After years of costly wildfires, the insurance affordability crisis isn’t just burdening Colorado homeowners with massive increases in insurance premiums. Insurers are now dramatically raising premiums for Xcel Energy, the state’s largest utility.
The company wants customers to pay for it in the end.
Last month, Xcel Energy told the Colorado Public Utilities Commission that its “excess liability insurance” is increasing nearly 400 percent over the past year. In its filing with regulators, Xcel Energy estimated it would pay $49 million this year for the insurance, starting Oct. 18.
The company did not immediately provide CPR News with the final cost of its premiums or the name of its insurers.
A company uses this insurance when its employees or equipment cause catastrophic events such as wildfires, which can result in costly property damage and death. Climate change, “unprecedented” wildfire risks and lawsuits are driving up prices for all major Western utilities, Xcel Energy said in its filing.
Xcel Energy currently faces at least 300 lawsuits for its alleged role in starting the Marshall Fire — which the utility has denied — and additional lawsuits that blame its energy equipment for sparking the largest wildfire in Texas.
In its filing, the facility argues to Colorado regulators that its premium increases are an unusual circumstance, like the costs it has incurred during the COVID-19 pandemic. She wants regulators to let her track how much she spends on insurance, so she can eventually bill that cost back to Colorado months or years later, perhaps after incurring additional interest.
The Utility Commission decides how much Xcel Energy is allowed to charge customers for expenses such as insurance or building new power plants, usually through rate case discussions.
Because rate cases typically only happen every few years, Xcel Energy is asking regulators to let it charge customers for its insurance bill sooner, according to consumer advocates.
“The company is seeking to recover these costs expeditiously outside of the rate case,” said Joseph Pereira, deputy director of the Colorado Office of the Utility Consumer Advocate, an independent state agency that advocates on behalf of utility customers.
“It’s really a question of, does the company receive some urgent treatment, or does it have to wait until the next rate issue to get those dollars back into its coffers?”
In Pereira’s view, Xcel Energy’s request amounts to an accounting trick. He said utilities should wait until the next rate case to argue why Colorado, not corporate shareholders, should pay its insurance bills.
There is some evidence that government regulators are sympathetic to this argument. Dipesh Dibo, a financial analyst for the Utilities Commission, recommended that regulators deny Xcel Energy’s request and that the company should wait until the interest rate case to try to recover its insurance costs.
“The Future Rate State, by providing greater access and opportunity to review information on costs…provides a much better platform to address the issue at hand,” Dipu wrote in a response to Xcel Energy’s filing.
In an emailed statement to CPR News, a representative for Xcel Energy said maintaining its coverage is essential to its business.
“We propose to track and defer costs associated with excess liability insurance premiums and will not seek to include these costs in rates until a future rates case,” the spokesperson wrote.
A leaning and unstable tower
Xcel Energy excess liability insurance is provided by several different companies that pay for claims in a specific order. In a filing with regulators, the company compares the way it stacks its insurance policies to the tower.
On the lower floors of the tower, Xcel Energy uses “mutual insurers,” which the company says provides the broadest coverage. On the middle floors, the company buys its insurance from commercial markets in London, the United States and even Bermuda.
The glue holding the tower together is an in-house insurance company set up by Xcel Energy’s parent company, which fills in any gaps in coverage.
Since 2014, Xcel Energy has spent tens of millions of dollars from its customers to pay for its insurance tower. But insurance companies are increasingly turning tower construction into a game of Jenga, prompting Xcel Energy and other utilities to look for more stable options.
Southern California Edison, a California utility, has pooled some of its own money to pay claims arising from the wildfires. This model is called “self-insurance,” and Xcel Energy said in its filing that it is considering self-insurance in the future.
But for now, Xcel Energy says it needs its own liability insurance to keep customers’ bills low and make sure investors stay invested, despite the cost increases.
Written by Stephen B. “More than tripling the premium has no historical basis,” Berman, vice president of Xcel Energy, said in a filing to regulators.
Will costs decrease?
In June 2024, Xcel Energy unveiled a massive plan to regulators, detailing how it will improve its operations to reduce the chances of power lines and other equipment igniting wildfires.
The company hopes, but cannot guarantee, that the wildfire safety plan will ultimately lead insurance companies to lower premiums. But the company doesn’t know when its insurance costs might fall to historically normal levels, according to its filing.
Berman, Xcel Energy’s vice president, asserts that rising insurance costs are “largely outside the company’s control.”
Todd Logan, an attorney for Edelson PC, which is suing Xcel Energy on behalf of hundreds of Marshall Fire survivors, disagrees. He said Xcel and other Western utilities are trying to pass the costs of the alleged negligence through their insurance.
Some utilities saw their rates rise after a jury found them responsible for starting wildfires.
“Utilities know they cannot ask for rate increases to cover the cost of their misconduct,” Logan wrote in an email to CPR News. “So, instead, they are cynically seeking to postpone rate hikes for a few years, hoping that everything will be swept under the rug by the time they next ask.”
Logan’s firm represented more than 1,500 people who sued PacifiCorp, an Oregon utility, for setting massive fires in 2020. In 2023, an Oregon jury found the company liable for starting four of those fires and ordered the company to pay Compensation for thousands of homeowners. Since then, PacificCorp’s liability insurance has jumped by $96 million.
In 2023, the company asked Oregon regulators to let it track its costs, so it could eventually reimburse customers for insurance. In 2024, organizers agreed.
Debo, the Colorado Utilities Commission financial analyst, recommended that if a jury finds Xcel Energy liable for starting the Colorado fires, the company would not be able to pay any insurance costs related to those fires.
Colorado regulators will hold a hearing in November and issue a decision in December.
Editor’s Note: This story has been updated to include details about PacifiCorp’s lawsuit, additional comments from a Public Utility Commission financial analyst and an updated timeline for the hearing in Colorado.
