By Amy Oliver Cooke and Robert Applegate
As Ron Binz campaigns to be confirmed as the head of the Federal Energy Regulatory Commission, much of the emphasis has been on his position as an activist for what he considers to be low or no carbon energy sources, predominantly Big Wind. (Forget the fact that wind requires an enormous amount of carbon emissions in the manufacturing of gigantic wind turbine.)
But Binz’s no carbon advocacy is hypocritical.
While Binz now advocates for lowering carbon emissions, he was instrumental in shutting down Colorado’s lowest carbon emitting power source, the Fort St. Vrain nuclear plant, which eventually converted to natural gas – a technology he now calls “dead end” when it comes to carbon emissions.
As head of the Office of Consumer Council (OCC), Binz successfully argued before the Public Utilities Commission (PUC) that the power plant did not work correctly and that the shareholders of the company running the plant must pay for the capital costs rather than customers using the electricity. (This is when Binz cared about ratepayers)
More stringent regulations and the burden of the extra cost upon the shareholders ultimately forced the plant to close as a carbon free, nuclear power source. This “regulating to death,” as stated by previously employees of the plant ultimately came at the cost detriment of electricity customers who paid for the decommissioning and subsequent recommissioning as a carbon emitting natural gas plant.
His position on natural gas has flipped too. In 2010, as chair of the PUC Binz took a lead role in negotiating the terms of the controversial fuel switching bill HB 1365 titled “Clean Air; Clean Jobs Act.” At that time, Binz championed a mandated fuel switch from coal to natural gas. Apparently Binz thought natural gas was a clean fuel in 2010 but isn’t now. Too bad ratepayers didn’t know that in 2010. It would have saved them more than $1 billion dollars, but then Binz’s concerns for consumer costs have flipped too.
If we had our way, there would be no tax subsidies of any kind for any energy resource. Since the wind production tax credit (PTC) is what’s currently being debated in Congress and on editorial pages across Colorado, we’ll address it. Below is our column that appeared originally in the Pueblo Chieftain on Sunday, March 4. We thank the Chieftain for publishing our opinion.
Time to retire the wind PTC
By Amy Oliver Cooke and Michael Sandoval
Colorado’s newspapers are loaded with pleas to extend the current 2.2 cents per kilowatt-hour Production Tax Credit (PTC) for wind energy. With the exception of Republican Representative Doug Lamborn, the entire Colorado congressional delegation signed a letter urging Congress to continue the PTC at a cost of $3.5 billion annually.
We disagree with the majority and wonder why Americans should subsidize Colorado’s green fantasy and a resource that is neither practical nor economically viable.
Former Xcel Energy CEO Wayne Brunetti outlined the real limits of wind power production when he told an audience in 2004 that at the utility company “we’re a big supporter of wind.”
“But at the time when customers have the greatest needs, it’s typically not available,” he lamented, acknowledging the most critical shortcoming of the alternative energy source.
Plus, he added, the intermittency of wind drastically reduced a given installation’s capacity by a factor of 10-to-1, making fossil power plants a necessity for backup.
Of course, this was before environmental activist turned former Public Utilities Commissioner Chairman Ron Binz convinced Colorado voters to mandate a Renewable Portfolio Standard (RPS) that Binz estimated would be 96 percent wind.
Binz actually wrote that the impact of the then 10 percent proposed RPS on ratepayers’ bill would “vary by utility, but the most likely outcome is that state-wide electric rates will be virtually unchanged,” thanks in part to the PTC.
During the 2004 RPS campaign, Binz reported that Colorado retail residential electric rates were 7.37 cents per KWh in 2002. Fast forward a decade with a 30 percent renewable mandate that is heavily weighted towards wind, Colorado’s residential electric rates have skyrocketed 50 percent to 11.04 per KWh. Based on Department of Energy statistics, states with an RPS endure 30 percent higher electric rates, and the rest of the country pays as well through the PTC.
On the practical side, available wind is never near load centers—where the people actually live—and, as Brunetti told the U.S. Senate Energy & Natural Resources committee in 2005, transmission costs from remote areas often exceeded the price tag of the wind project itself.
But the RPS and PTC made Brunetti a proponent of wind in less than a year.
In the same Senate committee testimony, Brunetti called for a “wide diversity of power generation resources” supported by mandatory RPS programs at the state level. In order to ensure that wind retained “economic viability compared to fossil or nuclear generation,” he called for an extension of the Production Tax Credit. While wind was the most competitive renewable resource, according to Brunetti, “even that would not be true without the Production Tax Credit.”
Xcel concedes this point today in its current Renewable Energy Resource Compliance Plan. As does physicist Dr. Kelvin Kemm who wrote, “The problem is that large-scale wind power fed into a national grid is just not viable – either economically or practically – from an engineering stand point.”
But perverse tax incentives such as the PTC serve only as an encouragement for Colorado’s green fantasies and wind profiteers.
Vestas, with a substantial presence in Colorado, stands to benefit greatly from the PTC extension. Marth Wyrsch, president of Vestas-American Wind Technology, told the U.S. Senate Finance Subcommittee, “An extension of the PTC is necessary for the continued employment of 80,000 people working in the U.S. wind industry.” The impact in Colorado has been estimated at 1,600 jobs.
Vestas is no stranger to other recent Federal tax credits and incentives. As part of the $2.3 billion Advanced Energy Manufacturing Tax Credit (aka 48C), Vestas received $21.6 million for its Pueblo plant, and $30.2 million for its facility in Brighton in 2010.
Colorado officials also eagerly incentivized Vestas. The Pueblo and Windsor plants received roughly $34 million in various state and local tax incentives and rebates. Taxpayer dependent Vestas claims the PTC is necessary to maintain the 1,600 jobs taxpayers “created” in the first place.
But two decades of the PTC is long enough.
Even Colorado Democrat Senator Michael Bennet argues in a Chieftain guest column that the PTC “should not go on forever. At a certain point every business has to sink or swim based on its merits.”
But then he claims wind energy needs more, “we are incredibly close to the tipping point with wind energy, and pulling the rug out from under it now would deal the industry and our economy and enormous blow.”
We disagree. It’s time to retire the PTC. The choice of energy resources should come from the demands of the free market, and not from the preferences of policymakers, lobbyists, or wind profiteers.
Conventional wisdom in energy policy circles says that Governor John Hickenlooper will re-appoint current Public Utilities Commissioner Matt Baker to another four-year term on the PUC. His State Senate confirmation will be a mere formality, but it shouldn’t be.
Serious questions linger about his lack of honesty regarding energy costs and his ability to be an independent regulator.
Rather than regulate Colorado’s investor-owned utilities, the environmental activist-turned-regulator Baker is more interested in advancing his green energy agenda to the detriment of Colorado ratepayers. He and former PUC Chairman Ron Binz (whose own re-appointment was derailed with an ethics violation after which he withdrew his name for consideration) were instrumental in negotiating the language of HB 1365, a senseless fuel-switching bill and the “crown jewel” of Bill Ritter’s New Energy Economy that will cost ratepayers more than $1 billion.
After a stint at Colorado Public Interest Research Group (CoPIRG), Baker subsequently helmed the advocacy group Environment Colorado from 2003 until his elevation by Ritter to the PUC in 2008. During his tenure he led the campaign for 2004’s Amendment 37 requiring utilities to implement renewable energy standards. Ritter lauded the “architect” of the – now – 30 percent renewable energy standard as a “champion of Colorado’s environment and consumer rights.”
But Baker’s love affair with renewable energy prevents him from being objective about Colorado energy policy and thus not honest with the people he is charged with serving – eroding consumer rights and driving up energy costs with regulatory sleight of hand.
In a recent op-ed in RenewablesBiz.com, Baker gushes over the advancement of his green agenda. He repeats one the biggest renewable falsehoods green activists have perpetuated on Colorado ratepayers: Colorado’s largest utility Xcel Energy can acquire 30 percent of its power from expensive renewable sources while keeping a cap on electric rates.
Most ratepayers believe that means that the renewable energy mandate – energy from sources such as wind and solar – will only cost them an additional two percent on their electric bill. “While Colorado’s largest utility, Xcel Energy, has exceeded its goals, it has stayed within the 2 percent cap set by the legislature,” says Baker.
It is true Xcel stayed within the two percent rate cap line item labeled the Renewable Electric Standard Adjustment (RESA) on customers’ electric bills. But it is not true that the RESA represents the real, total cost of renewable energy to Xcel ratepayers, and Bakers knows it.
Two years ago in the “Great Green Deception,” the Independence Institute exposed how the PUC allows Xcel to hide the real cost of renewable energy by utilizing two line items on a ratepayer’s bill. Customers pay two percent of their bill through RESA, but the balance of the total cost of renewable energy is captured through another fund – the Electric Commodity Adjustment (ECA) – that is likely the second largest line item cost.
The practice continues today as Xcel’s Robin Kittel explained in direct testimony to the PUC regarding its 2012 Renewable Energy Standard Compliance Plan. According to Kittel, Xcel recovers the cost of renewable energy “through a combination of the RESA and ECA.”
The ECA is NOT subject to the legislatively mandated two percent rate cap. The Public Utility Commission staff’s William Dalton acknowledged the PUC’s role in confusing the public about the rate cap in his September 2009 testimony before the commission:
“This could be a point of confusion to ratepayers and other interested parties…The costs above the retail rate impact limit are recovered through other Commission approved cost recovery mechanisms, primarily the ECA. [Emphasis ours] Once the renewable energy resource cost recovery is allocated to the ECA, cost recovery of these resources is no longer subject to retail rate impact criteria or cost cap.”
According to Xcel’s 2012 Renewable Energy Compliance Plan, ECA costs were $35,280,340 in 2011, but will explode by more than 1000 percent to $354,819,209 in 2021 (thanks also to Colorado’s $20 per ton “phantom carbon tax”). Yet Xcel and Baker can claim to be within the two percent rate cap for the RESA.
It is easy to be angry with Xcel for all the cost shifting shenanigans, but the blame should be placed on lawmakers and PUC commissioners. At best Baker is being disingenuous with Colorado ratepayers. At worst, he is flat out lying about the real costs of renewable energy in order to advance his own personal agenda.
Matt Baker’s re-appointment and confirmation should not be a rubber stamp. Colorado ratepayers deserve better.
Amy Oliver Cooke and Michael Sandoval co-authored this post.
In a surprising move to anyone who has watched the cozy relationship develop between Xcel Energy and the Public Utilities Commission, yesterday the PUC denied Xcel’s $142 million interim rate request.
Colorado News Agency columnist Peter Blake (then with Face the State) initially exposed how the PUC, Xcel, and Governor Ritter’s administration colluded on the cost recovery language of HB 1365, the infamous fuel switching bill, which allows for Xcel to ask for an interim rate increase without a public hearing. Emails from then PUC Chairman Ron Binz shows just how deeply involved the PUC was with Xcel, the very company the PUC is suppose to regulate:
- March 8, 2010: “We will agree to using the extraordinary cost recovery in proportion to pressure that the approved plan puts on the company’s financial health.”
- March 9, 2010: “The Commission and Xcel have agreed on language for cost recovery.”
- March 11, 2010: “I was working with Karen Hyde up until 9:00 last evening to hammer out the final language in a couple of areas.”
Karen Hyde is Xcel’s vice president for rates and regulatory affairs for Colorado. After yesterday’s decision, she told the Denver Post, “we are very disappointed. We outlined what the negative impact would be as of Jan. 1. We are sorry the commission didn’t recognize the adverse impact of the delay.”
Based on the emails above, Xcel is probably more than “disappointed.” It’s a little like being kicked in the stomach by your new best friend. But since the heady days of the HB 1365 love fest, Ron Binz has left the commission under the cloud of an ethics investigation, which found him guilty of violating the constitution for accepting a privately paid trip without legitimate state purpose from an industry that he was charged with regulating and actually benefitted from HB 1365.
Yesterday’s decision doesn’t mean ratepayers are off the hook. It just means a reprieve until full public hearings are conducted. If the PUC eventually grants the full rate increase, more than a third of which is due to Xcel’s poor management, then we’ll know the PUC and Xcel still are best friends.
I may have underestimated the outrage over two recent Xcel Energy rate increase requests.
The first, an attempt to recover the final $16.5 million in cost for Boulder’s Smart Grid City program. Ratepayers are not thrilled about paying for a Boulder project with massive cost overruns.
Check out these comments:
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.
Email comments to the Public Utilities Commissions (thanks to Phil for providing the link) share that sentiment:
Mr. William Newell
As I recall the residents of Boulder wanted the smart grid. There was discussion about who would pay for this in 08. Now Excel wants all of the state consumers to pay for Boulders [sic] desire. Boulder Excel [sic] customers alone should pay for the cost of the smart grid. Our rates have already increased much higher than the inflation rate due to government regulations.
Gladys Rey Mendez
Subject: Cash Cow=Customer
When will utilities, both private and public, and their respective regulators, take responsibility for the cost over-runs of projects undertaken…Now the utility want to rate-base the balance of the cost of an experiment and collect from customers who have no association with the experiment. At the end of the day customer costs do not go down. Any real energy saving or efficiencies which dilute revenues and returns, the utilities are right back before regulators proposing rate increases….
Ms. Mendez is onto something. If ratepayers become conscientious energy consumers and use less electricity, then why does the utility come before the PUC looking for another rate increase?
Take Xcel Energy’s requested $142 million rate increase. Nearly 37 percent of that rate increase, $53 million, is to pay for excess capacity that Xcel no longer sells wholesale to Black Hills Energy, resulting in increased costs for both utilities that they pass along to ratepayers. The Denver Post’s Mark Jaffe explains:
In 2004, Xcel, with 1.3 million Colorado customers, told Black Hills it would not extend the contract and would use the 300 megawatts of generation for its own service area.
Black Hills, which serves 93,300 electric customers in southeastern Colorado, built two gas-fired power plants in Pueblo to fill the gap and got a $23 million rate hike — which takes effect Jan. 1 — from the PUC to recoup the costs.
But it turns out Xcel has excess generating capacity and doesn’t need the 300 megawatts at this time.
As part of its $142 million rate request, Xcel is asking for $53 million to cover the carrying costs of the excess capacity.
Jaffe also quotes Xcel’s Karen Hyde who blames the recession for “damped demand.” But I suspect that some of Xcel’s own policies also “damped demand.”
How about tiered rates? How about Xcel Energy’s own conservation program Responsible By Nature, which enjoys a massive marketing campaign, that encourages decreased electric usage and provides information about rebates for energy saving appliances (for which ratepayers also pay)?
Isn’t less energy usage exactly what everyone — the PUC, Xcel Energy, the environmentalists — wanted? Now they get it, and ratepayers are punished.
Customers, including businesses and consumer advocacy groups, are lining up in opposition to the latest rate increase. The money quote comes from Wal-Mart Stores, Inc., which also submitted comments against Xcel’s rate increase.
An affidavit from Steve Chriss, the Senior Manager of Energy Regulatory Analysis for the Bentonville, Arkansas based corporation questioned why the PUC would grant a $100 million plus rate increase without thorough public vetting process.
Chriss also addresses the gigantic electric elephant in the living room. Why is Xcel “guaranteed” a 10.5 percent rate of return:
6. PSCo claims that the interim rate relief is necessary because in 2010 that Company earned “only” a 10.23 percent return on equity during 2010, which is below their current authorized return on equity of 10.5 percent.
7. To the extent that PSCo claims that its financial circumstances are exigent the Commission should consider that according to the Edison Electric Institute, the average return on equity awarded in 2010 by utility regulatory commission was 10.29 and for the first three quarters of 2011, the average return on equity awarded was 10.24….
8. Additionally, the Commission should consider that ratemaking principles do not guarantee the Company’s approved rate of return. Instead, rates are set in such a way that the Company has the opportunity, but not a guarantee, to earn their approved rate of return.
Current recovery shall be allowed on construction work in progress at the utility’s weighted average cost of capital, including its most recently authorized rate of return on equity, for expenditures on projects associated with the plan during the construction, startup, and preservice implementation phases of the projects.
As William Yeatman and I pointed out in our paper exposing the collusion between Xcel, the PUC, and former Governor Bill Ritter’s office, the current rate of return is 10.5 percent. Anything to do with implementing it (and that’s pretty much everything) is subject to the same rate of return.
The PUC may give lip service to caring about ratepayers, but the commissioners, Gov. Ritter, and a majority of state legislators, made a deal with the devil. As we wrote in October 2010:
As mentioned earlier, the Ritter administration led negotiations for the fuel- switching bill, but the PUC was also a willing participant in brokering a deal to assure Xcel’s cooperation. Peter Blake, writer for the popular Colorado politics blog Face the State, exposed the collusion:
Binz was trading flurries of e-mails on the pending bill with Ritter aide Kelly Nordini, natural gas lawyer Russell Rowe, and Xcel executives Karen Hyde, Roy Palmer and Paula Connelly. Xcel, seeking immediate and complete cost recovery for their capital costs, wanted to be sure the PUC would support that.
Even more damaging revelations come from Binz’s emails from earlier this year:
- March 8: “We will agree to using the extraordinary cost recovery in proportion to pressure that the approved plan puts on the company’s financial health.”
- March 9: “The Commission and Xcel have agreed on language for cost recovery.”
- March 11: “I was working with Karen Hyde up until 9:00 last evening to hammer out the final language in a couple of areas.”
Blake noted the bill “was introduced four days later and rushed through the legislature in a couple of weeks.” Denver Post columnist Vincent Carroll makes the same case for collusion: “As early as last December ,” two PUC Commissioners Baker and Binz, “had talked with natural gas interests about possible legislation and have been touting it since.”
Xcel likely will get what it wants on the Smart Grid project because it already settled with the PUC on cost back in 2009. As for the rate increase, the PUC and the state legislators who have enabled Xcel walk a fine line. Xcel likely will get most of what it wants because it has lobbyists and ratepayers don’t.
While I’m grateful that there is some outrage over these latest rate increases, I can’t help but wonder why now when HB 1365 will cost ratepayers more than a $1 billion, the State Implementation Plan another $100 million, and this year renewable energy mandates add another $100 million plus.
The New Energy Economy is a very expensive economy. It’s about time ratepayers realized it.
State Senator Scott Renfroe (R-Greeley) said in an interview on the Amy Oliver Show on 1310 KFKA that information we published was influential in his decision to request an audit of the Colorado Public Utilities Commission.
Specifically Senator Renfroe cited:
- Colorado Open Records Act (CORA) request for all travel documents for the PUC commissioners that lead to an ethics charge against Chairman Ron Binz, who decided not to seek reappointment
- Exposure of Xcel Energy’s high profits in Colorado
- Change in the PUC mission statement, which we first published in a May 2010 opinion editorial
- Charges of collusion between the PUC commissioners, Governor Ritter’s administration, Xcel Energy and special interest groups to draft legislation on which the quasi-judicial commission later sat in judgment
According to the Colorado News Agency:
A few minutes ago, I was sent a copy of a letter from PUC Chairman Ron Binz to Governor John Hickenlooper, in which Binz withdraws from consideration for another four year term. I just called the PUC media office, and a spokesman confirmed that Binz is stepping down.
He was appointed PUC Chairman in January 2007 by then Governor Bill Ritter. In that capacity, he was a key player in enacting Ritter’s “New Energy Economy.” It was under his watch that the PUC changed its mission from providing least-cost electricity, to promoting expensive, “green” energy. As such, he is in part responsible for the precipitous rate increases that Colorado electricity consumers are now experiencing, and will continue to endure, for the foreseeable future. Unfortunately, it appears as if he won’t stop facilitating expensive energy policies–in the letter, he states that he is leaving the PUC “to work with organizations that promote clean energy policies here and across the country.”
While I vehemently disagree with Binz’s New Energy Economy, and I am sure history will not view his PUC tenure kindly, I must note that my limited experience with him leads me to believe he’s an affable guy. He chaired hearings with a calm disposition, and he often cracked jokes that were genuinely funny.
William Yeatman is an energy policy analyst at the Competitive Enterprise Institute
You read it here first. PUC commissioners Ron Binz (chairman) and Matt Baker have made some ethically questionable trips during their tenure on the PUC:
At least one trip appears particularly problematic. BENTEK Energy, an Evergreen-based energy company, paid nearly $1000 in travel expenses for Binz to attend and participate in the “Benposium” in Houston on June 9, 2010.
Commissioner Baker’s travel isn’t without problems either. Baker traveled to Seville, Spain last month with a “delegation of business representatives” to discuss Colorado’s utility regulatory climate and “possible incentives for economic development.” Extenda, a public company funded by the Spanish government, paid for the $2,800 trip.
Just about the time that Xcel Energy customers have recovered from the sticker shock of this summer’s air conditioner tax, ratepayers await another decision from the Public Utilities Commission on how much more their bills will increase – this time due to HB 1365, the controversial fuel-switching bill.
Our paper “Colorado’s Clean Air Clean Jobs Act Will Accomplish Neither,” details how Governor Bill Ritter, the PUC and Xcel colluded to draft and pass HB 1365, which is now the subject of PUC hearings.
Despite the obvious conflict of interest, PUC Chairman Ron Binz and Commissioner Matt Baker refused a Colorado Mining Association request to recuse themselves from PUC decisions on Xcel’s plan to comply with the legislation.
Now we learn that Chairman Binz has spent more than 200 days traveling in a little less than four years on the Public Utilities Commission – nearly a year’s worth of working time out of the office. A review of public travel documents reveals that the well-traveled commissioner has enjoyed exotic locations such as Athens, Greece, Amman, Jordan, and Kahola, Hawaii. He’s also been to Amelia Island, Florida, San Francisco and everywhere in between. Fifty-five of his trips have been outside of Colorado.
As reported yesterday by Mark Jaffe in the Denver Post, the PUC on Monday partially ruled on Xcel’s HB 1365 implementation plan. Nothing controversial was determined; instead, the PUC approved elements that were common to all of the plans “on the table.”*
The disputed subject matter was left for today—namely, what is to be done with the 352 megawatt Cherokee 4 plant in Adams County?
Heading into crunch time, here’s a rundown of who wants what and why.
What Xcel Wants:
Xcel has two goals. First, it wants to build as much stuff as possible. The more it builds, the larger the expenditures on which it can reap a 10.5% rate of return. Xcel’s second goal is to seize an increased share of the wholesale electricity market at the expense of independent power producers. Currently, Xcel generates 50% of the power it sells, and it wants to increase that figure to 60%.
In order to furthest advance these goals, Xcel wants to retire Cherokee 4, and in its stead build a 314 megawatt 1×1 combined cycle natural gas plant in 2017. That way, Xcel would get a 10.5% return on the construction costs of building a $345 million new gas plant AND it would increase its share of the wholesale electricity market by almost 140 megawatts (assuming Xcel converts the 1×1 combined cycle plant into a 2×1 combined cycle plant, as it has said it intends to do). This strategy is embodied in Plan 6.2J.