, but I also think it makes it so the playing field is not level. So if you’re talking about playing in the sandbox of the Public Utilities Commission and there are folks who are advocating for the public interest, there are folks that are advocating for their own maybe narrow interest, and then there’s the utilities that are obviously arguing for the utility interests when the most well-funded and resourced voice in that sandbox is the utility, they often are going to get their way. And I think the fact that they are arguably well-resourced because it is largely recoverable expenses, I think that’s part of the problem. What we really should be doing is leveling that playing field and making sure frankly, that the public interest, that citizens have a louder voice, that they have a bigger role. Because at the end of the day, this is the Public Utilities Commission. They’re making decisions that should be in the public interest and obviously people can participate, but I don’t think the public should be subsidizing the lawyers and the legal fees and whatnot of the utility to the degree that it is unleveling the playing field against our interests. And that’s really, I think at the core of what this piece is about.

But obviously in the business sense, saying that you don’t make a profit off of it is not the whole equation. If you also don’t pay for it at all, it means you have no exposure. Virtually no other business can say that about the raw products or the expenses that they have to provide a service so they don’t pay for it. They pass it off to the consumer dollar for dollar. That also means they have no incentive to control those costs. So if you’re a sandwich company and your tomato prices are going up, but you know don’t have to pay for the tomatoes, why would you spend a lot of time finding the cheapest tomato? Because it doesn’t matter to you. You’re going to spend your time on other things. You’re going to spend your time on how to make more money or how to get cheaper bread or how to squeeze profit out of a different area of the company.

So they have no incentive to do it. Now, they would say that of course they have an incentive, they want to keep rates low, and I think there’s some truth to that, but that’s why this is important and their job is to make sure that their shareholders make more money. The public outcry about rate increases that were happening seemingly overnight during the winter was really a big reason why we formed this select committee to look at monopoly utilities and rise in utility rates and things like that. And a big part of it’s the natural gas price spike that happened in that time. And so that’s what led us to look at what can we do to insulate consumers from these price spikes.

One of it is making sure that the utility has skin in the game and therefore would theoretically care more about those gas prices. So that would hopefully lead to either being better purchasers of that commodity, being more thoughtful about future pricing and contracts and things like that. But then secondly, also to incentivize them frankly, to get off of gas faster. If there’s exposure to their bottom line by relying on natural gas in theory, that means they’ll be incentivized to move more quickly towards renewables where they don’t have a commodity price that’s fluctuating out there in the international market. So we did several things in the bill to get it this behavioral change. The common theme here is aligning the incentive of the utility with the incentive of the public because traditionally they’re not aligned. The public wants low rates, the utility wants high rates or at least to build a lot of things so that they can increase rates and recover those expenses and make a profit. So that’s what this was about.

There’s several things we did. We had a fuel sharing piece in there where the utility actually is on the hook for a portion of the fuel costs and then they’re incentivized to find efficiencies and do better purchasing and maybe even get off of fuel in the long term. But there’s other things that we put in there as well. Right now, the utility, they subsidize the expansion of pipelines. They like that because it guarantees future customers, but it means that we as the public, the rate payers are all paying for that subsidy when it might not actually be in our interest to do so. Meaning if there’s a new neighborhood getting developed, paying to put pipes in the ground when we know those pipes might not be used for their entire lifetime. And there is a different approach like electrification that in the short term and the long term is probably cheaper, especially if you’re starting from scratch, the utility subsidizes that developer to put in pipes to mandate natural gas in everyone’s homes when they buy ’em, even if those customers that end up buying those homes don’t want that product. So there’s various things we put in the bill, but it really has to do with better aligning the incentive of the utility with the incentive of the consumers,

But it is also within the general policy position of the leadership in Colorado right now. But to go back, I mean utility at the end of the day, what they would prefer is to do both. They want to electrify and expand the grid and increase electricity sales and get into the EV charging market and do all of that. They want to get all in there, but they don’t want to do it at the expense of their gas infrastructure. So some utilities don’t do both, Xcel in Colorado does. So what they want is to continue making gas infrastructure expansion, the default supporting electrification so that they can get paid to expand the pipeline grid, the infrastructure for pipelines and the electrification grid and transmission grid to further bring on renewables and support electrification. They want to have it both ways. What we are saying is if you do this electrification thing, you actually don’t need to do the pipeline thing nearly as much.

And they’re basically guaranteeing future customers, whether the customer wants to be a gas customer or not, because once you lay that pipeline, once you put in that infrastructure, it’s so much harder to transition away. But also if they do transition away, they arguably have stranded assets that they still get paid for. So it’s not in the consumer’s interest by any means, but of course it very much is in the utilities interest to continue laying down pipes to continue gas infrastructure, to expand gas infrastructure while at the same time being all on board with electrification.

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But if you don’t discount the fuel and if you say, well, we should really look at the full cost of this project on a consumer, or if you discount it at the rate of let’s say inflation, which more accurately portrays the scenario, then all of a sudden the coal plant looks much more expensive than the solar plant. That’s a simplified version of it. They currently often will discount it at the rate of their average cost of capital even though fuel is not capital, they’re not building anything when it comes to the fuel, the argument has been that it is a misplaced discount rate, or at least the amount is wrong. And if anything, if you’re going to discount it, you should discount it at the rate of inflation, which is what this bill did.

It basically said that if you’re going to rely on a discount rate, you generally have to rely on one that matches the rate of long-term inflation. We think that more accurately captures the true cost when comparing investments to make it more apples to apples, whereas up until now, it’s sort of apples to oranges. A solar investment doesn’t have fuel costs, wind does not have fuel costs, it has other costs, it has maintenance costs and stuff, but so does a coal plant. So we just wanted to level the playing field again to show the true cost of that investment, and that hopefully helps the utility better show what is a smarter investment versus one that’s not. But most importantly, it helps the regulator make a more informed decision when they get to more accurately see the cost of certain types of investments. And these are big investments. We’re talking billions of dollars. So it makes a big impact. And I think a lower income family that was living through last winter really wished that we had done this a long time ago, and perhaps it would’ve meant that they didn’t have as large of a fuel cost on their electricity bill because maybe it would’ve moved us faster towards renewables and their exposure to the natural gas commodity market would’ve been less.

So yeah, I mean, I guess the advice I have is maybe worthless because we haven’t figured it out in Colorado. We are still very much navigating this and dealing with these challenges in the world that we live in. But I think the reality is that they have so much power, yet they are a mandated monopoly in most states. And so we’ve sort of created a worst case scenario where they have a monopoly built-in customer base. They really can’t go wrong. They have to do something really bad for this business deal to go sour on them. And yet we regulate them, but we don’t run them. And the utility industry has gotten so much more complex and it’s ever been, and you go to a public utilities commission in a state. I mean the experts in the room are the utility. I mean that genuinely, they actually are the experts.

They know so much about their system, they know the ins and outs, they know everything that the regulator doesn’t know because the regulators happen to maybe have not asked the right questions. And basically it is not that they pull the strings, but they create the playing field and in some ways, they set the rules and provide the information in order to get more of a guarantee of certain outcomes. And so I think if we’re not going to blow up the system and totally change it, I think we need to have a heavier hand when it comes to regulation at least. And that means being much more prescriptive in law because if you’re not prescriptive and if you’re very general and vague and it goes to the utilities commission to get sorted out, that’s their playground. That’s where they have probably the most authority and ability to influence the outcome.

I think community choice provides some of what cities that want to municipalize it provides them some of what they’re looking for. Not all of it, and every community is going to be different. But yes, I mean the idea that the utility still operates the system, but the generation is up to the community to decide where they purchase it from, I think makes a lot of sense. And in fact, if the city of Boulder was successful and municipalized, that may have essentially been what they ended up doing. They may have kept Xcel as the operator of their grid, but they just would have had the authority to purchase energy and gotten it from a different place or even self-produce some of it. So I think it makes a lot of sense. I think it’s easier said than done everything in the utility space. And here’s the bummer, there are so many better ways to do what we do when it comes to utilities.

The biggest impediment is the entrenched utility that has no reason to support a change. And so I mean, I firmly believe in Boulder, after we voted to municipalize, if we had people at the table that simply were there to solve the problem and figure out how to get from A to Z, I think we would’ve done it years ago, but that’s not what we had. We had a table and there were people who showed up every day to that table, and their only purpose was to make sure that this group of people were not successful in solving the problem. And they did that through lawsuits. They did that through political campaigns. They did it through influencing community groups and providing grants to organizations so that they would stay on the sidelines. When you have the money and the power and the influence like a utility has, it just makes doing anything new so difficult. And so does CCE make a lot of sense? Yes. Is it almost like a no-brainer? Yes. The question is can we do it in a way to be successful when the utility will oppose it and keep it from being successful every step of the way if they can?

You passed a ballot initiative in 2011 saying the city wants to take over the utility, and a decade later you’re still in litigation with the utility fighting about that without getting too much into the weeds there, that was the choice the utility made. And I sort of have this feeling of it’s like you’re getting bullied by somebody and people are telling you, Hey, don’t stand up and fight that bully. That would be hard. Just stay on the ground and let ’em keep kicking you. I mean, I don’t know. Is there any alternative? It seems like the worst reason not to support something like that. I don’t know if you have any thoughts about that.

When it comes to specifically on energy, I geek out on the utility level stuff like we’ve been talking about today. I also care a lot about distributed generation because I think that’s another aspect of giving people more control of their energy future. And so I’m having conversations on what we can do in Colorado to sort of regain the mantle of being a leader in this area. We were one of the original states to really embrace distributed generation. From a policy perspective, I think we’ve fallen far behind. I think there are many states, including conservative states, that have actually well surpassed us when it comes to distributed generation investments. And I think that’s partially because we have a very large sophisticated utility that has gotten in the way of that. And again, on one hand, that probably means maybe we’ve moved faster than we would have otherwise in some areas, but I think it has meant that again, we further entrenched the utility interest in our daily lives when it comes to energy instead of allowing us to democratize it a little bit more.

So those are some of the areas I’m excited about that I’m hoping to work on. There’s a whole lot of other issues that have nothing to do with the issues you work on, John, so I won’t bore you on them, but we obviously, like any state, we have a lot of challenges and opportunities at the moment that I’m looking forward to working on. In terms of my future, I honestly don’t know. There’s no master plan. I am committed to serving out my term and being there till the very end, and whether I or my wife like it or not, I think I will always be in public service one way or another. I don’t know that I’ll run for office again. Again, there’s no master plan of what I’m going to run for next. So I’m not jumping from one thing to the next immediately, but we’ll see. I’ve got two little kids and maybe I’ll one of these days find myself a real job and think about taking care of the family, but we’ll see. No plan, and I’m sure I’ll be still working in the public sector one way or another.