CRES Policy Alert | Apr 8, 2019

CRES Weighs in on the Mother of All Rulemakings

The Colorado Public Utilities Commission (PUC) is in the middle of updating most all of its Rules Regulating Electric Utilities (see 4 Code of Colorado Regulations (CCR) 723-3.  Many interested parties from the regulated utilities to industry and environmental groups have weighed in on various rules being rewritten. Colorado Renewable Energy Society (CRES) has focused its comments on one important aspect: using the proper discount rate in Electric Resource Planning. Currently, the discount rate used is nearly 7%, which tends to skew the comparison of fossil-fuel based resources compared to renewable ones.

The PUC receives its authority from the Colorado Constitution and statute.  Article XXV of the Colorado Constitution states that the Colorado General Assembly must regulate public utilities, and that unless they say otherwise, the PUC has the authority to provide this regulation. The PUC must balance its consideration of matters between the public interest or needs of customers and the needs of utilities to earn a reasonable profit and sustain a reliable utility infrastructure.

The PUC performs both Quasi-legislative and Quasi-judicial proceedings.  This rulemaking is an example of quasi-legislative proceeding, and interested parties, or stakeholders do not have to be represented by legal counsel. This is different than the more common quasi-judicial proceedings where there is a more formal administrative process with testimony from witnesses, and evidentiary hearings, etc.

This particular rulemaking (known affectionately as the Mother of All Rulemakings) covers 6 areas of the Commission’s Electric Utility Rules:

  1. The rules governing Electric Resource Planning (ERP Rules) at 4 CCR 723-3-3600, et seq.;
  2. the Renewable Energy Standard Rules (RES Rules) at 4 CCR 723-3-3650, et seq.;
  3. the Net Metering Rules presently in 4 CCR 723-3-3664;
  4. the rules governing Community Solar Gardens (CSG Rules) presently in 4 CCR 723-3-3665;
  5. the provisions for utility purchases from Qualifying Facilities (QF Rules) presently at 4 CCR 723-3-3900, et seq.; and
  6. the Interconnections Standards and Procedures presently in 4 CCR 723-3-3667.

To kick off the rulemaking process, the PUC hosted a miscellaneous proceeding (17M-0694E) back in 2017 and the purpose of that proceeding was to gather comments and host workshops on potential revisions and the scope of revisions to the Electric Rules.  Many interested parties from business groups, to the solar industry, to the electric utilities, to environmental organizations, and some individuals participated in this process.

The Commission took this information and the Staff of the Commission put together the proposed amendments to the rules that were filed in this proceeding (19R-0096E).  CRES and a number of other interested parties all filed initial comments per the schedule on March 29, 2019.

While many of the proposed amendments to the Electric Rules will affect renewable energy acquisition here in Colorado, CRES focused on one of the most important metrics in the Electric Resource Planning Process – the discount rate used when comparing future resource acquisitions.

Specifically, CRES is asking that the rules state a lower discount rate be used for future fuel costs when calculating the Present Value of Revenue Requirements in Electric Resource Planning proceedings. Currently, a nearly 7% discount rate is used that greatly discounts future fuel costs and does not give the PUC or anyone else, a fair representation of the magnitude of future fuel costs.

The PUC did require PSCo to run a sensitivity analysis in its 2016 ERP at two lower discount rates of 3 and zero percent (see excerpt from Table 1 below).  This analysis demonstrated the savings in future fuel costs that accompany these ERP decisions designed to determine where to invest our money in what types of future resources – namely renewables or conventional fossil-fuel based resources.

Excerpt from Table 1, Appendix E, 120 Day Report, Proceeding 16A-0396E

As seen above, the data from PSCo’s 120 Day Report proves that by using a 0% and 3% discount rate shows much greater savings for portfolios that involve increased renewable energy (e.g. Portfolio #’s 5-11, all of which include more renewable energy than the “All Thermal” Portfolio 4) using a discount rate of 6.78%.  To further illustrate this point, Portfolio 5, the Base Case analysis that uses the 6.78% discount rate shows a savings of $328 million compared to Portfolio 3, while using a 3% discount rate shows $853 million of savings, and a 0% discount rate yields $1,844 million or $1.88 billion.

What is the bottom line?  The sensitivity analysis done in Proceeding No. 16A-0396E makes it clear that investing in increased amounts of fuel-free renewable resources will likely save PSCo ratepayers much more in PVRR costs than the PUC is considering by relying on the PVRR analysis utilizing a 6.78% discount rate.

CRES’ request to the PUC in this rulemaking is simply to add a sentence to the end of section 3602 (l) regarding the definition of NPVRR to include a sentence stating: “Future fuel costs shall not be discounted at a rate exceeding 3%.”

Next up in the process are reply comments due April 19, 2019, and then a hearing is scheduled for April 29 through May 3, 2019, and comments are welcome throughout this process, and may be submitted at any point before the end of the hearing by using this link.

For more, please see CRES’ full comments submitted March 29th.