Colorado’s high energy costs are partly due to a high-stakes regulatory “game” being played largely outside of the public’s view, said the official advocating for customers before the Colorado Public Utilities Commission.
A joint committee hearing on high energy costs at the statehouse Wednesday provided insights into the regulatory process that determines how much money investor-owned utilities make and how much utility consumers have to pay. The hearing occurred at a time of soaring energy prices, largely due to fluctuations in natural gas prices but also because of — some critics insist — on additional charges mandated via regulations.
“I would say if a ratepayer is deciding between paying their heating bill or paying their prescriptions this month, then yes, something is wrong,” said Senate President Steve Fenberg D-Boulder, who chaired the hearing. “Something clearly needs to change. Perhaps we need to make some amendments to that compact that was agreed to more than a hundred years ago.”
Joseph Pereira, deputy director of the Utility Consumer Advocate office explained to legislators — from the perspective of energy consumers — how the regulatory compact between monopoly utility providers and the state can affect consumer’s bills.
“The regulatory compact can be thought of as evolving,” said Pereira in the hearing. “And so decarbonization becomes, if that’s what the legislature puts forward, part of the compact for service. This is no longer optional. This is part of the law, and this is part of the public interest.”
The objectives of Colorado lawmakers toward public utilities have grown beyond making sure that consumers get reliable, safe service at a reasonable price. In recent years the General Assembly has added other values that must be considered, such as equity and environmental concerns, to the duties of regulators.
Betting on the ‘Rule of 60’
Pereira said when he started at the advocate office he was introduced to a concept called the “rule of 60.”
“When a utility comes in for a rate case, they’re likely to get 60 to 70% of what they ask,” said Pereira. “And I have to say in my short period, my three years at the Consumer Advocates Office, it’s held pretty true.”
A utility will come to the PUC and ask for a percentage of return on equity, which means a guaranteed profit on the utility’s capital expenses for building new energy sources and infrastructure, Pereira said.
For example, the recent approval Xcel Energy received to build 650 miles of high-tension power lines in eastern and southeastern Colorado to serve distributed renewable energy sources and improve the power grid means the utility will earn a guaranteed profit on its $1.7 billion in capital investment, which will be collected from ratepayers over time.
“What this is part of, I think, is the regulatory game that’s played — and where customers are at a disadvantage,” said Pereira.
Any activity beyond basic service is contrary to the financial interest of the utility, he said, therefore it needs to be incentivized. The evolving nature of the relationship between regulated utilities and the state is seen in the plethora of new environmentally oriented laws in the last few years and bills under consideration at the statehouse now.
Consumers are shut out of the process
The long-term growth trend in utility rate bases is what is really driving high energy costs, Pereira insisted.
Using Xcel only as an example while acknowledging that all regulated utilities work much the same way, Pereia cited some long-term price hikes.
“Xcel’s annual electric bills have increased from an average of around $859 in 2016 to $1,100 in 2023,” said Pereira. “Base rates on the gas side (that) accounted for $474 (in 2016) today count for $796 annually.”
When ratepayers — stunned by doubling and even tripling of their energy bills this winter, and hammered by skyrocketing inflation — cry out for help, the PUC patiently listens. But the public comments don’t have much weight in the process, Pereira said.
“The outcry that you’ve heard recently is an influence, but it doesn’t necessarily have standing in the regulatory process,” said Pereira. “They are something that the Public Utilities Commission sees, but it doesn’t become part of the decision-making process unless those comments are put in the record. And so public opinion and concerns and perspective really sit outside the regulatory process unless it’s let in.”
But the general public isn’t invited to play the regulatory “game.”
Those who are invited by the PUC to become intervenors can expect to pay $500,000 or more for a seat at the table. That’s what happened when the Coalition of Ratepayers was granted intervenor status in two of Xcel’s cases in 2016 and 2017.
The cost of these proceedings ratepayers will pay for litigation alone can be high.
In one case a company reported some $2.7 million of in-house legal, outside legal and consulting costs. The commission approved around $2 million, Pereira said.
“Depending on the year and the filings, you could see legal costs easily exceeding $10 to $15 million,” Pereira said during the hearing.
“So,” Fenberg asked, “the utility brings a bunch of outside consultants, legal experts, etc., spends many millions of dollars and then the ratepayers pay them back for making the argument to increase our rates?”
“Mr. President, that’s correct,” said Pereira.
Secrecy is baked in
Some noted that the only way to get the information is to find a way to be an insider.
“First of all, you can’t get the data unless you become an intervenor,” Amy Cooke, CEO of the John Locke Foundation, a free market think tank in North Carolina, told The Denver Gazette. “And by the way, you become an intervenor only if the Public Utilities Commission allows you to, otherwise you can’t.”
The ones who cannot become intervenors, by law, are individual consumers and small businesses. It is the Utility Consumer Advocate office that represents them. But the office, like every other party to the proceeding, signs a nondisclosure agreement that keeps much of the financial information needed to analyze the utility’s needs secret — forever. Utilities routinely submit financial and other data during the proceeding that it classifies as “highly confidential” that cannot be made public.
“Here’s the thing. You don’t get to see the data unless you’re an intervenor and you’re of a certain status,” Cooke said. “Then you get to see the data, but you have to sign a confidentiality agreement where you can’t say anything. You can’t show anyone what you’re seeing. So, people have no idea.”
While many of the filings and exhibits submitted during the quasi-judicial PUC proceedings are available to the public on the PUC’s electronic filing system, it’s a system Cooke says is designed to keep anyone but experienced public utilities lawyers and experts from making sense of.
PUC officials say they are currently working on a new, more consumer-friendly website and anticipate taking it online in late 2024.
A song and dance — and guaranteed outcome?
“(We) will go through the song and dance about how that ROE is too high,” said Pereira. “And then we’ll end up generally right back where they started. So, if a rate case is set up this way, where the utilities are coming in asking for 40% more than they usually ask for, we fight back and forth about (whether) these are good costs. Ultimately, we end up in that 60 per to 70% (of the) ask and then move forward.”
The quasi-judicial nature of these proceedings can include in-house counsel, outside counsel, outside hired witnesses and the record can run into thousands of pages of documents.
“This becomes a mountain that intervenors need to climb in order to reach outcomes that are outside this 60 to 70% level,” said Pereira.
The way Pereira described it, while the job of a public utilities commission is, in theory, to look after the public interest, the regulatory process, because of the way it’s set up, ends up focusing on the utility, not the consumers.
“The biggest risk to the public interest is that the vision and priorities that are taken on within the regulatory process are that of the utility and not of the public,” said Pereira. “The utility is the one who makes the filing. They determine what the issues that are going to be discussed are. And so, the danger for the public here is that this becomes a conversation about what does the utility need and not about how are we meeting our bigger public interest goals.”
Whether changes are afoot to the regulatory process remains to be seen. What’s clear is that lawmakers are unhappy with how consumers are left holding the bag.
“If we’re going to continue to have for-profit companies provide public services, I think it does deserve the closest of scrutiny,” Fenberg said. “We’ve chosen this model a long time ago. Nobody is suggesting that we start over, but I think it’s healthy to ask ourselves what we can do within this model to better look out for consumers and the public interest.”
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