BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO

PROCEEDING NO. 17A-0797E

IN THE MATTER OF THE APPLICATION OF THE PUBLIC SERVICE COMPANY OF

COLORADO TO MODIFY THE DEPRECIATION SCHEDULES FOR THE EARLY
RETIREMENT OF COMANCHE 1 AND COMANCHE 2 GENERATING UNITS,
ESTABLISH A REGULATORY ASSET TO COLLECT INCREMENTAL DEPRECIATION,
REDUCE THE RENEWABLE ENERGY STANDARD ADJUSTMENT COLLECTION TO
ONE PERCENT, AND IMPLEMENT A GENERAL RATE SCHEDULE ADJUSTMENT,
CONTINGENT ON THE APPROVAL OF THE COLORADO ENERGY PLAN PORTFOLIO
IN PROCEEDING NO 16A-0396E.

THE COALITION OF RATEPAYERS’ STATEMENT OF POSITION

______________________________________________________________________________

PUBLIC VERSION - REDACTED

NOTICE OF CONFIDENTIALITY:
A PORTION OF THIS DOCUMENT HAS BEEN FILED UNDER SEAL, PURSUANT
TO 4 CCR 723-1101, PROCEDURES RELATING TO CONFIDENTIAL INFORMATION
FILED WITH THE COMMISSION IN A PROCEEDING

Highly Confidential Testimony: Pages 15, 16, 17, 18

August 14, 2018

 TABLE OF CONTENTS

I. INTRODUCTION..............................................................................................................1

II. PSCO’S AD/RR APPLICATION SHOULD BE DENIED BECAUSE EARLY

RETIREMENT OF COMANCHE UNITS 1 AND 2 IS NOT COST
EFFECTIVE AND WILL NOT RESULT IN JUST AND REASONABLE
RATES. ...............................................................................................................................6

III. THE COMMISSION SHOULD NOT GRANT THE COMPANY’S REQUEST

FOR A RETURN ON THE REGULATORY ASSET .................................................22

IV. THE PROPOSAL TO RESET THE RESA AT 2% IN 2028 IS NOT

REASONABLE ................................................................................................................23

V. CONCLUSION ................................................................................................................23

i
 TABLE OF AUTHORITIES

Page(s)

Cases

CF&I Steel, L.P. v. Pub. Utils. Comm’n,

949 P.2d 577 (Colo. 1997) .........................................................................................................6

Colorado Public Utilities Commission Rules

Rule 3601 .........................................................................................................................................6

Commission Decisions

Decision No. C18-0191 .......................................................................................................9, 16, 19

Decision No. C18-0141-I .....................................................................................................9, 12, 15

Decision No. C17-0316 .................................................................................................................15

ii
 STATEMENT OF POSITION

I. INTRODUCTION

Nearly a year ago Public Service Company of Colorado (“PSCo” or “the Company”) and

the Stipulating Parties filed the joint motion to approve presentation of the Colorado Energy Plan

(“CEP”) in Phase II of PSCo’s electric resource planning (“ERP”) proceeding. If approved, the

CEP will retire more than a decade early 660 MW from coal-fired generating units Comanche 1

and 2 based on PSCo’s claim that it is economic to have Colorado consumers pay for the sunk

costs of the coal units and $2.5 billion in replacement electricity infrastructure. These are coal

plants that comply with all environmental regulations, face no expensive upgrades, and serve as

the lowest variable cost thermal units in PSCo’s electric system.1

On its most recent investor earnings call, Xcel Energy touted the CEP as “the most

ambitious utility renewable plan in the country.”2 It stated that growth from the CEP is not in the

Company’s base capital forecast and thus the incremental earnings from the CEP would be entirely

upside to the Company’s forecasts to Wall Street analysts.3 There is a reason the Company did not

include capital investment from the CEP in its earnings forecasts. The CEP is an aggressive capital

investment strategy that is not cost effective for ratepayers. Just like uneconomic nuclear

generation investment in the 1980s and the now-cancelled Kemper integrated gasification

combined cycle project in Mississippi, the claimed justification of the CEP is a projection of a slim

margin of net present value (“NPV”) savings that is forecasted to materialize, at best, decades into

the future.4 As the evidence in this proceeding shows, these savings are illusory and will never

1
Hr. Ex. 202 at 35-36.
2
https://finance.yahoo.com/news/edited-transcript-xel-earnings-conference-012902100.html.
3
Id. See also Hr. Tr. at 58:9-17.
4
Hr. Ex. 201 at 13.

1
materialize. While the profits for PSCo’s shareholders are effectively guaranteed by the CEP, the

alleged savings to ratepayers hold no such promise.

Commission approval of the cost recovery mechanisms to pay for the Preferred CEP

Portfolio (“CEPP”) presented in the Company’s 120-Day Report would undoubtedly be a notch in

Xcel’s “steel-for-fuel strategy,”5 but it would also result in a policy decision that adversely impacts

ratepayers for generations to come. The CEPP would sanction the retirement of 660 MW of coal

in exchange for 1,100 MW of wind, 700 MW of solar, and 275 MW of battery storage at a time

when PSCo’s load growth is relatively flat.6 Under the CEPP—which manufactures from thin air

660 MW of need—PSCo would own approximately 500 MW of the new wind generation, acquire

380 MW of existing natural gas generation, and invest in new transmission to serve the new

generation, for a total Company investment of about $1 billion on which it would earn a return.7

In total, customers would pay for approximately $2.5 billion in statewide investment, plus the sunk

costs of the shuttered coal plants.8

PSCo did not include the recovery of the sunk costs of the Comanche units in its claimed

$213 million of net present value (“NPV”) benefits of the CEPP, but ratepayers will not pay for

these costs with Monopoly money. This proceeding focuses on how PSCo’s customers will pay

for accelerated depreciation costs caused by early plant retirement, which entails a series of rate

mechanisms intended to mask the higher costs and rate impacts of accelerated depreciation. The

cost recovery mechanisms for the CEP include: (1) booking a regulatory asset to recover

accelerated depreciation costs of Comanche 1 and 2 that would earn a return at the Company’s

5
https://finance.yahoo.com/news/edited-transcript-xel-earnings-conference-012902100.html.
6
120-Day Report at 15.
7
https://finance.yahoo.com/news/edited-transcript-xel-earnings-conference-012902100.html.
8
120-Day Report at 6.

2
weighted average cost of capital (“WACC”); (2) paying down the regulatory asset by reducing the

current Renewable Energy Standard Adjustment rider from 2% to 1% of total customer bills; (3)

implementing a 1% Colorado Energy Plan Adjustment (“CEPA”) rider on customer bills until,

approximately, 2028; and (4) reinstating the 2% RESA when the regulatory asset is projected to

be paid off in 2028.

The CEP regulatory asset, the differential in the RESA balance under the CEP and ERP

portfolios, and the CEPA rider unequivocally have a cost to ratepayers. When the accelerated

depreciation and RESA impacts are included in the costs of the CEP, Coalition of Ratepayers

witness Charles Griffey offered unrebutted testimony that—using the rosiest of PSCo’s NPV cost

estimates—the CEP would not turn positive for ratepayers on a NPV basis until the year 2046,

almost thirty years from now, and would only result in a slim margin of $42 million of overall

NPV savings relative to the Preferred ERP Portfolio (“ERPP”).9 Further, as Mr. Griffey explained,

those savings will never appear and the CEPP will cost ratepayers at least $284 million because

the only way PSCo has been able to eke out its claimed CEPP savings is through a series of biased

assumptions that inflate the revenue requirement of the replacement unit for Comanche 1 and 2 in

the ERPP (e.g., assuming a 35% tax rate for the combined-cycle gas turbine (“CC”) assumed to

replace the coal units in the ERPP, using higher gas costs for the CC than for combustion turbines

(“CTs”) prevalent in the CEPP, and adding new lower-cost Replacement CTs in the CEPP that

lower the portfolio costs for the CEPP relative to the ERPP).10

9
Hr.Ex. 201 at 12.
10
See Hr. Ex. 202 at 27-28. Hr. Ex. 202A. Mr. Griffey also notes that the costs will be as high as $343 million. This
$343 million calculation includes PSCo’s unreasonable assumptions for Comanche maintenance capital, labor, and
O&M escalation and the brownfield siting of the CC. These issues were rejected by the Commission in Phase I,
Docket 16A-0396E, which the Coalition avers was in error.

3
 It is apparent that some of the signatories to the Stipulation are uncomfortable with the

Company’s unabashed efforts to come up with CEP savings that do not exist. Commission Staff,

for example, stated the following in its comments on the 120-Day Report:

Staff recognizes that this exercise has been novel and extremely complex. However,
it appears to Staff that in every instance where the Company had some discretion
in determining the evaluation process, and in some cases when they did not have
discretion, the path chosen favors the CEPP over the ERP portfolios in a manner
that makes the playing field far from level.11

Staff further stated:

Based on its baseline modeling, the Company projects the Preferred CEPP will
produce $213 Million in NPV savings as compared to the Preferred ERP over the
planning period. Staff believes this amount is likely overstated and Staff is unable
to conclude that the Preferred CEPP is more likely than not to produce savings. The
modeling results presented by the Company contain a number of errors and a
fundamental flaw, which are discussed below, that render the results suspect.12

Likewise, the Colorado Energy Consumers (“CEC”) lauded the Commission’s decision to order

PSCo to present a least-cost plan in its comments on the 120-Day Report,13 and noted that “where

PSCo makes such a sizeable investment based on a created need, and as under the circumstances

is not bound to meet that need at the least or even the most competitive cost, the risks and

uncertainties should not be borne by ratepayers alone.”14

The Stipulating Parties that represent Colorado ratepayers would be right to have buyer’s

remorse. The CEP is an ill-conceived Stipulation that was entered into before ratepayers had an

opportunity to vet how PSCo would measure cost savings. Further, the CEP contains no

meaningful protections for ratepayers and manufactures a need for new generation investment that

11
Staff Comments on 120-Day Report at 39.
12
Id. at 3.
13
CEC Comments on the 120-Day Report at 9.
14
Id. at 7.

4
does not exist. As Mr. Griffey testified at the hearing, shuttering cost-effective coal units to chase

low-cost renewables for their expiring tax benefits is like buying a new outfit you don’t need at a

discount sale.

Q. So one of the arguments we hear about why we have to make a decision

today is, there is a benefit to the tax credits and the bid process, and so you run a
risk if you don’t take advantage of those today. What’s the downside to taking
advantage of low costs and additional renewables?

A The downside is that they are not cost effective relative to the alternative.
…You’re better off from an economic perspective to say no, we won’t take those
extra PTCs, we’ll continue to operate Comanche 1 and 2. So it’s kind like a 50-
percent off sale. If you don’t really need the item of clothing, you haven’t saved
anything.15

Moreover, the Commission does not need to retire Comanche 1 and 2 early to significantly

increase PSCo’s renewable portfolio and diversify Colorado’s energy sources. A vote against the

CEPP because it is not cost effective relative to the alternative is not a vote against renewable

energy. Indeed, PSCo’s ERPP would still add a significant amount of renewables, just not as

aggressively as the CEPP and without having ratepayers pay the stranded costs of shuttered plants.

For example, the ERPP would add 789 MW of wind, 322 MW of solar, 50 MW of storage and

301 MW of gas.16 Likewise, the Alternate CEPP would add 1,131 MW of wind, 457 MW of solar,

150 MW of storage and 383 MW of existing gas resources,17 although it is important to note that

the Alternate CEPP would offer no cost benefits for ratepayers unless the Commission also defers

the decision to retire Comanche Unit 2 until PSCo’s next electric resource planning proceeding.

15
Hr. Tr. at 43:6-21 (Aug. 2, 2018).
16
120-Day Report at 31.
17
120-Day Report at 29.

5
 The Company acknowledges that renewables are anticipated to be economic in future ERPs

and that solar prices, for example, are forecasted to decline.18 Accordingly, it makes no sense to

choose to retire the units now when the record has not demonstrated clear cost savings for

customers. PSCo has not made the case that these are economic retirements. For the reasons set

forth below, the Commission should reject the cost recovery mechanisms set forth in PSCo’s

application and defer any decision on retiring Comanche 1 and 2 until the next electric resource

planning proceeding. Deferring such a decision would allow the Commission and parties to make

the modeling improvements needed to assure the public that early retirement is in fact economic

and in the interest of ratepayers.

II. PSCO’S AD/RR APPLICATION SHOULD BE DENIED BECAUSE EARLY

RETIREMENT OF COMANCHE UNITS 1 AND 2 IS NOT COST EFFECTIVE
AND WILL NOT RESULT IN JUST AND REASONABLE RATES.

PSCo’s application in this proceeding should be denied because the Company failed to

demonstrate the CEP will result in a cost-effective resource portfolio. Commission Rule 3601

provides:

It is the policy of the State of Colorado that a primary goal of electricity resource
planning is to minimize the net present value of revenue requirements. It is also the
policy of the state of Colorado that the Commission gives the fullest consideration
to the cost-effective implementation of new clean energy and energy-efficient
technologies.

Likewise, the “PUC has the duty to examine proposed rates, and to determine whether the charges

are unjust, unreasonable, discriminatory, or preferential, or in any way violate any provision of

law, and if so, to set just and reasonable rates.”19 Accordingly, in order for the Commission to

18
Hr. Tr. at 15:14-21 (Aug. 2, 2018).
19
CF&I Steel, L.P. v. Pub. Utils. Comm'n, 949 P.2d 577, 579 (Colo. 1997) (citing C.R.S. § 40-3-111(1)).

6
approve this application, it must reach the conclusion that the cost recovery mechanisms are

reasonable and will result in a cost-effective resource portfolio that minimizes the net present value

of revenue requirements for ratepayers.

That burden has not been met. Staff, as previously stated, has acknowledged that the

Company’s claim that the CEP will produce $213 million in NPV savings compared to the

Preferred ERP Portfolio is “suspect.” 20 Staff is right to be skeptical. The evidence demonstrates

that the CEP will cost ratepayers between $284 million and $343 million relative to the Preferred

ERP Portfolio.21 Further, PSCo’s claimed $213 million in NPV savings is plagued by a host of

economic fallacies (e.g., the assumption that paying off the accelerated depreciation costs of early

retirements has no cost to ratepayers) and biased assumptions (e.g., among others, using different

gas prices and tax rates in the ERP portfolios than in the CEP portfolios and conjuring up new

lower-priced Replacement CTs that uniquely benefit the CEPP with lower fixed costs). These

issues with PSCo’s calculation of the CEPP are summarized in the table below, an excerpt from

Figure CSG-SR-6 of Mr. Griffey’s surrebuttal testimony.

Item
1. PSCo Claimed CEP 213
Portfolio Savings
2. Failure to Include (171)
Accelerated Depreciation and
RESA Impacts
3. TCJA Impacts in ERP (37)
4. Replacement CT 2026 unit (55)
capital cost
5. Replacement CT 2041+ (37)
units capital cost

20
Staff Comments on 120-Day Report at 3.
21
A breakdown of the $284 million can be found in Mr. Griffey’s surrebuttal testimony on page 27 at Figure CSG-
SR-6. Hr. Ex. 202A. The $343 million accounts for PSCo’s unreasonable assumptions for Comanche maintenance
capital, labor, and O&M escalation and the brownfield siting of the CC. These issues were rejected by the
Commission in Phase I, which the Coalition avers was in error.

7
 6. Equalize Replacement CT (68)
and CC gas price
7. Excess transmission cost in (90)
ERP
8. Wind Degradation (39)
Subtotal Deducts (497)
Actual savings of CEP with (284)
Comanche 1 and 2 early
retirement compared to ERP
through 2054

As set forth below, the cost recovery mechanisms proposed in this case are not reasonable because,

as a threshold matter, the CEP is not cost-effective.

A. PSCo’s claimed CEP portfolio savings should be reduced by $171 million associated
with accelerated depreciation/RESA cost impacts.

The CEP settlement does not excuse ratepayers from paying for Comanche 1 and 2, even

though the plants would no longer be used and useful. Rather, Colorado ratepayers would pay

accelerated depreciation costs resulting from the early retirement. PSCo acknowledges that, if the

Company were to accelerate the depreciation costs and collect them immediately, Colorado

ratepayers would see higher bills as a result of the early plant retirements.22 To mitigate these

higher rate impacts, the CEP settlement contemplates that ratepayers will pay the accelerated

depreciation costs with forecasted over-collections of the current RESA rider. Specifically, the

Company plans to: (1) book a regulatory asset to recover accelerated depreciation and earn a return

on the asset at its weighted average cost of capital; (2) reduce current RESA rider collections from

2% to 1% of customer bills; and (3) impose a 1% CEPA rider on customer bills.

This plan is not a “wash” for ratepayers. The costs of the accelerated depreciation and

RESA impacts—approximately $171 million on a net present value basis to Colorado ratepayers—

22
Hr. Ex. 102 at 27.

8
cannot be ignored when examining the costs of the CEP. First, the Commission held in Decision

No. C18-0191 that “it is necessary to capture the full range of costs of the CEP Portfolio both with,

and without, the cost of accelerated depreciation, when considering the cost-effectiveness of the

CEP Portfolio.”23 Recognizing the projected RESA balance is of economic value to ratepayers, the

Commission ordered PSCo to include in its 120-Day Report modeling: (1) CEP Portfolio costs

excluding accelerated depreciation costs, as contemplated in the Stipulation as a result of the RESA

offset; and (2) CEP portfolio costs including accelerated depreciation costs, assuming the

accelerated depreciation costs are not offset by the RESA reduction.”24 In Decision C18-0141-A,

in this docket, the Commission also ordered PSCo to submit evidence of its “projected RESA

deferred account balances under both the current 2 percent level of collections and under the

temporary 1 percent level of collections.”25 Subsequently, PSCo submitted Exhibit MAM-1, which

projects that, if the RESA remains at 2%, the unspent RESA balance in 2026 will be $487 million.26

Exhibit MAM-1 also shows that, if the RESA is lowered to 1%, the unspent RESA balance in 2026

will be approximately $209 million.27 The difference between the 2% case (i.e., the ERP portfolio

case) and 1% case (i.e., the CEP portfolio case) is approximately $279 million.28

Notably, PSCo witness Ms. McKoane agreed at the AD/RR hearing that the RESA balance

has value for ratepayers. She testified:

Q …Ms. McKoane, do you agree that the $487 million balance that would
otherwise exist if you were under the accelerate-and-collect alternative, that balance
has value for ratepayers?

23
Decision No. C18-0191 at ¶ 58.
24
Decision No. C18-0191, Docket 16A-0396E (adopted March 14, 2018).
25
Decision No. C18-0141-I, Docket 17A-0797E (adopted Feb. 15, 2018).
26
Hr. Ex. 102 at Exhibit MAM-1. See also Hr. Ex. 203.
27
Id.
28
Id.

9
 A Yes.

Q. That is money that, in the Company’s proposal, can be used to pay off the
costs of the Colorado Energy Plan, or it could theoretically be used for eligible
energy resources or it could theoretically be used to pay back money to customers
the over-collection, correct?

A Yeah, it could be used for something other than the accelerated

depreciation.29

Her testimony confirms Mr. Griffey’s analysis that ratepayers would lose $279 million of

value because of the proposal to pay off the accelerated depreciation costs with changes to the

RESA/CEPA riders.30 Mr. Griffey used the Company’s projected RESA balance differential to

calculate accelerated depreciation/RESA impacts of the Company’s proposed cost recovery

mechanisms. On a net present value basis, the $279 million of lost economic value equates to a

$171 million NPV reduction in the Company’s estimated $213 million of CEP Portfolio savings.31

Furthermore, when one accounts for this lost value from the accelerated

depreciation/RESA impacts, the analysis shows that the Preferred CEP Portfolio would not break

even on a present value basis until 2046—well after Comanche 1 and 2 would have otherwise

retired and the contracts from the current solicitation would have expired. In fact, ratepayers would

be worse off by $468 million on a nominal basis and $255 million on a net present value basis in

2033—the year of Comanche 1’s planned retirement. This data point (which was unrefuted by the

Company) is important because it demonstrates that it is more economic on a present value basis

to continue operations of Comanche 1 and 2 because any cumulative net present value from the

29
Hr. Tr. at 42:24 – 43:12 (Aug. 1, 2018).
30
Hr. Ex. 201 at 12.
31
Hr. Ex. 202A at 27.

10
CEP stems from speculative assumptions about what contracts and plants would replace the coal

units after the end of their planned service lives (i.e., a time period long after this current ERP).

The Coalition also notes that data provided in Appendix L to PSCo’s 120-Day Report

indicates that, when including accelerated depreciation without deferral as a cost of the CEP, the

purported NPV savings of the Preferred CEP Portfolio declines by $110 million. However, as Mr.

Griffey testified, this $110 million calculation does not reflect the full accelerated depreciation

cost impacts because (1) it does not reflect the RESA balance cost differential discussed above;

and (2) it does not reflect PSCo’s actual cost recovery proposal in this case, which is to defer the

accelerated depreciation expense and earn a return on the asset at the Company’s weighted average

cost of capital.32 As Mr. Griffey testified, the cost to ratepayers of recovering the deferred

depreciation through the CEPA is $23 million on an NPV basis.33

Nevertheless, if one were to include the $110 million in the cost of the Preferred CEP

Portfolio, the data would similarly show that the Preferred CEP Portfolio would not break even on

a present value basis until 2042, well after the status quo retirements of Comanche 1 and 2.

Likewise, the savings to ratepayers from continued operation of Comanche 1 and 2 through 2033

is $340 million on a nominal basis and $192 million on a present value basis.34 PSCo did not

dispute these calculations by Mr. Griffey either.

In summary, while PSCo and the Sierra Club claim that the Preferred CEP Portfolio will

save ratepayers approximately $213 million on a NPV basis, the evidence shows they got to this

calculation by engaging in an economic falsehood that ignores the accelerated depreciation/RESA

32
Hr. Ex. 201.
33
Hr. Ex. 202 at 35.
34
Hr. Ex. 201 at 19.

11
cost impacts of the CEP. The fact that the stipulating parties agreed to mitigate immediate rate

impacts of the CEP by using the projected RESA over-collection does not make the accelerated

depreciation/RESA impacts disappear or justify ignoring the RESA value impacts.35 First, the

Commission is not bound by the settlement in any respect and failure to account for the value of

the RESA is a fundamental error that no serious economist or analyst can defend. Second, the

Stipulation does not address how PSCo would calculate net present value “cost savings” for

customers, so PSCo’s claim the RESA value impacts should be ignored based on the terms of the

settlement is a red herring.36 The accelerated depreciation/RESA costs are real, and they should be

reflected in the costs of the CEP.

B. PSCo’s claimed CEP portfolio savings should be reduced by $37 million because
PSCo did not update the revenue requirement of the combined cycle gas turbine in
the ERP portfolio with a 21% federal income tax rate.

The Commission ordered the Company in Decision No. C18-0141-I to explain how the

Tax Cuts and Jobs Act (“TCJA”) would affect calculations in this proceeding. The Company

selectively interpreted this directive to only require it to update the revenue requirement of

Comanche 1 and 2 and the bids for TCJA impacts.37 As Mr. Griffey testified, PSCo’s TCJA

analysis failed to update the CC revenue requirement in the ERP portfolio with the new 21% tax

rate. There is no reasonable excuse for this error, and the impact should be a $37 million decrease

in the claimed $213 million in savings.

The Company does not deny it used a 35% tax rate to gross up the CC revenue

requirement,38 even though its tax witness Ms. Perkett agreed at the hearing that the reduction in

35
PSCo Comments on the 120-Day Report at 49.
36
Id.
37
Id.
38
Hr. Tr. at 85:19 – 86:25 (Aug. 1, 2018). See also PSCo Comments on the 120-Day Report at 49.

12
the federal income tax rate from 35% to 21% should affect the revenue requirement calculations

of both the CEP and ERP portfolios by reducing the amount of current taxes calculated and

reducing the tax gross-up factor.39 Ms. Perkett further testified that the revenue requirement of

assets placed in-service after January 1, 2018 should assume a 21% federal income tax rate.40

PSCo’s own witness therefore agreed that the revenue requirement of the CC that is assumed to

replace Comanche 1 and 2 in the ERP portfolios should be updated to reflect a 21% federal income

tax rate.

Nevertheless, PSCo’s comments on the 120-Day Report make a contorted argument that

the use of a 35% tax rate for the CC is appropriate. First, PSCo tries to justify its biased modeling

with the claim that “given the impact of the TCJA was considered and modeled for the bids and

for Comanche 1 and 2 across the Colorado Energy Plan and ERP portfolios, the assumptions are

consistent for comparison purposes.”41 However, this is not an accurate conclusion given that the

CC that would replace Comanche 1 and 2 in the ERP portfolio runs does not exist in the CEP

portfolio runs. It is also inconsistent with Ms. Perkett’s testimony that the lower tax rate should be

reflected on generation units built after January 1, 2018. Second, PSCo claims that the

Commission tacitly agreed in the Phase I order that a 35% tax gross up factor should be used on

the CC. This is false. The Commission ordered the Company to take the TCJA into account in a

variety of contexts. It is patently unreasonable (and self-serving) to claim, on the one hand, the

Commission recognized the need to change the revenue requirements of Comanche 1 and 2 for

TCJA impacts, but, on the other hand, it approved the use of a pre-TCJA tax rate for a CC unit that

39
Hr. Tr. at 81:18 – 82:4 (Aug. 1, 2018).
40
Hr. Tr. at 83:15-20. (Aug. 1, 2018). See also Hr. Tr. at 85:24-25.
41
PSCo Comments on the 120-Day Report at 49-50.

13
is modeled to replace Comanche 1 and 2 after the end of their planned service lives. It cannot be

correct that the Commission approved this biased modeling in the Phase I order. When combined

with the impact of RESA value, correctly modeling the impact of the TCJA virtually erases the

claimed NPV savings of the CEPP.

C. PSCo’s claimed CEP portfolio savings should be reduced by $68 million because
PSCo used a higher gas price for the CC assumed to replace Comanche 1 and 2 in the
ERP portfolios and a lower gas price for the generic replacement CTs in the CEP
portfolios.

PSCo’s claim of $213 million in CEPP NPV benefits also inexplicably bakes in lower-cost

gas for new Replacement CTs and the Generic CTs.42 As Mr. Griffey explained at the hearing,

there is no reasonable explanation as to why the new Replacement CTs introduced in the 120-Day

Report modeling and the Generic CTs approved in the “Phase 1.5” case should benefit from lower

gas prices to the exclusion of a CC in the ERPP. Nor is there any reason to assume that low-cost

gas turbines are only available if Comanche 1 and 2 are retired early. Mr. Griffey testified:

Q. In your experience as a utility executive and utility manager, does it make

any sense to assume different gas prices for different units in the various portfolios?

A Not unless there were an existing contract that as a contractual matter had
different gas prices for different units. This far into the future, I can think of no
reason that would support such an assumption.43

The impact of the disparate gas prices results in an additional NPV reduction to the

Preferred CEP Portfolio of $68 million.44 As the comparison of the resource tails between the

CEPP and ERPP is the only way PSCo has been able to conjure up CEPP cost savings, the

continued manipulation of the resource tails is further proof that there are no actual savings.

42
Hr. Ex. 202A at 22-25.
43
Hr. Tr. at 59:5-13 (Aug. 2, 2018).
44
Hr. Ex. 202 at 22.

14
 In its Reply Comments on the 120-Day Report, PSCo attempts to rehabilitate its biased

modeling by claiming that it used the same four-source blend commodity price forecast for the CC

and new Replacement CTs, but that the difference in the gas prices for the units is attributable to

delivery costs that are unique to each unit.45 PSCo’s explanation misses the mark. First, the

Coalition of Ratepayers is not collaterally attacking any assumptions approved by the Commission

in Decisions C18-0191 and C17-0316. Critically, what PSCo has not explained is an inexplicable

decline in gas costs for the Generic CTs that were approved by the Commission in the “Phase 1.5

case,” as well as lower gas costs for the new Replacement CTs. 46 Figure CSG-SR-5 in Mr.

Griffey’s testimony shows a comparison of the decline in gas costs for both types of CTs between

Docket 16A-0396E and the 120-Day Report. Figure CSG-SR-5 shows that the Generic CT gas

cost declined by $0.50/MMBtu in comparison to what was presented in Docket 16A-0396E, while

the CC gas cost does not decline at all.47 How can it make sense that the Generic CT costs declined?

This is not attributable to delivery costs. Even in years when the CT capacity factors were relatively

unchanged, the gas costs declined by about $0.50/MMBtu.48 This can have nothing to do with the

delivery costs approved in Phase I because the delivery costs should be unchanged from the “Phase

1.5” modeling to the Phase 2 modeling. Further, if the delivery costs are somehow a function of

commodity, then the CC costs should have similarly declined.49 If PSCo can liberate itself from

assumptions approved in the Commission’s prior orders, as it did in changing the variable O&M

for the Generic CTs, it should only be allowed to do so in an even-handed manner. In summary,

the Coalition is not making a collateral attack on the Phase 1.5 modeling. Rather, it is the Company

45
PSCo Comments on 120-Day Report at 38.
46
Hr. Ex. 202A at 24-25.
47
Id.
48
Id.
49
Id.

15
that has attacked the Phase 1.5 modeling with its self-serving and inappropriate changes to gas

prices for the new Replacement CTs and the Generic CTs, to the exclusion of the CC.

D. PSCo’s claimed CEP portfolio savings should be reduced by $55 million because it
inexplicably gave a 40% discount to the fixed capital cost of a generic replacement
CT in 2026

PSCo has been quick (and wrong) to claim that any scrutiny of the ERP portfolio revenue

requirement constitutes a collateral attack on prior Commission decisions, but it is equally quick

to ignore prior Commission decisions when it suits the Company’s “steel for fuel” strategy. A key

example is the Company’s decision to introduce a new resource in the 120-Day Report modeling—

specifically, a low-cost Replacement CT that it used for certain purposes in the 120-Day Report

Strategist runs in lieu of the Generic CTs approved in Decision C18-0191. Mr. Griffey testified

that one of these low-cost units (which has a 40% discount to the fixed cost of the Generic CTs)

appeared in the Company’s modeling in 2026, even though there are no expiring contracts that

justify its existence.50 PSCo did not submit evidence rebutting Mr. Griffey in the AD/RR docket,

but asserted in the Reply Comments on the 120-Day Report that it added the Replacement CT in

2026 because it had to fill 120 MW of Comanche 2 capacity outside the resource acquisition period

(“RAP”) which had been left open to be filled in future solicitations.51 If that is the case, the 2026

unit never should have been changed from a Generic CT. This is a biased decision by PSCo

because it used the higher cost generic assumptions for the resources in the ERP portfolio that

replace Comanche 1 and 2, while using lower cost solicitation bids to fill out the Comanche 1 and

2 need in the CEPP. If the Company had used the Generic CT approved in Decision C18-0191, it

would have resulted in a $55 million downward adjustment to the claimed $213 million of

50
Hr. Ex. 202A at 22-24.
51
PSCo Comments on the 120-Day Report at 29.

16
Preferred CEP Portfolio savings.52 Staff similarly noted this problem with the Company’s

Strategist runs stating: “By allowing the CEP portfolios to select the cheaper replacement CT

outside of the RAP period, the Company artificially lowers the cost of the CEPP and introduces

an additional bias in the results when attempting to compare the CEPP scenario to the ERP

scenario.”53

The Company’s ultra vires use of cheaper Replacement CTs contravenes the

Commission’s prior orders and manufactures incremental savings for the CEP portfolios relative

to the ERP portfolios that do not exist. While PSCo’s comments on the 120-Day Report claim the

new Replacement CT does not bias the results,54 that is patently false. Why? The Replacement CT

is a gas turbine. CCs are gas turbines with a steam turbine. If lower fixed costs for the Replacement

CT gas turbine are reasonable, then PSCo should have similarly updated all of the generic

resources to reflect lower gas turbine prices, including the CC that is assumed to replace Comanche

1 and 2 in 2034 in the ERP portfolios. It is absurd to make the claim that gas turbines will only

cost less if you do not add a steam turbine to them.55 In addition, PSCo makes the claim in its 120-

Day Report comments that “there is no current market signal (i.e., received bid) to suggest that the

Generic CC is mispriced.”56 This is false, and PSCo needs to check its facts. There were in fact

CC bids that were lower-priced than the Generic CC.57 In short, PSCo’s use of this Replacement

CT in 2026 inappropriately puts the thumb on the scale in favor of CEP portfolio savings and

directly contravenes the Commission’s prior orders.

52
Hr. Ex. 202A at 22.
53
Staff Comments on the 120-Day Report at 33.
54
PSCo Comments on the 120-Day Report at 30.
55
Hr. Ex. 202A at 23.
56
PSCo Comments on the 120-Day Report at 31.
57
Coalition of Ratepayers Comments on the 120-Day Report at 14 (describing bid data in highly confidential
version).

17
 E. PSCo’s claimed CEP portfolio savings should be reduced by $37 million because it
inexplicably gave a 40% discount to 5 CTs in the CEP portfolio beginning in 2041.

In addition to the new Replacement CT in 2026, an additional five units appear in the CEPP

after 2041 as contracts expire. There are only three that appear in the ERPP due to fewer expiring

contracts. Because these new units are so low-cost, using them on all expiring contracts favors any

portfolio with more purchases, such as the CEPP. The substitution of this new resource for the generic

CT modeled in Phase I results in an overall $92 million reduction in the revenue requirements of the

CEPP based on the fixed costs alone. $55 million of that amount is associated with the 2026 unit; $37

million is associated with the 2041+ units.58

PSCo claims that it needed to change variable O&M on Generic CTs to avoid “an unrealistic

modeling assumption which drove illogical results”59 compared to the Replacement CTs. If that is the

case, how can it be that new CTs with lower capital costs, lower interconnection costs, lower emissions

rates, and lower tax rates are only available if Comanche 1 and 2 are retired early? 60 Yet this is exactly

the scenario that PSCo set forth in its 120-Day report. PSCo also claims it is “reasonable to assume

that future CT units will be more economical and efficient than the CTs added in this RAP, not less

economical and efficient.”61 Again, as Mr. Griffey testified, this argument should apply equally to the

combined cycle gas turbine in the ERP portfolio in 2034.62 Nonetheless, PSCo did not adjust the CC

to have lower O&M expense, although it adjusted the Generic CT O&M down so that the CC provides

less energy savings. These new Replacement CTs put the thumb on the scale in favor of the CEPP and

further render PSCo’s cost estimates suspect by exacerbating biases in the modeling.

58
Hr. Ex. 202A at 27.
59
PSCo Comments on the 120-Day Report at 32.
60
Hr. Ex. 202A at 27.
61
PSCo Comments on the 120-Day Report at 33.
62
Hr. Ex. 202A at 19.

18
 F. PSCo’s claimed CEPP savings should be reduced by $90 million in excess
transmission costs.

The ERPP also remains burdened with higher interconnection costs for the 2034 CC unit

as compared to the CEPP’s generic and new CT units. PSCo assumed nearly $100 million in

transmission interconnection cost for the CC in the ERPP, but this cost is never incurred for the

comparison units in the CEPP. Moreover, the $100 million appears to be greatly overstated given

the low interconnection costs assumed in the evaluated bids made available in Phase II. The

Commission did not change PSCo’s overstated transmission costs for the CC in Phase I, but, at a

minimum, the $100 million associated with the CC should be reduced to reflect the cost impacts

of the TCJA to $90 million.63 However, even when reduced, the $90 million figure still fails to

provide a fair comparison between the two portfolios, as the interconnection costs of the CC appear

greatly overstated.64 The Coalition will not reiterate its comments on the 120-Day Report, but refers

the Commission to pages 13-15 of its comments for further information on how the actual bids

support a finding that PSCo uniquely raised the fixed cost of the CC unit assumed to replace

Comanche 1 and 2.

G. PSCo’s claimed CEP portfolio savings should be reduced by $39 million associated
with wind degradation costs.

Mr. Griffey also recommended a downward adjustment of $39 million to the NPV savings to

account for wind degradation factors that were not accounted for in the modeling. 65 This

recommendation is based on Decision C18-0191, in which the Commission ordered PSCo to run an

additional sensitivity in the modeling to account for degradation for company-owned wind resources.66

63
Hr. Ex. 202 at 28, n. 37.
64
Id.
65
Hr. Ex. 202 at 26-27.
66
Decision C18-0191, Docket 16A-0396E (Adopted March 14, 2018), p. 32.

19
The sensitivity that PSCo performed for wind degradation for company-owned facilities showed a $39

million reduction in savings of the CEPP relative to the ERPP. As Staff witness Gene Camp discussed

in earlier testimony, the 0.78% factor is a performance metric that “was set with a degradation level of

approximately one-half of that reported historically,” so the $39 million figure is very conservative;

the costs of the CEPP are likely to be significantly higher. 67 In PSCo’s Comments on the 120-Day

Report, it claims that any such downward adjustment would likely result in “double-counting” because

the best production estimates “are those provided by the bidder in question.”68 PSCo misses the point.

Mr. Griffey only used the Company’s calculation for company-owned resources from the sensitivity

analysis. He did not recommend that the analysis be extended to third-party bids. PSCo did not rebut

this point for the company-owned facilities.

H. The Company’s claim there is additional NPV savings due to the delayed change in
depreciation for Comanche 1 and 2 is wrong.

In the AD/RR case, PSCo attempted to manufacture an additional $23 million in NPV

savings above the $213 million of NPV savings it claims the CEPP will produce. According to

PSCo, the savings derived from updating the revenue requirements of Comanche 1 and 2 (and

common costs) for the TCJA, as well as for the impact of the rate case that was recently dismissed,

and beginning the CEP in 2021.69 Staff and the Coalition correctly observed that the Company’s

claim with respect to the $23 million has no merit and should not be given any weight.

Mr. Griffey’s testimony thoroughly rebutted PSCo’s calculations. First, as a threshold

matter, he explained that the Company’s approach to calculating the TCJA impacts was flawed

because it failed to update the CC for the new 21% tax rate as discussed above. Second, he testified

67
Supplemental Answer Testimony of Gene Camp, p. 11 (Jan. 10, 2018).
68
PSCo Comments on the 120-Day Report.
69
Perkett Rebuttal at 13.

20
that the claimed $23.1 million NPV impact was wrong because PSCo did not present its analysis

on the same basis as in the 120-Day Report. The 120-Day Report presents NPV for a base year of

2016.70 In Revised MAM-1, the NPV of the revenue requirement was based on the year 2021, and

compared to a NPV of the old early-retirements revenue requirement that has a base year of 2022.

PSCo took the difference between the two NPVs with different base years to get $23.1 million,

which is a number with no economic meaning given the different base years. 71 PSCo then

compared the $23.1 million figure to the amounts in the 120-Day Report, which uses a base year

of 2016 for NPV calculations. To do a correct comparison, the base year should have been 2016

across the board.72 Using a 2016 base year, the impact of the TCJA, the dismissed rate case, and

the start of the CEPA in 2021 on the revenue requirement of retiring Comanche 1 and 2 early is

$13.7 million before comparison to the business-as-usual (“BAU”) case.73 When the comparison

to the BAU case is performed with the correct baseline, there is also an $18.4 million reduction in

the BAU case. Thus, there is a net change of $4.6 million in favor of the BAU (i.e., Preferred ERP)

case, not an additional $23.1 million savings for the Preferred Portfolio.74

In response to Mr. Griffey’s testimony showing that PSCo’s claimed additional savings

was wrong, PSCo tried to mix calculations associated with the claimed $23.1 million in savings

from TCJA and delayed depreciations in the AD/RR case with $26 million in claimed savings in

the 120-Day Report.75 As Mr. Griffey testified at the hearing, PSCo fully depreciated Comanche 1

and 2 in the AD/RR case calculations, but it failed to do so in the 120-Day Report calculations.76

70
Hr. Ex. 202 at 13.
71
Id.
72
Id.
73
Id.
74
Id. at 15.
75
PSCo Comments on 120-Day Report at 37.
76
Hr. Ex. 202 at 13-14.

21
While the Company claims that “the depreciation amount is less because more of the depreciation

is rolled into the regulatory asset,”77 PSCo did not change the regulatory asset amortization in the

120-Day Report. This can be seen in Exhibit CSG-SR1 of Mr. Griffey’s Surrebuttal, which shows

that PSCo did not change any of the CEPA cash flows between the cases. PSCo’s claim of an

additional savings for the Preferred CEP Portfolio is therefore not credible.

III. THE COMMISSION SHOULD NOT GRANT THE COMPANY’S REQUEST FOR
A RETURN ON THE REGULATORY ASSET

PSCo has asked the Commission to determine in this docket that it should earn its weighted

average cost of capital as the return on the regulatory asset created to recover accelerated

depreciation costs of retiring Comanche 1 and 2 early. There is no need to make that determination

in this case and there are a number of reasons to defer the decision. First, if the Commission

approves the early retirement of Comanche 1 and/or 2, there is no guarantee of ratepayer cost

savings. Early retirement is entirely voluntary on the Company’s part and would only result in

earnings upside potential for the Company while placing significant risk on ratepayers. Second,

there is no evidence that the WACC is appropriate based on the facts and circumstances of this

case or the Company’s plans to retire the asset. As Mr. Griffey explained in his testimony, the use

of the CEPA recovery can result in PSCo earning above its WACC depending on the timing of

rate cases.78 If the Commission approves the creation of a regulatory asset, it should not

predetermine a return on the asset until it sees how PSCo actually will implement its accounting

for the asset and the CEPA.79 The issue of whether the utility should earn its WACC can and should

be deferred to any subsequent rate proceeding addressing the regulatory asset.

77
PSCo Comments on 120-Day Report at 38.
78
Hr. Ex. 202 at 32-35.
79
Hr. Ex. 200 at 26.

22
IV. THE PROPOSAL TO RESET THE RESA AT 2% IN 2028 IS NOT REASONABLE

Finally, as noted in Mr. Griffey’s testimony, in light of the anticipated over-collections of

the RESA at 2% and the Company’s attestation that RESA balances at 1% are sufficient to pay for

RES programs through 2028, there is no reason that value from the RESA over-collections should

not be returned to ratepayers. Accordingly, the Company’s decision to agree in this proceeding to

reset the RESA at 2% once the regulatory asset is paid off is not based on the furtherance of any

reasonable policy goal, but is premature at best and would be a concession to special interest

groups at the expense of ratepayers. This aspect of the Company’s application should therefore be

denied.

V. CONCLUSION

PSCo has not met its burden to demonstrate that the Joint Motion and Stipulation are in the

public interest. PSCo’s accounting has been riddled with biased assumptions, errors, and changes

that are completely self-serving and call into question the Company’s credibility on numerous

claims. Simply put, PSCo’s numbers are not trustworthy or accurate. Accordingly, the relief

requested in this application should not be granted.

23
WHEREFORE, The Coalition of Ratepayers respectfully submits its Statement of Position.

Dated: August 14, 2018.

Respectfully submitted,

/s/ Meredith Kapushion ____________________

Shayne Madsen, #8750
Meredith Kapushion, #36772
Madsen & Associates, P.C.
7441 Old Mill Trail
Boulder, CO 80301
smadsen@COlawyer.net
mkapushion@COLawyer.net
(ph) 303-588-1693

Meghan Griffiths
TX State Bar No. 24045983
Jackson Walker LLP
100 Congress Ave., Suite 1100
mgriffiths@jw.com
(ph) 512-236-2363

ATTORNEYS FOR COALITION OF

RATEPAYERS

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing instrument has been served in
accordance with the governing procedural orders to all parties of record in this proceeding via the
Public Utilities Commission E-Filing system the 14th day of August, 2018.

_/s/ Meredith Kapushion_______

Meredith Kapushion

24

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