Much has been said about the new tiered electric rates for residential customers of Xcel Energy. Some of it has been accurate, but a lot of it has been misleading.
The Colorado Public Utilities Commission understands that consumers are concerned about the impact of the new rate structure on their utility bills. As with any electric rate structure, some customers will benefit more than others based on their patterns of usage. But the PUC believes that tiered rates are an inherently fairer way to charge for electricity usage during the summer while helping to encourage energy efficiency.
Consumers need to realize that, with or without tiered rates, overall electric bills will be higher than last summer. Xcel received two rate increases in the past year that increased residential bills by 12 to 15 percent. The increases were necessary to pay for additional generation, transmission and distribution expenses to meet our state’s increased electricity demand.
It is precisely this cycle — higher peak demand leading to the need for additional power generation — that tiered rates are designed to break. Xcel must produce or buy enough electricity to meet its peak load, which occurs during the summer. This is when electricity is the most expensive to produce, because all the plants that Xcel owns or buys power from are operating at or near capacity.
For years, Colorado’s peak electricity demand has been rising, driven in large part by the growth in air conditioning, large-screen televisions, computers, and other electronics. This increase in demand has required Xcel to invest more than $2 billion in new generation, transmission and distribution to serve that load. Previously, those costs have been spread equally among all ratepayers — with those who use less electricity bearing the same burden as those who are driving the peak higher by using more.
Tiered rates are designed to flip that around, so that those who use more, pay more. It is simply a fairness issue.
The PUC recognizes that tiered rates are not a perfect solution, and that there will always be individual situations where tiered rates don’t work as well as they should. But we believe it is a step in the right direction, reflecting the PUC’s efforts to price energy in ways that more accurately reflect its true cost.
Ron Binz is chairman of the Colorado Public Utilities Commission.
