Phil Carson | Feb 28, 2011

I'm awarding two black eyes-one for Xcel Energy and one for the Colorado Public Utilities Commission (CPUC)-for failure to manage a smart grid pilot.

That's my conclusion from reading the CPUC's "Order on Exceptions," which is the written decision and rationale for the CPUC's verbal decision (announced last month) to cap cost recovery for Xcel's SmartGridCity project.

By now readers are familiar with the SmartGridCity project in Boulder, Colo., which was to be a relatively large-scale pilot to demonstrate distribution system advancements and efficiencies, including homeowner energy management. The project initially was estimated to cost about $100 million, with only $15 million on Xcel's tab.

Long story short, over time that $15 million tab mushroomed to more than $45 million and Xcel retroactively filed for a certificate of public convenience and necessity (CPCN) to recover $44.5 million. Last fall, Xcel, the CPUC staff and the Governor's Energy Office proposed a settlement awarding Xcel that $44.5 million. A CPUC administrative law judge recommended that the settlement be granted.

Several groups objected, including the Colorado Office of Consumer Counsel, the Climax Molybdenum Company and CF&I Steel (two of Colorado's largest electricity users) and Leslie Glustrom, a tenacious citizen. Each filed objections to the recommended settlement, with various suggestions for appropriate cost recovery.

As noted, the CPUC overruled its ALJ in early January and granted Xcel cost recovery of $27.9 million, with the chance to recover another $16.6 million if Xcel could establish ratepayer benefits from SmartGridCity. (Xcel's Colorado ratepayer base is 1.4 million electricity accounts.) The $27.9 million cost recovery is the exact amount proposed by the Colorado Office of Consumer Counsel.

The Demands

As we'll see, the CPUC now has made some demands on Xcel to engage stakeholders and report on its SmartGridCity findings, which in my view should have been instituted at the very beginning of the entire process.

In the CPUC's written decision, filed last week, the commission rejected all the "exceptions"-i.e., legal objections-filed by the various parties to this case. Yet it imposed the $27.9 million cost recovery cap suggested by the Colorado Office of Consumer Counsel.

"We're pleased with the decision, due to the decision on cost recovery of $27.9 million," Bill Levis, Colorado's Consumer Counsel, told me. "We don't necessarily agree with the rationale.

"Whenever you're talking new technology, some mistakes are made," Levis added, "but they can be beneficial in the long run."

Levis meant that future grid modernization projects likely will adopt a more inclusive approach for stakeholders and regulators upfront, to avoid outcomes such as SmartGridCity (SGC).

A few quotes from the CPUC's written decision will spell out what, in my view, should have been stipulated before a dime was spent.

"Public Service (aka Xcel) apparently experienced difficulties with the planning and budgeting of the project, and the costs associated with the project quickly escalated from March 2008 to the filing of the application in this docket," the CPUC wrote. "However, standing alone, that does not mean necessarily that the company acted imprudently. That said, we are concerned whether SGC is today slated to achieve enough of its potential to justify its higher-than-anticipated costs ... We are also concerned with the relative lack of details regarding the planned use of the project going forward.

"In short, we want to see the company articulate and defend a strategic plan for the use of SGC investment. We want to see a credible promise of consumer and utility benefits sufficient to justify the cost overruns. We want to know more about the ability of customers to make practical use of SGC on their side of the meter through in-home devices and we want to know more about the interconnect ability of SGC with those customer devices.

"We find that the record evidence about future use of SGC is sparse. The most tangible portion of that information addresses the pricing pilot and the planned report to the commission on the value propositions. This approximates the modified scope of the project when it was considered in March 2009. At that time the capital cost of the project was $27.9 million and we therefore deem that level of investment to be prudent at this time.

"In sum, this commission believes that the company needs to 'reboot' the SGC project and restore some of the promise that this concept originally held. If the company demonstrates in a future application that the SGC project has a coherent and valuable future, we may allow the company to recover the balance of the investment disallowed at this time."

That last statement is footnoted thus: "Such future application should at a minimum summarize how advisory groups are being engaged, identify smart grid investments and how such investments (or the knowledge gained) will benefit customers and grid operations."

One point that should not escape us: if Xcel comes through on these stipulations, it will in fact recover all of that $44.5 million. That still falls short of requiring balance between shareholder and ratepayer risk.

Phil Carson is editor of Intelligent Utility Daily

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