Xcel Energy, the largest utility in Colorado, is trying to settle a case with the state over allegations that it oversold wind energy credits between 2005 and 2007.

An administrative law judge is looking at the $2.6 million proposed settlement, reported the Associated Press.

Colorado’s Public Utilities Commission said Xcel sold more credits for wind energy generation than what it actually produced from wind farms in its Windsource program. The voluntary program allows Xcel’s customers to tag on an extra charge on their utility bills in support of wind energy generation. The program has about 47,000 participants. 

Other utilities in the country have similar programs. The PG&E, for example, has a ClimateSmart program in which customers can pay (about $5 per month for a typical household in Northern California) the utility to support projects that reduce greenhouse gas emissions.

The proposed settlement calls for Xcel to fork over $1.6 million in order to lower the fees that program participants will pay in 2009. The utility would spend an additional $1 million to buy renewable energy credits to fulfill a state mandate that requires utilities to buy a certain amount of electricity from renewable sources such as wind or solar.

Xcel sold more credits than what it produced because only two wind farms, with a combined capacity of 60 megawatts, could be used for the program, Xcel spokesman Joe Fuentes told me. 

“We had more demand than we had supply,� Fuentes said.

Obviously, the Colorado PUC and various groups that pointed out the practice and asked for a change didn’t think Xcel had a good excuse.

What Xcel hopes to be able to include all of its wind farms and other types of renewable energy generation in the Windsource program, Fuentes said. The utility has nearly 1.1 gigawatts of wind generation capacity now.

Xcel expects the administrative judge to issue a decision by the end of this month. After that, the utilities commission will review the proposed settlement and make a final decision.