Utilities are failing to ensure reliable electricity amid a climate crisis they are largely responsible for, says energy expert John Farrell on Xcel’s Colorado monopoly

Last week, Xcel Energy told customers across the front range that it was going to decrease prices for the rest of the year because of mild fall weather. That comes after last week’s request to raise rates on customers because of in-door Cannabis production, and in the same breath that they announced that starting in February rates would permanently increase  5 percent.

KGNU’s Alexis Kenyon spoke with John Farrell, the Director of the Energy Democracy Initiative at the Institute for Local Self-reliance who says until Colorado cities decide to ditch the monology utility model, they will continue to suffer from a utility company saying and doing whatever it wants to protect its bottom line.

Listen:

John Farrell: Yeah, so if you can imagine when electricity was first being provided, light bulbs were the reason people wanted it. They were called lighting companies in those days, and they had very small power plants that would serve, you know, 100 to 400 light bulbs each. You might actually, as a customer, want just one light bulb in your house or business, right?

This was such a novel thing. Imagine also that there were tons of different entrepreneurs, businesses, and little utility companies all competing to provide this first-time service. They were all stringing wires between buildings, down streets, and along poles, all trying to grow and capture the most customers.

So, it was highly competitive and probably not terribly profitable either. What the early utility owners realized was, “Hey, we could make more money if we didn’t have to compete with all these other folks.” So, they submitted and requested public oversight, saying that in exchange, they wanted to be the monopoly provider—the only provider in a particular region.

The structure that was agreed upon was that these utilities would make their money. The states would regulate the rates they charged, but they would make their money based on how much investment they made in the system. So, if I spent a hundred bucks on a power plant, I would earn ten back every year on that investment over its life.

So, utilities were strongly motivated to build out the system, and they did. But what’s challenging now is that this model no longer serves the most cost-effective needs we have for the system. We now have things like energy efficiency, conservation, rooftop solar, and batteries that customers can invest in themselves.

To get to the question of why the utility has so much power, it’s useful to understand why they want to wield that power in a way that’s often against the public interest. We now have technology that allows us to deliver electricity in a very different way—not that we’re going to stop using the grid—but we now have lots of people who can participate as producers rather than just consumers.

The problem is that the utility’s business model, their way of making money, hasn’t changed in over a hundred years. Fundamentally, it is still about building things and owning them in order to earn that generous rate of return.

Even though people generally recognize that we’d like cleaner electricity, and we’d like the opportunity to invest in clean energy ourselves, like rooftop solar, utilities like Xcel see these things as threats to their profitability. They use the power they have over the market and over us to take our money and lobby public officials at the state regulatory commissions and legislatures to preserve their way of doing business, so they can keep making significant profits.

The challenge is that there might be ways for the utility to make money in a different way, but they’re not interested in exploring them. They’re owned by shareholders, they report to Wall Street, and they want to show consistent profitability. They know how to do that in one particularly effective way, which is to own everything that gets built and invest their own money in it, so they earn that generous rate of return.

Alexis Kenyon: Recently, Xcel set aside part of its budget for state clean energy mandates. There was an article recently about how marijuana dispensaries with indoor grow lights used a significant portion of that budget, leading to a shortage. Now, Xcel is going to the Public Utilities Commission (PUC), asking if they can raise consumer rates to expand this clean energy program. Can you clarify what’s going on here? How does that track?

John Farrell: Interesting.

I think what boggles my mind about these kinds of policies is that the evidence suggests investments in renewable energy, like solar and wind power, are generally less expensive than fossil fuels.

So, the part that always confuses me is how they run out of these budgets when deploying clean energy should theoretically lower bills—especially if it’s involving the closure of existing fossil fuel power plants, which are more expensive to run.

It’s a bit complicated, though. When you’re building new power plants, you’re not always replacing old ones. Sometimes you’re building new ones because energy demand is growing. That could be part of the issue here. The other factor is that when you invest in renewable energy like solar and wind, all the costs are upfront.

For example, if Xcel builds a natural gas power plant, it’s relatively inexpensive compared to some other sources. But all the ongoing costs are tied to buying and burning fuel whenever you want to produce electricity.

With solar or wind, the fuel is free, but the upfront capital costs are higher. If there’s a limited budget for those upfront costs, you could run out of money sooner when you’re investing in renewable energy. Even though, in the long run, you’ll pay far less because there are no fuel costs. I can’t speak specifically to Colorado’s situation, but I understand generally how this happens.

That said, the idea that there’s a finite pool of money to invest in clean energy is kind of nonsense.

The utility should be able to go to capital markets, borrow more money, and build clean energy whenever it wants to. Research from groups like RMI shows that investing in clean energy is generally better for consumers. Utilities shouldn’t be telling commissions they have to raise rates for this—they should find other ways to make these investments and retire the more expensive, dirty power plants.

Alexis Kenyon: Another thing I wanted to ask about is the power outages across the Front Range. Since January, certain neighborhoods in Denver have had 10 power outages. Xcel has blamed everything from maintenance to squirrels chewing on their lines. You may have heard that in Boulder, we had a major power outage in April because of very high winds. I’m curious—do you have any insight into the increasing frequency of these power outages and what that has to do with Xcel?

John Farrell: I’ll preface this by saying squirrels are the bane of a utility’s existence. They can be responsible for small-scale outages because they chew on things or nest on power lines. Sometimes these things happen randomly, and your power goes out.

Routine power outages, though, are a different story. One of the things that’s happened in the past few years, in light of the wildfires in California that were sparked by power lines, is that state regulators in California—and apparently now in Colorado—are giving utilities permission to shut off power. This has completely changed the notion of monopoly service.

The trade-off we’ve always accepted for making these private companies into monopolies is that we get reliable and affordable service in return. That’s the bare minimum. It might not be low-pollution, and it might not be affordable for everyone, but at least everyone has access to service.

Now, suddenly, regulators are like, “Sure, go ahead and shut the power off to people.” In some cases, it’s actually negligence in utility maintenance programs that has led to the likelihood of there being a wildfire.

What I find extraordinary is that the increased threat from wildfires is, at least in part, due to climate change. A major contributor to climate change has been the burning of fossil fuels for electricity generation, and utilities knew this decades ago. But they decided to hide, obfuscate, and lie about it.

Now, we’re reaping the consequences of that deception. And what are utilities doing? They’re coming to us—not even on bended knee, sometimes standing up straight—and demanding that they be allowed to stop providing electricity, the one job they are supposed to do, because they may have diverted money from doing their other job, which is maintaining the system to ensure reliable electricity.

So, I say all of this with the knowledge that if I were a distribution engineer working at Xcel, I could probably argue that it makes sense to turn off the power in certain situations because a climate-fueled windstorm might spark a wildfire. But that being said, utilities have shirked their responsibility to ensure they can continue to provide reliable electricity, even in the face of a changing climate that they’re largely responsible for.

Utilities don’t want to be held liable for wildfires, so they’re shutting off power to avoid causing them. But that’s ridiculous. It’s like saying, “Hey, we’re going to stop floods from our municipal water system by not letting anyone have water anymore. Problem solved!” It’s absurd, and I don’t understand how they’re even allowed to do it. It’s crazy.