Opinion: Xcel’s deal is no deal at all


After months of delay, Xcel finally delivered its proposal to the Boulder city council. Unfortunately, the proposal was not worth the wait — Boulder would be giving up far too much for what it gets.
Here’s the essence of Xcel’s proposal: Xcel would contract with a wind farm developer to build a 200 megawatt wind farm in eastern Colorado. The wind farm would not count toward Xcel’s meeting the 30 percent Renewable Energy Standard, so arguably “would not have been built otherwise.” The developer would likely be one of Xcel’s recent bidders — Xcel received 6,000 MWs of wind bids for a 200 MW slot. The wind farm, at best, would generate the equivalent of a bit more than half of Boulder’s current annual energy use. But its generation would not match our load profile; wind blows more at night, whereas our peak load is in the day.
As part of the deal, Boulder would have to ensure that there was no cost to other Xcel ratepayers. Because the cost of the wind would be higher initially than Xcel’s most expensive fossil fuel electricity that it would displace, Boulder would pay the difference in cost, plus a 2 percent “premium.” But if the cost of Xcel’s fossil fuel electricity increased and became higher than the wind contract cost, then Xcel would pay Boulder the difference, minus the “premium.” Also, Boulder would have to sign a standard 20-year franchise, exactly what the council rejected last year.
Both the wind developer and Xcel are being made financially whole, and Boulder is paying to help the planet by cutting CO2 emissions, so why should Boulder have to sign a 20-year franchise? Boulder could demand that the Public Utilities Commission (PUC) require Xcel build the wind farm on these terms, since both Xcel’s ratepayers and the environment would be better off, and simply refuse to sign a new franchise.
The deal gets worse. Boulder would bear 100 percent of other risks without having any control over these risks: Xcel wants Boulder to pay the wind developer for “curtailment costs” — these are revenues lost when Xcel has to dump the wind energy because Xcel’s load can be met by their coal fired generators and independent generators to which they have contract commitments. Xcel also wants Boulder to pay 100 percent of Xcel’s “integration costs” — these are costs Xcel incurs in managing wind-generated electricity.
Xcel’s “avoided cost” is the cost of the most expensive fossil fuel electricity at any moment in time, and it is used to determine the payments between Boulder and Xcel, as I described above. But there are many ways to define, and therefore manipulate, the calculation of “avoided cost.” So, in my opinion, it is virtually impossible to write a bulletproof contract. For example, imposition of high federal carbon taxes would increase Xcel’s “avoided cost,” so Boulder would in theory recover more on the payments from Xcel. But if Xcel instead chose to retire the coal plants, the cost of compensating Xcel for lost revenue on these plants would be added on to the general rates, not the “avoided cost,” negating the potential benefits of the deal.
Some have suggested replacing an Xcel-specific “avoided cost” by a generic publicly available price for wholesale electricity. This sounds like a potential solution. But Xcel could incur enormous costs dealing with its particular coal plants without these costs being reflected in payments based on a generic wholesale price, so these costs would end up being passed on to Boulder ratepayers anyway. Crazy!
One final point — state law forbids discrimination in utility rates. I can see all sorts of PUC lawsuits coming out of this deal, because if Boulder were ever to start actually receiving payments from Xcel (paid by ratepayers from the rest of the state), howls of favoritism would resound. Then the PUC might just void the deal, even if Boulder had already paid in tens of millions of dollars.
The ultimate irony would be if the council foolishly put this on the ballot. Then Xcel would have killed municipalization without a shot being fired. And we would have lost our chance for a comprehensive solution for our energy future.


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