Carroll: In a huff over energy bill

February 12, 2004

pictureXcel Energy has embraced Soviet-style centralized planning for utilities. It revealed this remarkable position last week when it dispatched Vice President Fred Stoffel to the legislature to testify on behalf of the Lola Spradley Rate Hike Bill (aka House Bill 1273). Stoffel told lawmakers his company is ready, willing and eager to pass along any costs associated with the House speaker's plan to mandate a major boost in renewable energy production by investor-owned utilities - although of course he wasn't quite so blunt as this.

Instead, he insisted wind power is already more attractive than natural gas in terms of cost and reliability, arguing that Spradley's bill would possibly add a mere 6 cents to the average monthly bill.

 

Xcel's position raises unavoidable questions for anyone faintly acquainted with the economic system in which the company operates: If wind power is so attractive, why doesn't Xcel simply lease or build more of it as it expands its energy portfolio? Why should the legislature require Xcel to embrace the economically sensible policy?

No law bars Xcel from pursuing the least-cost alternative to its energy needs. To the contrary: The state Public Utilities Commission requires companies to select the cheapest available energy source.

Asked later to clarify this mystery, Stoffel gamely explained that "we get a measure of certainty out of the bill." Yes, indeed - the certainty that any outsized costs associated with the accelerated adoption of wind power and other renewables will be passed along to ratepayers. Who could object, after all? Xcel would have simply been following legislative orders.

At the moment, Xcel's renewables (including hydropower) account for about 3 percent of its energy production, Stoffel says, but HB 1273 will boost that figure to about 13 percent by 2020. And never mind that the actual cost of wind power as it becomes a major source of energy in Colorado is quite simply unknown.

When Ray Gifford chaired the PUC two years ago, he voted to approve a 162-megawatt wind farm project near Lamar. But Gifford, who is currently head of the Progress and Freedom Foundation in Washington, D.C., told me that at the time there were no reliable figures on the so-called ancillary costs for wind, such as how many gas turbines you have to maintain for backup power if the wind fails, or how much it costs to start up and shut down the wind machines in actual operation. These costs boost the price of wind power - not to exorbitant levels but enough so they must be considered in any reasonable analysis. Indeed, one reason the PUC supported the Lamar project, which only recently came on line, was to improve its understanding of the economics of wind power.

So much for the best-laid plans. Stoffel did not bother to include ancillary costs in his estimates to lawmakers of how much HB 1273 would boost average household bills (did lawmakers know this?), a fact he confirmed when I asked the next day. Nor can he estimate with precision the magnitude of those costs if the bill becomes law. He prefers instead to emphasize that ancillary costs could be offset in part by "capacity avoidance," fancy jargon for the hope that putting wind farms at various locations around the state would begin to minimize the need for backup generators because, presumably, the wind wouldn't stop blowing everywhere in the state at once.

Thanks in part to Xcel's cavalier assurances regarding cost, the state House passed HB 1273 earlier this week by a 39-26 vote. Now it's the Senate's turn. At the very least senators need to insert a provision in the legislation deferring acquisition of renewable energy whenever a project's total cost of producing electricity exceeds that of another available resource.

Stoffel says Xcel wants "some diversity in our supply portfolio" and that "wind energy does provide a hedge against the volatility of natural gas."

Fine. Then go to the PUC and make the case for renewable energy on a project-by-project basis. But don't endorse the equivalent of a 15-year centralized state diktat mandating subsidies for energy production in Colorado.

 



Vincent Carroll is editor of the editorial pages. Reach him at .