Innterview with Ron Binz

By: Rebecca Cantwell

Many people think of utility regulation as an arcane and dull realm. But things were pretty lively when Ron Binz served as chairman of the Colorado Public Utilities Commission from 2007 until April 2011. He led the Colorado PUC in implementing the many policy changes championed by Gov. Bill Ritter and the legislature to bring forward Colorado’s “New Energy Economy.” Binz talked with Smart Energy Living shortly after leaving his post as chief utility regulator.

Q. You presided over big changes in state policy. What do you feel best about?


A. It would be hard not to say that at the top was our implementation of the Clean Air Clean Jobs act. It was a legislative directive for the Commission, in one fell swoop, to clean up the coal emissions of Xcel and Black Hills. Typically plants are cleaned up in onesies and twosies. This was a comprehensive look at the whole coal fleet and was probably alone in the nation to treat it at one time in terms of hazardous pollutants and carbon emissions. It was a huge case with 34 legal parties and hearings that went on for several weeks.


Q. What will it mean for the average Coloradan, good and bad? For example, it will increase rates, correct?


A. Rates will increase between now and 2020 no matter what. We estimate our decision to retire old coal plants and replace them with new natural gas plants will result in rates that will be only about 3 percent higher. It’s an impact, but the benefits in reduced smog and reduced particulates that, for example, create haze in natural parks, are all desirable. We built in a hedge against future carbon regulation when we switched from coal to a fuel that causes less carbon emissions.


Q. When will we see some results?


A. The commission order of December 15, 2010 specifies what will happen to a bunch of power plants. Nothing happens until next year when the first closures happen. Closures and conversions of coal plants will happen through the end of 2017. Familiar icons like the Cherokee coal plant in the northern metro area that is now emitting steam all winter will be converted to natural gas. By doing that, we will cut one of the largest sources of hazardous air pollution in the Denver area.


Q. What does the fact that this was so difficult and unusual say about the way utilities are structured and regulated?


A. Utilities going forward will have to be different kinds of businesses. This case showed us how much more nimble utilities will need to be. We were responding to an EPA requirement to clean up carbon. I’m proud we could show that a state could move quickly to implement something like this and, with the cooperation of the utility, achieve a good result.


Q. You came in for a lot of criticism along the way though.


The criticism I took was for being involved in legislative process in shaping the bill so that it would be good for consumers. I did that at the request of the governor, who knew the commission had expertise in rates. My involvement was not in the beginning but at end of it when most components had been agreed to. The opponents to the legislation were trying to upset the process any way they could and they settled on criticizing me for getting involved in the legislation. In my experience, the involvement of a chairman is usual, not unusual.



Q. One of the conundrums of recent energy policy is that to achieve energy efficiency, you are trying to get utilities to sell less of the product they make money selling. What do you think works?


A. Beginning in 2007, we moved in a direction toward a more aggressive pursuit of energy efficiency for the utilities. We required twice as much efficiency – twice as much kilowatt savings or energy not used –as the law required.
We adopted aggressive goals in 2008 when we made that decision. Xcel and Black Hills and all the gas companies began to develop energy efficiency programs within the utility, like rebates for air conditioners and refrigerators and a whole bevy of programs. The theory is that the energy saved by the utility is less expensive than building plants to create that energy.
That policy chugged along for a couple years and then in the fall of 2010 , we encouraged Xcel to increase energy savings by an additional 30 percent. We told them, “ You’ve been doing good --now let’s have more of a stretch goal.” Xcel preferred a slower growth pace. Their proposal was to increase by 8 percent over what they had been doing. But the commission basically agreed with the push goal of a 30 percent increase in efficiency.


Q. What do they get out of the deal?


A. If Xcel achieves these goals, it is rewarded handsomely. They get their costs recovered quickly and a bonus on top. That treatment is designed to counteract the built-in disincentive of not wanting to save electricity because the company is in the business of selling electricity. We try to change the benefit-cost equation by making energy efficiency the most profitable thing they can do.
Now Colorado is in middle of pack nationally on energy efficiency. I hope the commission continues to push this. It does make so much sense to use the utility to pursue energy efficiency.


Q. Where do you see utility regulation heading?


A. I think regulation needs to continue evolving. The model of regulators simply deciding the rates, that is probably soon to be displaced by something different. We can look at experiences of price cap regulation where you set a cap and let the utility do what it needs with its costs and investments to stay below the cap. You set a price and let them decide what they need to do. This model has been shown to produce more efficient results. We need a mode of regulation where the focus is on the price to customers.


Q. What impact will the trend toward individuals and communities owning their own sources of power have on utilities?


A. That is beginning to happen and will mushroom – the homeowner-provided solar panels and the wind tower on commercial property. Those are instances where customers are putting in production equipment or leasing it. That will cause the utility to lose load and lose customers and they don’t like that. The more of that that happens, the more pressure on the utility. As a general matter, I think we will see the utilities move into the business of providing rooftop solar systems.


Q. Since the utilities are monopolies, will they drive others out?


A. As long as regulators don’t let utilities use their monopoly status, the competing firms should be able to get along. It has worked in telecom. Generally the new players have done very well, and we can imagine something similar in electric power. But more generally, the pressure from distributed generation, or community power, is a good thing and will keep pressure on the utilities to do a better job.


Q. Colorado came a long way on renewable energy under your tenure. How would you characterize the transformation?


A. Renewable energy is now really woven into the fabric of Colorado. When you flip on a light switch, one kilowatt hour out of seven is produced by renewable energy and we are heading to one out of three, and at a cost that is acceptable. Customer bills went up but not a lot and polling shows customers are happy to have renewable energy in the mix. We moved from a “least cost’’ strategy to one that realizes the environmental effects of what we do and makes it a greater component of decision making. And this happened with the “greening’’ of Xcel Energy. The same company that opposed the Colorado Green wind project in 2003 was the leading wind provider in the U.S. by 2010. So it’s been a happy coincidence of regulators, the governor, legislators and the utility who saw the business sense in that. Colorado is a beacon for how you can move steadily and strongly towards renewable energy.


In addition to his work leading Colorado’s utility regulation, Binz was also an active member of the National Association of Regulatory Utility Commissioners, serving as Chair of NARUC’s Task Force on Climate Policy, and as a member of both the Energy Resources and Environment Committee and the International Affairs Committee. Binz now heads Public Policy Consulting (www.rbinz.com).