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.