Xcel Pushes for Rate Hikes for Its Failed Smart Meter Project

Published September 7, 2012

Xcel Energy failed to deliver on many promises regarding its smart grid pilot program in Boulder, Colorado, but the utility is nevertheless seeking full recovery from ratepayers for the $44.5 million it spent on the program.

Less Than Half Installed

Karen Hyde, an Xcel vice president, told a Colorado Public Utilities Commission (PUC) administrative judge in August hearings that the company failed to meet expectations regarding its Boulder SmartGridCity project because there were “unreasonable expectations from our customers in Boulder.” 

When Xcel launched Boulder SmartGridCity in 2008, the utility said its aim was to wire 50,000 homes in Boulder with smart meters that would help the utility and homeowners better manage electricity flows. Additionally, Xcel promised the smart meters would enable customers to use smart appliances, smart electrical outlets, and smart plug-in devices.

Xcel installed smart meters for only 23,000 customers, and the meters failed to live up to promises regarding smart appliances and other smart applications.

Triple Initial Cost Estimates

Xcel initially forecast it would invest $15.3 million in the project. Xcels’ costs soon ballooned, eventually tripling original estimates, to $44.5 million. The total cost for the project escalated to more than $100 million, with government entities and other private companies footing the remainder of the bill.

In 2011 the PUC authorized Xcel to hike electricity rates by $27.9 million to cover the exploding costs of SmartGridCity. Xcel is now seeking PUC approval to make its utility customers pay the remaining $16.6 million as well.

History of Underestimating Costs

This project should not have been approved without a comprehensive cost-benefit analysis, which Xcel Energy did not do before starting the project, said Amy Oliver Cooke, director of the Energy Policy Center for the Independence Institute in Denver, Colorado.

“This isn’t the first time that Xcel has been way off on its projections,” Cooke observed. “If this were a private market, the company would have to pick up the cost.

“In this case, Xcel is off by 300 percent, and ratepayers, rather than shareholders, pay the bill. Because it is a state-sanctioned monopoly, Xcel’s mismanagement is simply a redistribution of wealth from ratepayers to shareholders,” Cooke explained.

Unreasonable Expectations?

Frank Bruno, Boulder city manager at the time Xcel proposed the project, fired back in a letter to the Boulder Daily Camera against Xcel’s assertion that customers had unreasonable expectations.

“Those of us that were involved back then and were present at the grand unveiling in May of 2008 of Xcel’s selection of Boulder have a right to be irritated at the current suggestion that our expectations were unreasonable—when they were set in large measure by the president and other senior officials of Xcel Energy,” wrote Bruno. 

Company Should Pay for Failure

“Xcel Energy thought it was going to make a small fortune off SmartGridCity but was way off on costs, so now it wants ratepayers to pony up for its dismal mismanagement,” Cooke observed. “Frankly, it’s time shareholders start feeling some of the pain of Xcel Energy’s boneheaded leadership decisions.”

“Xcel Energy has done very well in Colorado over the last decade or so. We are roughly one quarter of their customer base but roughly 50 percent of the company’s profits. As ratepayers’ bills go up, so do Xcel’s profits,” she added.

H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis, says only a company contracting with the government would have the gall to request full payment for cost overruns 300 percent higher than the original estimate, while delivering less than half the estimated installations and even less of the claimed energy saving benefits. 

“In the private sector, the contract would be nullified. Indeed, in civil court the contracting company might have to reimburse those who requested the work, since the project was less than half complete,” Burnett observed. 

“Taxpayers have already been forced to pony up for part of the cost overruns on this pipe dream, so the government should not punish its citizens further by making them reward this company for its failure,” said Burnett. “If the original estimates had accurately portrayed the results and costs, it is almost certain the project never would have been approved.”

Kenneth Artz ([email protected]) writes from Dallas, Texas.