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The Colorado Public Utility Commission Rewrites
Amendment 37
by
Ron Lehr
The Colorado Public Utilities Commission (PUC) will adopt rules on
March 31 for Colorado electric utilities to comply with Amendment 37
that turn the legislation on its head. The PUC rules deliberately
misrepresent the relative costs of renewable electric power to
consumers. Instead of becoming a springboard for continued
development of renewable energy by providing a minimum requirement,
these rules will become a ceiling.
The PUC is adopting these rules despite more than a
year of patient negotiations, clear advocacy on behalf of the
Amendment by its framers and supporters and an outpouring of support
for Amendment 37 at public hearings last summer. Instead of
implementing Amendment as passed by the voters, the PUC rules
rewrite the statute in order to constrain the future growth of
renewable energy in Colorado.
What Does
Amendment 37 Say?
The authors of Amendment 37, including the author representing the
Colorado Renewable Energy Society (CRES), Rick Gilliam representing
Western Resource Advocates, and others included language that would
allow Colorado to take greater advantage of Colorado’s abundant
supplies of solar and wind energy resources. These resources are a
potential economic development strategy for rural Colorado, which
has been undergoing an economic downturn for at least the last
decade.
Amendment 37 requires Colorado power generators to
obtain a minimum of 3% of their electricity from renewable energy
resources by 2007, 6% by 2011, and 10% by 2015. There is a solar
set-aside of 4% of this 10%, or 0.4% of the total, for solar energy.
For details, see the CRES website at:
http://cres-energy.org
The intent of Amendment 37 was to get renewable energy
resources working to provide minimum amounts of electric generation
following a schedule of “sustained, orderly development.” The vision
was that renewable energy resources would offset costs, risks, and
liabilities of fossil generation. During the last year, for example,
high, fluctuating, and uncertain fossil fuel costs have hammered
Colorado electric consumers.
Because renewable energy technologies are mass-produced
in factories and do not depend on extraction of fossil fuels, the
concept behind Amendment 37 is based on a model of economic
development. Colorado utilities would provide a small but certain
market for these technologies, which if used in larger amounts,
would decline in price as manufacturing economies of scale and
continued technology development drive their prices down.
Unlike central station coal plants, renewable energy
technologies are modular and can be installed in increments as
needed. Therefore, the economic risk to consumers associated with
renewables is much lower than that for large-scale fossil
generation. Starting with large cost-effective wind plants (like the
Colorado Green facility near Lamar that is saving Xcel customers a
minimum of $5 million a year in natural gas costs) and spreading out
toward more diverse and smaller projects, including higher cost
solar installations, Amendment 37 features a strategy of diversity.
The idea is that a more diverse electric generation portfolio will
be a lower cost and lower risk system and over the long term. Such a
system would also avoid liabilities associated with fossil fuel
mining, transport, combustion and pollution subsidies, and waste
disposal.
Renewable technologies can also allow small and
community based enterprises, based on landowners and rural
entrepreneurs, school districts, and municipal utilities to develop
projects that take economic advantage of these resources. A good
example is provided by the wind turbines that were added to the
Colorado Green project by municipal utilities in Springfield and
Lamar and the Arkansas River Power Authority. These projects are
nicknamed "community wind" and are proving successful in states
across the Great Plains for helping rural economies or helping
customers like rural school districts pay their electric bills.
To capture these and other benefits, drafters of
Amendment 37 provided voters a legislative declaration that
contained seven policy goals that provide the rationale for the
legislation. The seven policy goals of Amendment 37 (now §40-2-124
C.R.S.) are:
1. Save consumers and businesses money (least cost).
2. Attract new businesses and jobs.
3. Promote development of rural economies.
4. Minimize water use for electricity generation.
5. Diversify Colorado’s energy resources.
6. Reduce the impact of volatile energy prices.
7. Improve the natural environment.
To achieve these benefits, the Amendment stated: “It is
in the best interests of the citizens of Colorado to develop and
utilize renewable energy resources to the maximum practicable
extent.”
In addition, the bill promised ratepayers that they
would not have to pay more than 1% in additional rates if the net
benefits of renewable energy acquired to meet the minimum standards
did not result in lower rates. In election debates with Xcel,
Tri-State G&T, and other utility opponents, we said that Amendment
37 was a bet. The bet was that the cost of renewables long term
would be lower than that of fossil fuels and that the ratepayer
savings from wind would exceed the small additional costs to get a
market for solar power started in the state.
Commission
Says “No Thanks”
The PUC has decided in their Amendment 37 rules to address only
”least cost” and ignore the other six policy goals. Amendment 37
charges the PUC to implement the rules as part of their
responsibility to regulate that state’s investor-owned electric
utilities. Instead the commissioners have taken it upon themselves
to spend the last year reworking the statute to support their
preferred regulatory policy of “least cost”.
In Colorado, “least-cost” rules have been used by the
PUC for years to oppose energy efficiency and renewable energy. The
way this works is that only traditional, narrow utility engineering
economics are considered when deciding on what new generation to
purchase. Broader issues that are of concerns to ratepayers,
individuals, families, and citizens are ignored. For example, “least
cost” planning in Colorado allows utilities to pretend that they can
predict the cost of fossil fuels over long future periods like
twenty years. In reality, these projections are always wrong because
it is essentially impossible to predict commodity fuel costs that
are subject to factors like financial speculation, hurricanes,
market and transportation concentration and monopoly behaviors, and
supply and demand factors, etc.
Another limitation that “least cost” planning uses to
diminish the role of efficiency and renewable resources is to simply
ignore the costs, risks, and liabilities of fossil fuels. So “least
cost” ignores pollution subsidies, using the air we breathe as a
dumping ground, that lead directly to health and environmental
costs. It ignores the liability costs and risks of climate change
damages that will be assigned in negligence litigation as our
society connects the dots that lead from fossil fuels to climate
damages. These are real costs, but they are not paid in electric
bills.
The Regulatory Assistance Project in Gardiner, Maine,
has published scores of papers on why these rules penalize
technologies that require large up-front capital investments and
reward technologies with low up-front costs and high fuel costs. See
the publications section of the Regulatory Assistance Project’s
website at:
http://www.raponline.org
The results of the PUC’s draft rules have already had
an observable impact in Xcel’s recent all-source bidding evaluation.
The utility selected 1300 megawatts (MW) of gas-fired generation
from several projects and 775 MW of wind energy from three projects.
Wind developers had proposed 4,600 MW in 22 projects, and no
community wind proposals were accepted. Had the PUC required Xcel to
weigh proposals according to the policy goals spelled out in
Amendment 37, smaller, more diverse, community projects would have
won contracts.
The bidding results that Xcel reported must be compared
to the cost of natural gas fluctuating over the last year,
fluctuating from about $7 to over $15 per million British thermal
unites (BTU). The new natural gas plants will operate for the next
20 or 50 years, and costs of electricity from natural gas will
depend on the cost of that fuel during this period.
Unfortunately, Xcel’s predictions for future natural
gas prices over the last fifteen years have always been wrong. Their
projects are almost always too low, which results in selection of
many new natural gas plants over the last decade for expanding
generating capacity in Colorado. Xcel’s customers suffer from these
low gas cost projections, because Xcel uses them to justify
acquiring less energy efficiency and wind.
As it is used today on the Colorado electricity grid,
wind energy essentially takes the role of a large conserver of
natural gas. Whenever wind-generated electricity is available to
Xcel, they shut down or turn down the most expensive natural gas
generator in service at that time. In economic terms, wind prices
stay stable when natural gas prices fluctuate.
If Xcel and the PUC wanted to take action to better
protect ratepayers in a volatile natural gas market, they should
instead use higher natural gas cost projections. If the high
projections are correct, they justify additional investments in
energy efficiency and wind. If natural gas costs are lower than
projections, savings will more than offset the modest investment in
energy efficiency and renewable energy that was made to hedge
against high prices. Of course the utility doesn’t pay for costs of
natural gas or for its low-ball projections; they simply pass
natural gas costs on entirely to their customers. They are not
interested in hedging consumers’ risk to spikes in fuel costs.
The PUC’s
“Net Benefit” Ruling
The PUC ruling fails to count the net benefits of renewable energy
as listed in Amendment 37 and uses a distorted formula for
calculating net costs. The statutory language for the 1% rate cap
says: “The retail rate impact shall be determined net of new
non-renewable alternative sources of electricity supply reasonably
available at the time of the determination.”
The intention of the authors was to have all costs and
benefits of renewable energy counted as benefits that result from
acquisitions of renewable energy projects to meet minimum renewable
energy requirement. If a renewable energy resource saves customers
and businesses money (e.g. from wind), those benefits would be
counted against any higher costs of other renewable energy that was
acquired to meet minimum standards (e.g. from solar). The rate cap
was intended to protect ratepayers from costs of renewable energy
acquisitions exceeding 1%, net of all the benefits. The net-benefits
provision can also lead to a larger renewables program by keeping
net costs below the rate cap, if all net benefits are counted.
Each of the seven policy goals of Amendment 37
provides benefits that should count in the net-benefits calculation.
- If renewable energy projects attract new
businesses and jobs, consumers will benefit from new products
offered by new businesses, access to new jobs, and improved
economic conditions. Conversely, continued reliance on imported
coal and natural gas will accelerate drain of dollars from the
Colorado economy.
- All Colorado citizens benefit if Colorado’s
rural economic drought is lessened by financial, tax, and income
benefits that flow from new energy investments in rural areas.
While Front Range and recreation areas of the state have
prospered, rural agriculture economies have declined. Colorado
voters ratified renewable energy standards to promote
development of rural economies, and they understand that their
energy dollars should be helping to meet this policy goal.
- Fossil generation uses astounding amounts of
water for cooling and power production. Meanwhile, Colorado has
just experienced a punishing drought. Colorado voters wanted
minimum renewable energy standards to minimize water use for
electricity generation to reduce pressure on water supplies.
With demand from fossil generators lessened in markets for
water, both rural agricultural and municipal water customers can
benefit from lower long-term water costs.
- Having experienced first hand recent
fluctuating, uncertain, and compounding increases in fossil fuel
prices in their own pocket books, Colorado voters ratified
Amendment 37 to diversify Colorado’s energy resources and to
reduce the impact of volatile energy prices. These two goals
lead to minimizing energy prices over the long term, managing
risks by diversifying energy generation portfolios, rather than
continuing sole reliance on increasingly costly and risky fossil
fuels that carry attendant health care, pollution regulatory and
climate change liabilities and contingent costs.
- Colorado voters also realized that pollution,
mining, and disposal costs of the fossil fuels that provide
electricity are not fully represented in their electric bills,
so they voted for minimum renewable energy standards to improve
the natural environment.
Each of these potential benefits of Amendment
37 policies has value to Colorado citizens and to utility
ratepayers. The benefits are greater than zero. Although they
might be hard to pin down in precise dollar terms, difficulty in
calculation is not an excuse that justifies the PUC rules that
essentially write them out of the statute altogether.
Worse still, the PUC rules turn the intent of
Amendment 37 to expand use of renewable energy on its head by
including the following sentence in Rule 3661 (f) (1): “For
purposes of this rule, new Eligible Renewable Energy Resources
means resources which are not currently commercial (sic)
operational at the time these two modeling scenarios are
performed” (emphasis added). Here the
PUC is overreaching because Amendment 37 clearly defines
eligible renewable energy resources without this restriction.
This tortured interpretation acts to reduce the scope of the
renewable energy standard policy of sustained, orderly
development of renewable resources. The commission’s preference
for limiting the scope of the renewable energy standard in this
manner is exactly the wrong policy to adopt in a time of high,
fluctuating and uncertain fossil fuel prices. It cuts against
the plain meaning of the net-benefits portion of the statute.
And it confounds the intention of the framers that renewable
energy projects that are counted for compliance with the minimum
renewable energy standard should also be counted for determining
the net rate impacts. The Commission
should let logic prevail. It should amend this rule so resources
that are counted for compliance with the capacity goals (10% by
2015) are counted for determining net benefits and the rate cap.
The PUC may be concerned that renewable energy that has been
added to generation portfolios as a result of old contracts for
qualifying facility or previous bids for “least-cost”
acquisitions, etc. If so, then renewable energy projects that
have been added to resource portfolios for reasons other than
Amendment 37 compliance should not be counted toward the
capacity goal. And ignoring the benefits of these projects for
rate impact would make sense. On the other hand, if resources
are counted for compliance, they should also be counted for
determining net benefits.
What Has Been Accomplished?
Despite fundamental differences between them, there were early
agreements between Xcel and Amendment 37 advocates that
represent progress on a number of issues:
- Interconnection standards for
connecting on-site generators.
This agreement is critical for the nascent solar industry
because homeowners and businesses cannot connect their
rooftop PV modules to the utility without a signed
interconnection agreement.
- Net metering.
This allows homeowners and businesses that are connected to
the electric power grid to connect with a single meter. When
the PV modules produce more power than the home can consume,
it runs the meter backwards. The utility agrees to settle
accounts at the end of a year.
- Standard offers.
Utilities will offer solar projects a standard rebate to
help with high capital costs. These offers of financial help
are now available on Xcel’s web site.
- Rules for the acquisition of renewable
energy credits.
Renewable energy credits are certificates that represent
that a certain amount of electricity has been generated from
renewable energy resources. These certificates have value.
They are now tradable nationwide among power generators who
need to meet renewable portfolio standards (minimum
requirements like Amendment 37) in 20 states, corporations
that have made voluntary commitments to reduce pollution and
climate change contributions, and individual buyers. All
these buyers can meet their commitments or requirements by
generating the electricity themselves or purchasing
certificates from someone else.
Where Do We Go from Here?
The PUC has made a series decisions over the last year that
will limit and constrain growth of renewable energy in
Colorado. These actions contradict wording of Amendment 37
and are directly contrary to the intentions of its drafters
and supporters. Consistently the PUC’s rules adopted the
positions of Xcel Energy, which spent millions opposing the
amendment during the election campaign. The PUC has
substituted its policy preferences and those of Xcel Energy
for limiting the growth of renewable energy for those of
Colorado voters.
Public scrutiny of these decisions is
called for and in order. The commissioners should be
required to explain how they developed distorted formulas
for meeting the seven policies of Amendment 37. They should
be called on to explain to voters why they continue year
after year to allow utilities to low-ball their projections
for the cost of natural gas and coal. They should face
public discussion about the pollution subsidies enabled by
their “least cost” rules. Finally, they should explain why
they reject out-of-hand the stabilizing effect on utility
rates that renewable energy brings to Colorado consumers.
The fight is not over! More than a year after
the election that ratified Amendment 37, those who opposed
renewable energy during the election still do so today. I
believe that public outcry will lead to court review and
action by the Colorado Legislature. Eventually we will see a
reversal of the PUC ruling this week to cut the heart out of
Amendment 37.
Ron Lehr
Ron Lehr is a volunteer attorney who represents the Colorado
Renewable Energy Society at hearings at the Colorado Public
Utility Commission. He was one of the original authors of
Colorado Amendment 37. He is the western representative of
the American Wind Energy Association and served for seven
years as chairman and commissioner at the Colorado Public
Utility Commission. |
