Xcel takes outage blame

Lack of preparation led to Feb. blackouts, utility's CEO admits

Gargi Chakrabarty, Rocky Mountain News

Published May 18, 2006 at midnight

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Xcel Energy's CEO on Wednesday said the utility accepts the blame for the rolling blackouts in February that cut power to roughly 300,000 customers on one of the winter's coldest days.

Richard Kelly said the utility didn't realize how cold it would get on Feb. 18 and underestimated the demand for natural gas at a time when the supply was constrained.

"We missed the forecast," Kelly said while speaking at Xcel's annual shareholders meeting at the Denver Performing Arts Complex. "We didn't forecast it being that cold."

About 3,000 megawatts of power - mostly generated from natural gas and by private power producers - went offline that day, forcing Xcel to cut power to thousands of customers for three 30-minute periods in the morning.

Many of those customers had outages longer than 30 minutes, some for up to four hours.

Kelly said Xcel didn't call the National Center for Atmospheric Research in Boulder to get a forecast that day. Instead, Xcel depended on other sources and internal forecasts that proved inaccurate.

Xcel spokeswoman Ethnie Groves later clarified that Xcel doesn't use NCAR forecasts. Also, the NCAR forecast for Feb. 18 came a day earlier, and it would have been too late to make supply arrangements at that point.

When asked why Xcel didn't request power from Tri-State Generation and Transmission in Westminster, a wholesale supplier of power to rural electric systems, Kelly said Tri-State couldn't have responded quickly enough to prevent the outages. Tri-State has said it could have run additional power plants if Xcel had requested.

State regulators are investigating to see whether things could have been done differently. Xcel has previously blamed failed power plant units, distribution glitches, natural gas supply constraints and extreme weather conditions for the outage.

Kelly also emphasized the need for more storage of natural gas in Denver to prevent wild swings in prices, especially during peak winter months.

"There are lessons to be learned there," he added.

Kelly took over the CEO job from Wayne Brunetti in July and subsequently the chairman's role in December. Kelly said Xcel would spend $4 billion in the next five years to improve the reliability of power generation and distribution in its service territories.

In Colorado, Xcel is spending $1 billion to build a 750-megawatt coal-fired power plant near Pueblo and millions more in new transmission lines. One megawatt serves the electricity needs of about 1,000 households.

Under Kelly's leadership, Xcel posted a 25 percent jump in net earnings during the first quarter of 2006. This year, Xcel expects to earn between $1.25 and $1.35 a share, up from last year's $1.20 a share.

In view of its improved earnings, Xcel's board on Wednesday raised the quarterly dividend from 21.5 cents per share to 22.25 cents per share beginning July 1, which is equal to 89 cents per share a year.

Unlike Brunetti, who received nearly $14 million in compensation last year when he resigned, Kelly said he does not have an employment contract with Xcel that provides severance pay. But he is eligible for special payments if another company buys Xcel.

"I started as a meter-reader in this company, I worked hard, and they paid me fair," Kelly said of his 38 years with the utility. "I don't have any contract."

A shareholder resolution put to a vote Wednesday seeking to separate Kelly's dual role as the CEO and chairman of the board was defeated.

Gerald Armstrong, a longtime critic and shareholder of the company who proposed the resolution, questioned the appointment of Douglas Leatherdale on Xcel's board of directors.

Leatherdale also has been a director on the board of United Healthcare, a Minneapolis-based medical insurance company that has been under regulatory scrutiny.

"We won't do anything until they find something wrong," Kelly said.

Meanwhile, about two dozen protesters turned up near the Performing Arts Complex to protest Xcel's request to raise $209 million through rate increases for electric customers.

Xcel says the money is to recover the investment it made to improve electric service infrastructure since 2002.

Activists from the Colorado Public Interest Research Group, Colorado Progressive Coalition and ProgressNowAction.org denounced Xcel for seeking to raise rates even as it earned robust profits and paid hefty compensation to executives.

The groups launched a Web site two weeks ago called www.ExposeXcel.com for customers to lodge complaints. They said the Web site has received more than 3,800 complaints.

Michael Huttner, executive director of ProgressNowAction, rolled out a "red carpet" of petitions protesting the rate increase. The document, created online, was printed on red paper and taped to form a red carpet.

"Xcel's massive bonuses to their top executives combined with the proposed rate increase are hurting Colorado's children, scaring Colorado's seniors and ruining Colorado's small businesses," he said.

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chakrabartyg@RockyMountainNews.com or 303-892-2976

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