Opinion: Boulder `11 is not Las Cruces `94


On Wednesday, I had the opportunity to listen to the former mayor of Las Cruces, N.M. discuss the struggles that they went through in trying to create a municipal electric utility, just as Boulder is considering. Two things struck me: First, Boulder is way ahead in terms of doing the homework of evaluating options and considering upsides and downsides. Second, Boulder`s circumstances are quite different. Clearly, we can learn from Las Cruces` mistakes, but fundamentally we face far fewer obstacles than they did. However, one thing is a constant — Boulder will have a fight with Xcel Energy just as Las Cruces did with El Paso Electric Company (EPEC). Monopolies hate to give up their customer bases.
Las Cruces spent millions of dollars in legal fees and years of time to gain the power to condemn the distribution system. (The distribution system is the wires, poles, transformers and substations that take power from transmission lines and deliver it to our homes and businesses.) But under the Colorado Constitution, Boulder has the explicit authority to municipalize and condemn Xcel`s existing electric distribution system within the city limits. According to the Boulder City Attorney`s Office, “One of the basic powers of home rule cities is the power to construct, condemn, purchase, acquire, lease, add to, maintain, and operate local light plants, power plants, and other public utilities.” (See the Colorado Constitution, Article XX, Sections 1 and 6.)
EPEC used its control of the transmission system to leverage Las Cruces. But open-access transmission rules, instituted in 1996 by the Federal Energy Regulatory Commission (FERC) have significantly reduced the ability of the incumbent monopoly utility to constrain access to remote generation.
Boulder is in a far better position than was Las Cruces to deal with claims that the incumbent utility`s assets are being stranded. So it`s clear, “stranded assets” refers to generation and transmission facilities that, once a city escapes from its monopoly power provider, no longer have a market from which that utility can earn an equivalent return. The danger is that FERC may require the new municipal utility to compensate the old investor owned monopoly for its financial loss. Here`s why Boulder`s position is better:
1) Xcel is in the process of reorganizing its generation system for the Front Range because of the Clean Air Clean Jobs Act. So Xcel may be able to deal relatively easily with the loss of a certain amount of load, for example by retiring additional coal plants instead of refurbishing them, or by building smaller gas plants.
2) Because Boulder will still need most of the transmission capacity it is currently using, it is unlikely that the FERC would support significant claims for stranded transmission.
3) The FERC is now much more supportive of local autonomy and clean power.
4) Under the FERC rules applied in the Las Cruces case, the expiration of Xcel`s franchise agreement with Boulder may void any claims.
Las Cruces finally settled with EPEC in 2000. The terms were incredibly favorable to Las Cruces — full recovery of legal costs, a short 7-year franchise agreement, a fixed price option to buy the distribution system, and no liability for stranded assets. It`s hard to get a better deal than that!
Listening to discussions at Wednesday`s meeting, there seems to be a misunderstanding about how regulated investor-owned utilities pay taxes. Unlike normal private businesses, such monopoly utilities don`t pay their local taxes out of profits; they simply pass most expenses through to us ratepayers. So switching to a municipal utility would not necessarily mean a loss of tax revenues, just a different way of collecting them.
Also, some people don`t seem to understand that Boulder is already paying for Xcel`s distribution system. Buying it could actually save us money, because the city can likely finance it more cheaply than can Xcel. (Currently, Xcel`s allowed cost of capital is 8.6 percent, versus around 5 percent yield for municipal bonds.) And we would own the system in the end.
Xcel may yet come through with a great offer, although they have missed numerous deadlines. But right now, municipalization looks like the more reasonable course. Highly professional energy and service providers may be able to deliver greener electricity and more reliable service for less money. And the former Las Cruces mayor says that Boulder is really doing its homework. So stay tuned.


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