Opinion: Exploring energy options


W ith Boulder voters approval of Ballot Issue 2B by more than a 2-1 margin the exploratory process got started at the Dec. 21 City Council study session. In brief, the proposed energy strategy focuses on local integration of supply and demand so as to maximize the value and minimize the cost of renewable energy. There seem to be two possible legal/regulatory strategies to support this outcome — either have a fundamentally new arrangement with Xcel, that would not be a standard franchise, or create a municipal electric utility that would be independent of Xcel and the PUC.
The reasoning is simple — the city does not have the authority to do most of what is needed without pursuing one legal strategy or the other. For example, the only obvious way around the objections by Fannie Mae and Freddie Mac to imposing liens on properties for bond-financed energy improvement loans is to collect through the utility bills, but that requires a special agreement with Xcel. Or if the city invested in an eastern Colorado wind farm financed through a public-private partnership (using tax-exempt bonds with the tax credits going to private parties), the power would have to be “wheeled,” which the city cannot do under current regulations. Or if a commercial property owner wanted to take advantage of the economies of scale and build a PV array on one building large enough to serve multiple buildings, again Xcel would have to agree since this would violate the current limit for such a project of 120 percent of individual load, and it would require net metering of multiple structures. This list goes on and on — almost every project would require a new arrangement not allowed under the current situation.
So could the first legal strategy — a new arrangement with Xcel — really work? It`s possible, but there are significant risks. First, Xcel can afford to propose a loss-leader sweetheart deal (at a temporary cost to its stockholders), and then when the momentum for creating a municipal utility has dissipated, raise the rates. Second, Xcel has a history of resisting transparency, so any pricing data would be suspect. For example, Xcel has once again put off meeting the recent Windsource settlement requirements for cost transparency. Third, Xcel may simply buy off any competitors once a deal is made, so that all the other options would be foreclosed in the future. And we should not forget that Xcel just completed a huge coal fired power plant, built right in the face of global warming.
There are also political issues. If the Xcel option stays open after November 2011, it is entirely possible that Xcel will expend large amounts of money on the next City Council election so as to have a council that gives them what they want. Given their involvement in the Berthoud municipalization election, and around $100 million of annual electric sales in Boulder, Xcel has an investment worth spending money on.
An iron-clad escape clause might be required to make an Xcel deal acceptable, especially given that there will inevitably be changes required over time. For example, the term might be three years, extended only by mutual agreement. (Of course, if the council did the extending, Xcel would still have a strong interest in influencing all subsequent elections.) If the deal were not extended, then Xcel would agree to sell the distribution system (the wires, poles, substations, transformers, etc.) to the city for the amount that Xcel still has in the system, what it gets its “rate base” return on. Because Xcel has continually expressed that there will be significant additional generation capacity needed within five years or so, they would abandon any other claims, including that Boulder`s departure would strand existing plants. With $1.3 billion of new gas plants planned under “Clean Air, Clean Jobs” Xcel certainly has plenty of flexibility. Boulder would only agree to buy any wind or solar projects or other improvements that Xcel built or contracted for on the city`s behalf.
An arrangement like this would allow the city to be independent of Xcel`s control, while at the same time protecting the other Xcel ratepayers. So Xcel would come out whole, and the city would have the freedom required to keep making the best choices into the future. I will be writing on the other alternatives in upcoming pieces.


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