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The trouble with (for) IOUs

Investor-owned utilities will do whatever they can to pass costs along to the ratepayer, no matter whether those costs are the result of bad decisions, cost overruns or faulty execution. And public utility commissions merely aid and abet this abuse of customers of regulated monopolies by rubber stamping this outrage.

A strong statement, perhaps? I wouldn't rush to reject it. For one thing, it isn't mine. It is the precise upshot of statements by dozens and dozens of ratepayers in Colorado in general and Boulder in particular over Xcel Energy's attempt to recoup another $16.6 million on its SmartGridCity outlays, after succeeding in recovering $27.9 million earlier this year.

Now, we all know that newspaper forums typically are populated with people driven to make a statement and are not statistically valid representations of the populace as a whole. But if you ran a business, you would pay attention to what you're doing to drive all these people to log on to their local newspaper sites during the holidays and excoriate you for your practices.

You can make up your own mind on Xcel's latest cost recovery effort by going to the Colorado Public Utility Commission's e-filing system and punching in docket number 11A-1001E and clicking "run."

Next week we'll bring you an Xcel representative who will explain the company's logic in stating that it has established clear ratepayer value by purportedly finishing the SmartGridCity project, justifying the collection of $45 million from Colorado ratepayers. (Recall that the company originally estimated its costs at $15 million. Then project costs tripled and both Xcel and the Colorado PUC jumped through multiple hoops to get cost recovery after-the-fact.)

I have been fiercely critical of that stance, that process and the outcome so far. But today I merely bring you a little local color, by quoting representative remarks made in the wake of local newspaper coverage of Xcel's latest effort on cost recovery.

Though the lesson to the industry ought to be apparent, I'm spelling it out: investor-owned utilities (IOUs), which have to balance responsibilities to shareholders with obligations to ratepayers, almost always favor the former over the latter. After all, shareholders vote with money, affecting the fate of IOU executive decision makers. Ratepayers' means to object are minimal, diffuse and at arm's length, through their public utility commission, whose members in Colorado are selected by the governor and confirmed by the state legislature.

So when an IOU makes a blatant grab for cost recovery that precludes any responsibility for its role in massive cost overruns and dumps the cost instead at the feet of its ratepayers, especially in tough times, no one should be surprised that perennial mistrust and resentment arises.

So what? Machiavellian politics dictates that you use all means at your disposal to have your way. Those strong enough to take what they want shall do so. The multitudes can cry foul, but they'll pay. That's the way of the world and tough luck to those who don't get it. Right?

Does anyone see a hitch in this "business plan," say, over time? Does anyone think that, moving forward, this is a basis for the support and funding of grid modernization? Does Xcel really want to be the poster boy for everything that's wrong with modern IOUs? These questions may be moot; their answers may already be firm in the minds of ratepayers. And the Colorado PUC may not like it, but in the public mind it only colludes with industry, it does not protect the public interest. 

On Monday, the day after Christmas, when newspaper readership is notoriously low, The Denver Post ran a five-sentence article cribbed from The Boulder Daily Camera. The longest sentence was a quote from an Xcel representative extolling the value of SmartGridCity. But the bare facts elicited some responses.

"Why should we pay for Boulder?" asked one Post reader. "We did not make the deal. Xcel is always asking for some kind of rate increase every time we turn around. Why can't the PUC just tell them no?"

"What incentive is there for them to control costs if they can just pass the cost on to their captured customers?" asked another reader. "Make them pay for it out of their profits, not our pockets!"

"A 300 percent [cost overrun]?" asked another. "No wonder Boulder is getting off the Xcel grid. Other communities should follow suit."

The Boulder Daily Camera article that ran Christmas day, "Xcel declares Boulder smart grid finished, asks to recoup $16.5M from ratepayers," ran to 25 paragraphs. It noted that Xcel claimed one major value from SmartGridCity was that it taught the utility what not to pursue and therefore "may have avoided hundreds of millions of dollars in investments, and associated rate increases, that would have created insufficient value for customers relative to costs."

Boulder readers weren't so sure that piece of wisdom was worth $45 million.

"These costs need to be absorbed by Xcel's shareholders, who can presumably hold management accountable for this boondoggle," wrote one Boulder reader.

"Everything that Xcel does validates the decision by Boulder voters to proceed with the possibility of forming a municipal utility," wrote another.

"Smart grid was an R&D project, pure and simple," wrote another. "Traditionally, R&D expenses are never passed on to the existing customer base, but are recouped in future business, if there is a profit. If not, it is written off as a loss, which is why the tax code allows such write-offs to encourage R&D. Xcel is trying to have its cake and eat it too, and the Colorado PUC so far has been going right along with it."

"If there are mistakes that the customers end up having to foot the bill for, I maintain that means the entire enterprise is an experimental science project that is still 'immature,'" wrote another. "Mistakes should be billed to the R&D department and paid for by the investors, NOT the taxpayers. Taxpayers wanted the smart-grid tools on their boxes, and they didn't get them, and only when they do should they have to pay. Lately, companies are doing everything they can do to keep the investors happy at the expense of the customers and the taxpayers, and the PUC should not be dumb enough to be on the wrong side of this. Their job is to protect the consumer, NOT the investors."

IOUs everywhere ignore this dynamic at their peril. In an industry that is changing more rapidly than the players themselves understand, utility hubris plainly angers the "customer," who will seek any means at their disposal to escape this treatment. Remember the downside to Machiavelli's approach: Live by the sword, die by the sword.

More of our coverage on this case includes:

"SmartGridCity: Did Xcel Get Results?"

"Boulder Rejects Xcel"

"Boulder Seeks Divorce from Xcel"

Phil Carson
Intelligent Utility Daily




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