Xcel Power has a imaginative and prescient for Colorado’s clear power future — one unbiased energy producers, shopper advocates and regulators didn’t see coming — a imaginative and prescient that’s each costly, with a $15 billion price ticket, and unparalleled in its sweep.
Xcel Power’s most well-liked electrical useful resource plan submitted to the Colorado Public Utilities Fee in September contains 7,100 megawatts of latest era and storage, primarily wind and photo voltaic and almost $3 billion in new transmission strains.
“We consider the popular plan is transformational: reaching more and more clear power service with excessive reliability and reasonably priced price,” Xcel Power mentioned in its submitting to the fee.
This proposal, nonetheless, has 26% extra era and is nearly twice as costly as an earlier plan permitted by the PUC and endorsed by shopper, environmental, labor and enterprise teams.
“There was no contemplation of going this massive or this costly,” mentioned Joseph Pereira, deputy director of the Colorado Workplace of the Utility Client Advocate, or UCA, which represents residential and small business prospects.
“We’ve by no means seen something of that dimension or scale,” Pereira mentioned. The UCA had backed the sooner plan. “The corporate finds each alternative to maximise its earnings because it pertains to decarbonization.”
The PUC begins deliberations on the plan Wednesday and is slated to decide earlier than the top of the yr.
Colorado utilities which are regulated by the PUC should submit a useful resource plan each 4 years exhibiting how they’ll meet their prospects’ electrical energy demand. This time Xcel Power should additionally provide a clear power plan to chop greenhouse fuel emissions.
Beneath state legislation Xcel Power should minimize its greenhouse fuel emissions 80% from 2005 ranges by 2030. The proposed plan would minimize them by 87%.
The proposal, the PUC workers mentioned, “represents an inflection level — the time limit when the corporate strikes from regular incremental progress in direction of decarbonization to an acceleration in fossil useful resource retirements (and) renewable acquisition.”
Nonetheless, the workers in its analysis deemed the plan “too pricey and never effectively supported,” including that it contains “a shock $2 billion in transmission upgrades not anticipated a yr in the past.”
Robert Kenney, CEO of Xcel Power’s Colorado subsidiary, mentioned the plan was revised so the corporate may seize $10 billion in tax credit beneath the federal Inflation Discount Act, permitting the utility so as to add extra renewables at a decreased price.
“I believe we’ve put collectively an excellent package deal and I hope the PUC will approve it,” Kenney mentioned.
Xcel desires to personal extra producing capability than allowed by legislation
Beneath the proposed plan Xcel Power would personal two-thirds of the brand new capability, exceeding the 50% goal for utility possession set in the identical legislation, Senate Invoice 236, requiring the 80% discount.
“To be clear,” Xcel Power mentioned in response to a Solar question, “SB-236 didn’t set any ceiling or flooring on possession.”
The price of these initiatives would go into buyer payments. Xcel Power estimates that the plan would increase payments 2.25% a yr “according to the speed of inflation.” However the PUC workers and the UCA mentioned the corporate is low-balling the impression.
“The corporate’s assertion was fastidiously worded to incorporate solely the incremental fee impression of the (clear power plan), not the speed impression of the whole thing of the corporate’s deliberate investments,” the PUC workers mentioned.
The UCA estimates including in all of the deliberate investments may increase buyer payments by greater than 6% a yr between 2023 and 2030.
These issues are compounded by the very fact this plan won’t obtain the identical scrutiny as the sooner and cheaper clear power plan. An unbiased evaluator additionally concluded that there had been insufficient time to guage bids and analyze transmission wants.
“Within the absence of discovery, a report of examined proof, and extra time to research the ballooning prices … there are too many pink flags and unknowns,” Colorado Power Shoppers, or CEC, which represents Xcel Power’s giant industrial and business prospects, mentioned in a submitting.
How the primary plan was pitched
In February 2021, Xcel Power unveiled an $8 billion clear power plan that will have doubled the renewable era on its grid and minimize greenhouse fuel emissions by 80%.
The plan proposed including 5,600 megawatts of latest wind, photo voltaic and storage. The corporate estimated it will want $500 million in new transmission strains.
Fifteen events, together with state power officers, shopper advocates, native governments, labor unions, surroundings teams and renewable power trade representatives, supported the proposal.
This got here after the events had the power to request paperwork from Xcel Power and cross-examine firm witnesses.
After the approval, often called part one, the utility issued a name for bids to satisfy the plan in part two. Nonetheless, to “maximize the alternatives” for federal tax credit, Xcel Power overhauled the agreed upon plan.
And that is the place issues obtained difficult. Unbiased energy producers and contractors submitted greater than 1,000 bids for initiatives. That was way over the pc mannequin Xcel Power was utilizing to evaluate and rank proposals may deal with.
Xcel Power used a “financial and due diligence” display screen to chop the quantity to 382, however that was nonetheless too many so a second “best-in-class” display screen was used and finally the corporate did a full evaluation on 137 bids — about 12% of the whole.
“The corporate typically offered imprecise explanations as to why bids have been eradicated,” the Colorado Photo voltaic and Storage Affiliation, a commerce group also referred to as COSSA, mentioned in a PUC submitting.
Accion Group, a utility trade marketing consultant, was chosen by the fee to behave as an unbiased evaluator of the bids and bidding course of. Accion mentioned the portfolio provided the “finest choices offered by {the marketplace} and the self-build choices,” however added that the method had been flawed.
“Instantly after bids have been acquired it was obvious that finishing all evaluations inside 120 days was an unrealistic aim,” the Accion report mentioned. There was additionally insufficient time allotted for the transmission evaluation.
“The principles for aggressive solicitations have been established some 20 years in the past when the electrical utility trade was far completely different than what’s demanded of the trade as we speak,” the evaluator’s report mentioned. “The migration from coal-fired base load models and fuel generators to cleaner, renewable sources considerably modified the complexity of designing portfolios.”
Xcel Power mentioned, in a press release to the Solar, that it agreed with the evaluator that the “useful resource planning course of must evolve to satisfy the present wants of the market.”
When the mannequin was run to optimize the portfolio for initiatives it chosen:
- 3,400 MW of wind era
- 1,100 MW of photo voltaic
- 1,100 MW of photo voltaic
- 1,400 MW of photo voltaic with storage
- 600 MW of standalone storage
- 600 MW of gas-fired era
All that was going to require extra transmission capability than was initially anticipated by the utility.
“Subject of Desires” forecasting
In 2022, the PUC permitted Xcel Power’s $1.7 billion Energy Pathway undertaking, which can create a 560-mile high-voltage transmission belt to hyperlink wind and photo voltaic from the Jap Plains to Entrance Vary cities and suburbs.
Xcel Power is constructing the road within the hopes that it’ll spur unbiased growth of latest initiatives on the plains. The corporate has known as it a “Subject of Desires” technique.
Most of the new initiatives within the portfolio, nonetheless, are to be situated nearer to the Denver metro space and consequently want extra transmission — almost $3 billion in new strains or six instances greater than the unique part one plan’s estimate.
“The corporate has this round, self-justifying strategy,” UCA’s Pereira mentioned. “They search approval for initiatives that want transmission and upon getting transmission that’s the place you may put initiatives.”
A major instance, Pereira mentioned, is the $250 million Might Valley-Longhorn extension, a 90-mile transmission line into Baca County. Xcel Power proposed the extension as a part of Energy Pathway, however the PUC, unsure whether or not there was any curiosity amongst builders in that space, set it apart.
The corporate is now in search of to construct the road to serve two company-proposed wind farms within the county.
“These initiatives are the only justification for development of this line,” the UCA mentioned in a submitting, noting that when the price of the road is added to the general price of the wind farms, they’re now not value aggressive.
Whereas two company-owned initiatives have been chosen, Xcel Power mentioned there have been 27 bids from seven builders alongside the extension.
The mannequin analysis additionally gave 66% of the capability and 72% of the funding to company-proposed initiatives leaving unbiased energy producers and contractors pissed off.
The Colorado Unbiased Power Affiliation, a commerce group for service provider energy producers who construct their very own crops and promote electrical energy to utilities, instructed the PUC that Xcel Power’s “ft have to be held to the hearth given its unprecedented utility-owned era.”
The plan, CIEA mentioned, would flip Xcel Power right into a business era and transmission growth firm to assemble 13 era services and as many as 28 transmission initiatives, inside 4 years.
“The possession proportion is solely a mirrored image of the competitiveness of the corporate’s bids relative to Unbiased Energy Producer (IPP) initiatives,” Xcel Power mentioned, including that the federal tax credit had made firm initiatives extra aggressive.
Xcel Power makes most of its cash by constructing new infrastructure and recovering the cash spent, plus a return on the funding, which is about by the PUC.
That assortment of investments — the speed base — is used to calculate buyer prices. The plan proposed by Xcel Power would add $10 billion to the speed base, basically doubling it, based on the PUC workers.
The plan serves Xcel Power’s “monetary curiosity of increasing its fee base to the detriment of shoppers,” CEC, the group of enormous prospects, mentioned.
“Used and helpful” could be a non permanent state
As soon as the initiatives are constructed and in service — the PUC phrase is “used and helpful” — a utility can begin gathering buyer {dollars} on it, however as soon as it’s fee base it doesn’t matter whether or not it stays used and helpful.
The $1 billion Comanche 3 coal-fired energy plant, in Pueblo, has been shut down for the equal of virtually two years throughout its 13-year life, however remained in fee base throughout that point.
The Cabin Creek hydro-storage facility, close to Georgetown was out of service for years however prospects nonetheless paid for it and the company-owned Rush Creek and Cheyenne Ridge wind farms have additionally been underperforming, based on the PUC workers.
“Xcel makes cash when it builds stuff whether or not it really works or not,” mentioned Mike Kruger, the photo voltaic and storage affiliation’s president and CEO. “It doesn’t matter, they receives a commission. For an unbiased energy producer, if it doesn’t work in the event that they don’t receives a commission.”
The unbiased energy producers promote Xcel Power electrical energy at a set value in long-term contracts and assume the prices and dangers of constructing and working a producing facility.
The dangers of heavy firm possession embody price overruns, poor efficiency, sudden capital prices and delays in getting on-line, COSSA and the Photo voltaic Power Industries Affiliation mentioned in a PUC submitting.
“We acknowledge the importance of our ask and have proposed two efficiency incentive mechanisms designed to carry the corporate accountable for the development and ongoing operations of its initiatives,” Xcel Power mentioned. “These mechanisms impose penalties on the corporate for underperformance.”
The proposed PIMs, nonetheless, additionally present bonuses for assembly objectives and UCA’s Pereira mentioned PIMs are a brand new and largely untested cost-control mechanism.
The PUC workers, with the assist of UCA and CEC, proposed an alternate which was to deal with Xcel Power like an unbiased energy producer, holding the corporate to its preliminary bid undertaking prices and preserving the initiatives out of fee base.
The proposal, the workers mentioned, is targeted “on shifting the present threat construction from being 100% on ratepayers, to a construction the place the utility shares within the threat.”
As costly because the Xcel Power plan is, it’s more likely to find yourself much more pricey, based on Accion, UCA, CEC and workers.
“The corporate has been notoriously dangerous on its estimates and constantly overruns undertaking prices by 30%, 50%, 100%,” UCA’s Pereira mentioned. “It should by no means be as little as they undertaking.”
In Xcel Power’s final electrical energy fee case, the advocate’s workplace documented eight initiatives — together with substations, transmission strains and changing a coal-fired plant to pure fuel — that have been projected to price $265 million however ended up costing $544 million and going into fee base.
Xcel Power additionally required all builders to make use of the corporate’s normal contract for the needs of evaluating initiatives, however Accion warned that these contract costs could not maintain.
“Accion believes there’s a sturdy probability that the builders of chosen initiatives will search contract modifications and value changes earlier than the event course of is accomplished,” the marketing consultant mentioned. “The Fee ought to anticipate some bidders can be unable to satisfy commitments except their bid costs are elevated.”
In 2022, Xcel Power needed to scramble to fill a niche in power era when some photo voltaic builders scrapped or delayed initiatives.
To safeguard in opposition to an analogous drawback, Xcel Power has included a “backup bid portfolio,” however Accion mentioned “the backup bids include increased prices than the popular portfolio.”
Accion urged the PUC and workers to watch the ultimate contracts to “concentrate on any modifications that will impression price to ratepayers.”
Xcel Power calls its mixture of proactive firm investments and laissez-faire “Subject of Desires” growth “an strategy that may be an instance for the West and the nation. To which the PUC workers responded, “Value estimates which are off by virtually an order of magnitude appear extra like a nightmare than a dream.”