Xcel Energy will equip homes and businesses in Colorado with state-of-the-art meters that allow customers to more closely track their energy usage under a plan approved by state regulators Wednesday.
The $612 million upgrade over the next six years should make it easier for consumers to conserve energy and generate their own power. It also will smooth out voltage fluctuations on the grid, saving about 2 percent of the electricity now sold that goes to waste.
But that efficiency poses a financial problem for the state’s largest utility, whose revenues rise and fall based on how much electricity it sells.
As a trade-off, regulators also approved a “decoupling” provision that would allow Xcel to recover costs in a special surcharge to all customers if total electricity consumption and sales drop over time.
The technology upgrades will require Xcel to replace up to 1.6 million existing meters with more sophisticated ones that can communicate in real-time. Customers should start noticing that switch in 2020, and they will have an option to stick with the older technology.
The first 13,000 new meters will provide real-time feedback on the voltage traveling through the grid, key to reducing losses.
The meters and other upgrades will also give Xcel advanced warning on transmission problems and pinpoint outages instead of having to wait for customers to call in.
At Wednesday’s hearing of the Colorado Public Utilities Commission, chairman Jeff Ackermann said the plan, the result of negotiation between Xcel, regulators and interest groups, allows the utility to modernize its grid while covering costs even if consumption falls.
“There is still a cost associated with having that utility to be there to serve you,” Ackermann said.
Consumers sometimes view their power supplier like a grocery store — you only should pay for what you buy. But a utility is also a power delivery system with costs that need to be covered, he said.
As more customers produce their own energy or turn to energy saving measures like LED bulbs, paying for the system has become a bigger concern.
Nationally, the country’s economic output grew by 33 percent between 2000 and 2015, after accounting for inflation. But electricity generation has risen only 7 percent, according to M.J. Bradley and Associates.
Xcel initially proposed a fixed “grid charge” on all customers to recoup system costs. But environmental and renewable energy groups pushed back, arguing that higher fixed costs on monthly bills made rooftop solar systems less economic for homeowners and businesses.
After months of wrangling, 11 parties came together to craft a settlement with Xcel on grid modernization, and most of those also backed the idea of decoupling in return for dropping the grid charge.
“Advanced electric meters will empower Coloradans to control and manage their energy use, saving money and reducing waste,” said Erin Overturf, chief energy counsel with Western Resource Advocates, one of the parties supporting the settlement.
One group that didn’t sign on was the Office of the Consumer Counsel, which represents residential and small business customers. It argued that decoupling forces consumers to share the benefits of the hard work and sacrifice involved in conserving energy.
“I am using less and I have to make the company whole for that reduction?” asked Cindy Schonhaut, director of the OCC.
Ackermann argued decoupling represents a more flexible approach to charging for energy, one that frees a utility to pursue energy conservation without hurting its financial performance.
“Decoupling is a strategy to move the utility and system forward. It can be seen as part of a portfolio of strategies that we are trying to implement,” he said.
Nearly three dozen states have implemented decoupling in their rate structures. Xcel can’t trigger the decoupling charges unless its revenues fall short what it needs to cover its costs. If it ends up long, the extra earnings go back to customers.
Xcel, after the vote, said Wednesday that it was pleased with the support for its system improvements, formally known as Advanced Grid Intelligence and Security.
“It will provide exceptional value to Colorado customers by improving electric reliability and service quality, saving energy, integrating more private generation sources onto the power grid, and enabling new ways for customers to manage their own energy use,” the company said in a statement.
But Xcel remains concerned about how decoupling formulas will treat revenues from new customers and whether the upside they provide could end up being refunded, said David Eves, president of Xcel Energy Colorado.
Commissioners during the discussion sided with simplicity, rejecting different treatment for people participating in upcoming time-of-use trials that adjust electricity rates across peak and slow demand periods.
An administrative law judge’s recommendation that decoupling apply only to residential and not small business customers didn’t receive the commissioners’ endorsement. And they shot down a request from Xcel to recover more if voltage control enhancements reduced electricity consumption.
The plan calls for a 3 percent cap on how much the utility can seek to recover in a year if demand drops. Xcel had sought 4 percent with improved voltage controls.
Commissioner Frances Koncilja argued for educating consumers so the benefits of smarter meters could accrue to them and not just Xcel.
“We want to know that this is proceeding on an incremental path that is beneficial to the consumer,” she said.
Some consumer groups questioned whether the grid upgrade was needed and if it would cost too much. Meter replacements represent about $418 million of the $612 million in system upgrade costs.
Ackermann noted that the current fleet of meters is nearing the end of its useful life and faced replacement anyway. Staying with the old technology would have cost $90 per meter, versus $118 for the smart meters.
The benefits of the newer technology far outweigh the added costs, PUC staff argued.
