Opinion: The next struggles for Boulder’s municipal electric utility


The Colorado state constitution gives cities the absolute right to create their own electric utilities. We now have had positive votes in three elections — replacement of the franchise fee in 2010, conditional authorization to create the muni and provisions for funding the process in 2011, and this year when Xcel, through surrogates, put its own item on the ballot. The next steps are negotiations and court proceedings over the price for the distribution system and how the parts will be separated between the two utilities. And there will be proceedings at the Federal Energy Regulatory Commission over whether Boulder’s departure will “strand” any of Xcel’s generation facilities.
The roots of this struggle go back about a century. Very briefly, to eliminate multiple sets of wires being run down streets and the resulting competition that dampened profits, both governments and electric companies opted for regulated monopoly status. The regulators were supposed to design rules that created surrogate “markets” to create incentives, but the companies pushed for a system that made profits more secure. Over time, the sides became more interdependent. Public utility commissions (PUCs) became more involved in long-term planning, further reducing uncertainty, while the for-profit utilities attempted to “capture” these regulators so as to maximize opportunities to invest capital at guaranteed rates of return. All this is discussed in Rudolph and Ridley’s excellent book “Power Struggle.”
Early on, these regulated monopoly utilities were awarded exclusive areas where they had both the right and the obligation to serve. More recently, many states (not including Colorado) have abandoned this vertically integration and established some form of choice or competition, where generation, transmission, and distribution are separately owned.
Boulder’s pursuit of municipalization is upsetting this cozy situation. The Colorado PUC does not regulate munis, so Boulder’s move represents a threat to their control. For Xcel, more munis means less territory and smaller profits. So we should expect a big court fight over the value of the poles and wires that Boulder wants to condemn, over Boulder’s ability to take over Xcel’s customers in the county, and over the role of the PUC. At the FERC, expect another fight over whether some of Xcel’s existing generation will be left without a market, even though Xcel already is forecasting a need for more new generating capacity than Boulder would free up.
Valuing a distribution system is not like pricing real estate; there is no external market to use for comparison. Also, once the franchise expired in 2010, Xcel had no reasonable expectation that it would continue to serve Boulder, so their future Boulder revenues could easily go to zero, destroying any expected market value. On the other hand, Xcel’s Certificate of Public Convenience and Necessity (CPCN) obliges Xcel to serve in Boulder until replaced by a muni, so poles, wires, etc. that have not yet been paid off should arguably be covered, but only to the extent that Xcel (and not developers or the city) actually financed the equipment and has not yet been paid back.
Regarding the county customers, a CPCN is identified as a “property right” in at least one legal case, and so might be subject to condemnation by the city, just like the poles and wires. (The CPCN is clearly a restriction on your property rights; you can’t contract with whoever you want to supply your electricity.) On the other hand, some cases assert that the CPCN belongs to the utility as long as they are able to serve that area, even though another utility might do it more efficiently, a rather counter-productive conclusion. Finally, some cases assert that, other than a city’s absolute right to create a muni (no one disputes this), the PUC gets to determine who serves where. So the issue of who will serve in the county is far from resolved.
One obvious solution is to have the city take over the poles and wires and let Xcel keep the county customers and pay the city rent for using its equipment, with the metering and billing details sorted out by the PUC. Such arrangements are not unprecedented, and multi-party billing systems exist in many other states. This approach would also address the potential that future annexations in this area would change the city boundaries, and make obsolete any fixed separation plan. But don’t count on common sense prevailing in this struggle where big money, politics, and control are at stake.


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