SmartGrid City Slammed
Who will pay for cost overages?
The Climax Molybdenum Company, one of Colorado's largest electricity users, spelled out its objections to an initial ruling by the Colorado Public Utilities Commission that approved triple cost overruns by Xcel at SmartGridCity in Boulder. Read this summary or click through to the document itself. In a nutshell: SmartGridCity is a research and development project that should be paid for Xcel shareholders, not 1.4 million Xcel ratepayers in Colorado.
You'll recall I've broken a few pieces of china in this space over the initial ruling by the Colorado Public Utility Commission, via an administrative law judge (ALJ), to grant Xcel full cost recovery of $44.5 million for its SmartGridCity initiative.
If you click on Colorado Public Utility Commission (CPUC), enter 10A-124E into the proceedings box and click "run," you'll be taken to the primary documents in the case.
The crockery smash, in my case, is due to the fact that Xcel gave initial estimates of $15 million in costs for SmartGridCity and ended up spending $44.5 million. If Xcel believed that its shareholders would bear that cost, I submit that it would have reached different decisions on spending because there would be real-world consequences to triple cost overruns. Instead, some sense that ratepayers would get stuck with the bill seems to have propelled poor decisions on spending.
In fact, cost recovery was allowed to proceed concurrently with a retroactive application for a certificate of public convenience and necessity (CPCN). Perhaps that arrangement gave Xcel the confidence that ratepayers would cover any tab.
Balancing shareholder and ratepayer risks in grid modernization projects has been front and center in other regulatory cases this past year, as well as at the recent annual meetings of the National Association of Regulatory Utility Commissioners and the National Association of State Utility Consumer Advocates. I predict that the missteps by Xcel and the CPUC in this case will become case studies in how not to address such projects.
The ALJ's initial ruling (aka the "recommended decision") stated that evaluating Xcel's decisions at the time of project implementation could not have the benefit of hindsight. So, logically, Xcel should be held to the cost estimates of $15 million made at the time of project implementation. But the ALJ is saying, with hindsight, that a retroactive CPCN for $44.5 million is okay for cost recovery, it's just not okay for those demanding balance between shareholder risks and ratepayers' risks. That is not a rational, fair argument. And that has given rise to speculation that there's more to this situation than meets the eye.
If you click one or both column titles, "Objections Filed to SmartGridCity Settlement Ruling" or "State Utility Regulators Push for Federal Consumer Representative," you'll find links to past coverage in this space.
We last looked at this issue when Colorado's Office of Consumer Counsel filed its objections to that ALJ ruling in mid-November. Today we'll briefly review the objections filed by the Climax Molybdenum Company, one of the largest electricity users in the state. Tomorrow we'll look at Xcel's responses to these objections, filed recently. With luck, this will tee up the CPUC's pending decision on whether to let the ALJ's ruling stand or change it.
Here is Climax's objection in a nutshell:
"As a matter of fairness, SmartGridCity should not be funded by the ratepayers of Colorado. It is a research and development (R&D) project that might benefit ratepayers across Xcel's entire service territory—not just Colorado. Even if deemed a 'pilot' or 'demonstration' project, SGC should be treated as an R&D project because it is designed to generate knowledge that could be useful in the future to ratepayers across Xcel's multi-state service territories. [Emphasis added.]
"And regardless of whether the project was a pilot or R&D project, SGC was poorly planned and, at the time of its implementation, would not likely have been granted a CPCN by this commission."
Because the CPUC allowed cost recovery to begin prior to the approval of a CPCN, Climax argued, the CPUC "already looked upon this project with favor."
"Nonetheless, the commission referred this matter to an administrative law judge for a full investigation of the facts surrounding this project and the question of whether the project deserves a CPCN, presumably because it believed that there could be facts indicating that the company's application for a CPCN should be denied. The facts and law developed during [related] hearings demonstrate that SGC should not receive a CPCN and should not be funded by Colorado's ratepayers."
This story first appeared in Intelligent Utility Daily and was written by its editor, Phil Carson.
