Opinion: Liberals and conservatives agree on Xcel’s profits


Some municipalization supporters recently did an analysis of Xcel’s Colorado pre-tax profits, based on Xcel’s multi-state corporate filings: Colorado now accounts for nearly half of Xcel’s profits, although our customer base is far smaller than Xcel’s in Minnesota, and even a smaller fraction if you include the other six states where Xcel also provides power. In the eight years from 2004 to 2012, Xcel’s Colorado pre-tax profit more than doubled, even though sales and generation capacity were essentially flat. Amazingly, the same data was presented in a strong article in redstate.com, a notorious conservative website. (Google “kyle forti xcel colorado” .) Apparently both the left and the right are upset about the increase in Xcel’s Colorado profits.

Boulder, of course, is part of Xcel’s profit machine. The same local people calculated that Boulder contributes something like $35 million a year to Xcel’s windfall. This excess is, to some extent, a function of the exorbitant almost-guaranteed 10-plus percent rate of return on invested equity that is awarded by the Public Utilities Commission, and which is based on some rather circular legal arguments that have lost their connection to reality, in my opinion.
Some will argue that, after all, Xcel is just a business like any other, and should pursue profit like any other. But that argument is not valid — Xcel has no real competition, other than if a city tries to go “muni,” and you can see how hard Xcel is resisting Boulder’s attempt to exercise this constitutionally granted power. More importantly, the whole profit-above-all motivation also raises the issue of exactly how are we to solve climate change, if investor owned utilities, as well as most major electricity consumers, are businesses that are just focused on increasing profits? (Commercial and industrial buildings account for roughly three quarters of Boulder’s energy consumption.)
One obvious approach is to include external costs, such as the effects of climate change, in the cost of energy by imposing a large carbon tax. But although some costs are calculable, some are effectively infinite. How do you place a finite value on the loss of a large fraction of Earth’s species, or the starvation of a portion of the human population, or the destruction of habitat or loss of agricultural land? Even the cost of increased flood risk in the Civic Center redevelopment area on Boulder Creek is tough to assess. Another approach, more practical at least for us in Boulder, is to focus on changing how the economics of power generation work so that incentives are aligned toward reduction rather than increase in consumption.
For investor-owned utilities in fully regulated markets like Colorado, the big incentives are lined up toward more investments in power plants, such as occurred under the Clean Air Clean Jobs Act, where Xcel was rewarded for investing in rebuilding some coal plants while also being paid to shut down others. In contrast, a municipal utility that purchases most of its power has every incentive to minimize costs. So a muni like Boulder would have a strong interest in increasing customers’ investments in efficiency and demand management right up to the point where those costs equal the savings from avoiding the next power purchase contract.
But that still leaves us with shifting our energy supply toward renewable energy and move toward carbon neutrality faster than the economics of private monopoly power production dictate. This is where Boulder’s muni can lead the way — we can show other cities that we can have a realistic and economically feasible path to achieving carbon-neutrality, that we can shift from selling energy as a commodity to delivering energy as a service, that we can do this in our most difficult Colorado regulatory environment (somewhat like Minnesota’s, where Minneapolis, the home of Xcel, is considering going muni), and that we can actually get some reasonable rulings on stranded costs from the Federal Energy Regulatory Commission, which will help others to chart their courses with more certainty.
“That where a community — a city or county or a district — is not satisfied with the service rendered or the rates charged by the private utility, it has the undeniable basic right, as one of its functions of Government, one of its functions of home rule, to set up, after a fair referendum to its voters has been had, its own governmentally owned and operated service.” Franklin Delano Roosevelt, Portland Speech, 1932; worth reading in its entirety.


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