Facing a massive building boom to meet new electricity demand, Xcel Energy’s Colorado profits could triple to $1.9 billion by 2031, while electricity rates rise as much as 55%, according to an analysis by state regulators.
A Colorado Public Utilities Commission report on ways to manage and limit those potential impacts is part of a mandate by Gov. Jared Polis to cut pollution, promote economic development and electrification while avoiding customer rate shock.
In an October 2024 letter to the PUC and four other state agencies, Polis urged interagency coordination. “This effort is important to maintaining affordable energy costs for Colorado residents,” Polis wrote.
“Other states that have not carefully managed the electrification transition are seeing large increases in utility rates.”
The PUC staff report delivered to the commission Wednesday outlines challenges the state is facing to meet new electricity demand and possible ways of limiting the impact on customer bills.
The report is focused on Xcel Energy — the largest electricity provider in the state with 1.6 million customers — and is based on data submitted by the utility in its pending electric resource plan.
In 2010, when Colorado began to close coal-fired plants and promote the build-out of renewable energy, the economic wind was at the back of those policies. Interest rates and natural gas prices were low and the costs of wind and solar were falling each year.
Closing coal-fired plants provided “quantifiable fuel and other cost savings” that led to corporate profits and stable electricity rates while cutting greenhouse emissions, according to the PUC report.
However, beginning in 2020 the financial terrain got rocky. The start of the war in Ukraine in February 2022 led to volatile natural gas prices, and inflation and interest rates began to rise. Supply chains were disrupted by the COVID pandemic resulting in price increases for some equipment.
Meanwhile, after 2030 there will be no more cost savings from coal-fired plants, which have helped offset clean energy costs. As more wind and solar energy is added to the grid, the incremental contribution they make to the electric system also declines.
Complicating the calculation is the prospect of big demands for electricity in the next five years from data centers and industry and building heating, switching to electricity, so-called beneficial electrification, and electric vehicles.
In the PUC analysis, peak load — the highest demand on the grid — is driven by data centers, EVs and beneficial electrification. The peak is important because although the system may only see it for a few days or even a few hours a year, the system must be designed to meet it.
The problem is that it is not clear how big the demand will be, especially from data centers.
The forecasts in Xcel Energy’s resource plan for large loads, like those demanded by data centers, range from 3 terawatt-hours of annual load to 20 TWh — a growth rate 10 to 25 times higher than historic averages.
The risk is that if Xcel Energy builds too little capacity the grid will be stressed, but if it overbuilds customers will be stuck paying for the unused capacity.
In the low-load scenario the residential price of a kilowatt-hour of electricity would rise to about 25 cents in 2040 from a little more than 15 cents in 2024.
If the system was built out to Xcel Energy’s proposed size and the additional electric sales didn’t materialize, residential customers would be paying about 40 cents a kilowatt-hour, according to the PUC report.
In approving Xcel Energy’s resource plan, the commission chose the low-load scenario, with the understanding additional capacity could be added. Still, even that plan will need 7 gigawatts of new generating capacity — an almost 50% increase over the current capacity.
It will also require more than $12 billion in new transmission projects.
Xcel workers contracted from Vivid Engineering Group set and examine concrete base structures for electric transmission lines near Platteville on May 15. (Jeremy Sparig, Special to The Colorado Sun)In all, even under the low-load plan Xcel Energy is projected to spend $37 billion through 2031, the company’s current plant and infrastructure are valued at $12.5 billion.
Xcel Energy makes its money not from selling electricity but from building new plants and transmission and getting repaid plus a return through rates. All these new investments will go into rates.
In 2025, Xcel Energy’s subsidiary Public Service Company of Colorado posted a net profit of $678 million. By 2031 with all these new investments, profit is projected to rise to $1.9 billion, according to the report.
Residential customers could see rates increase 20% to 30% by 2027 and a 55% increase by 2029 compared with 2024 levels, the report said.
“The commission may want to consider if this relationship might raise concerns about the general alignment between customer and utility interests,” Alexandra Rozen, a PUC research analyst, said in presenting the report.
Deposits, contracts, exit fees could protect existing customers
New large-load customers, however, could offer a cushion to rate impacts for the rest of Xcel Energy’s customers.
“Our analysis suggests that new customer demands and revenues may provide an opportunity to create value for the electric system if they could be flexibly and thoughtfully integrated into the grid by time of day and location,” Rozen said. “But if these demands are not planned strategically, they might pose a risk of increasing existing customer rates.”
The staff report offered some approaches to limiting rate impact. It calculated that a 12% reduction in spending could keep electricity rates rising at about the same rate as inflation.
Another suggestion was that programs that fulfill policy goals but don’t generate revenue, such as wildfire mitigation, gas pipeline safety and replacing aging infrastructure, get a lower capital return.
Requiring firm commitments from data center developers would also help reduce the uncertainties over the need for new generation.
For data centers and other large-load customers, the commission in conjunction with Xcel Energy is already requiring nonrefundable deposits, 15-year contracts and early exit fees.
The commission required Xcel Energy to file a large-load tariff, a separate rate for large loads. It is due in April. A bill pending in the legislature would also require upfront payments and long-term contracts for data centers.
Performance metrics to assess the value of projects and performance incentives to encourage efficient project development were also raised as potential tools.
The report also suggested the commission look at initiatives in other states, such as Ohio, where large customers must pay for 85% of their request demand regardless of how much power they use, and New Jersey, which has capped electric rate increases.
“This provides more insights into ensuring that we can really manage that peak system growth, and therefore manage those investments,” Commissioner Megan Gilman said.PUC Chairman Eric Blank, however, said that the commission may not have the regulatory tools it needs.
“I just think the concern is that this evolving — call it clean energy 2.0 — plan may not be the one that optimizes the company’s capital spending and earnings,” Blank said, “so it may be challenging to achieve under existing regulatory approaches.”
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