Boulder seeks divorce from Xcel

Municipalization on next week's ballot

Phil Carson | Oct 25, 2011

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One week from today, a fascinating experiment in self-governance will have played out in Boulder, Colo.

On Tuesday, Nov. 1, Boulder voters will render a decision on whether to proceed with "municipalization"—that is, divorce incumbent provider Xcel Energy and form a municipal utility.

The vote will be fascinating in and of itself because the city's possible municipalization carries with it many "unknowns"; in fact, the "unknowns" probably outweigh the "knowns." Some unknowns are preceded by dollar signs and followed by a parade of zeroes. Others are purely operational or administrative.

First, what has this got to do with intelligent utilities, our mission here at Intelligent Utility Daily?

Xcel Energy, arguably, is an intelligent (and investor-owned) utility. It does not want to lose a major Colorado city that accounts for about $100 million in annual revenue. (Colorado, of the eight states in Xcel Energy's service territory, accounts for 42 percent of Xcel's profits, according to The Denver Post.)

Boulder, if it creates its own utility, would have to incorporate digital smarts to achieve the operational efficiencies it seeks and to integrate a more progressive fuel mix and the levels of renewable energy and distributed generation that it advocates.

Further, it has been credibly suggested that Xcel chose Boulder for its SmartGridCity project, initiated several years ago, because the city's franchise agreement with Xcel was due for renewal in 2010. In 2005 and 2010, Boulder had commissioned feasibility studies around municipalization. (Both studies declared the glass half full on feasibility.) Xcel did not miss these signals. It chose Boulder for SmartGridCity in 2008. 

If SmartGridCity was intended to demonstrate that Xcel was serious about modernizing Boulder's grid, incorporating smarts and an ambitious renewable energy agenda, that didn't pan out very well. (For coverage on the public relations debacle that cost recovery produced, see "Ratepayers on Hook for Xcel's $44.5 Million SmartGridCity.")

From many Boulderites' perspective, SmartGridCity took too long to produce any tangible benefits, triple cost overruns caused outrage and, based on those two reasons alone, the relationship soured further.

The Boulder City Council (at least a portion of it) and Boulderites (at least a portion of them) believe that the city can create and operate a municipal utility, like thousands of other cities and communities and their two consultants agree. That would offer Boulder a means to control its own energy future, in part through ambitiously high renewables penetration and its purported corollary, decarbonization.

Xcel, for its part, warns that Boulder is out of its depth, that the city (and its consultants) has vastly underestimated the costs and complexities of running its own power system and that the potentially estranged, incumbent utility will fight tooth and nail to stop the project or extract a hefty price for its infrastructure and lost revenue.

A brief aside on the antagonists. Boulder is far from the homogeneous, purple-hazed college town utopia that critics' caricatures would have it. The citizenry overall may lean liberal, but the business community is strong and the cost of living is high. Regardless of political stripe, the commercial/industrial sector and Main Street businesses don't like unknowns and gambles.

(For some of the city's political heterogeneity or mere infighting, see "Public Power and Trust in Boulder.")

Several grassroots groups have arisen on both sides of the debate, as has one astro-turf organization, the "Boulder Smart Energy Coalition," which denied any affiliation with Xcel and refused to reveal its contributors until legally bound to do so. Since Aug. 17, this group of concerned citizens has spent $273,746 to fight municipalization; $250,000 of that was donated by Xcel, records show.

Xcel, for its part, has tried to accommodate Boulder's demands for higher renewable energy penetration and, clumsily, grid modernization. In the face of Boulder's ambitions (read: intransigence), Xcel has turned up the heat, sowing fear and outspending pro-municipalization groups by 10 to 1.

When Jonathan Koehn, Boulder's regional sustainability coordinator, told a public meeting this past summer that city staff and consultant Robertson-Bryan, Inc. had found municipalization legally, technically and financially feasible and capable of providing local, reliable power at attractive rates, the pushback was instant.

Craig Eicher, Xcel's local manager for community and local government affairs, said that if Boulder divorced Xcel the city would be "hundreds and hundreds of millions of dollars in debt and you don't have a single kilowatt of clean energy."

Now, none of this run-up to the election is remotely as compelling as what transpires should Boulderites give the okay at the polls next week. The process of quantifying costs must legally begin. Just on Xcel's stranded costs there's a bit of a discrepancy. Xcel valued them this summer at $335 million and Boulder suggested they were worth zero dollars. Then there are the potentially massive legal fees that could accrue over legal wrangling if Boulder sought to gain Xcel assets through condemnation. And the fate of an "off ramp" option—that Boulder could abandon municipalization if new numbers caused it to reconsider—appears  to concern citizens who variously fear that Xcel could be right and that the Boulder City Council already has too much power, judging from newspaper forum remarks these past months.

Finally, this is far from a slam dunk for either side. An August poll found 71 percent of Boulder voters in favor municipalization. An October poll of Boulder County residents, including many who live outside the city and thus will not vote on municipalization, revealed the single most important issue right now is jobs and the economy.

For now, this is the one to watch, folks. Next week's election could give a read on the political mood in a liberal city. If voters approve the divorce, the whole (smart grid) world is watching as Boulder walks a political, legal, financial and technological tightrope.

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757

 

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Comments

Municipalization on next week's ballot

As a former employee of Xcel (who also cannot vote), I would add that if Boulder is going to do this, the time couldn't be better. The reason is interest rates are at historic lows and bonding indebtedness now, even if you go with prices closer to Xcel's estimate on value, will present Boulder with a "once in a lifetime" type opportunity. Good luck to my friends who still live in Boulder.

Boulder

I can't say I'm impressed with the way Xcel is conducting themselves.  Like Pacific Gas and Electric, their knee-jerk reaction is to fight secession tooth and nail, no matter how much ill will it creates.  One would think a smart CEO could find ways to work with the folks in Boulder instead of provoking them as they have.

That said, the folks in Boulder are kidding themselves if they really think they can keep rates low while raising the fraction of renewable energy to 60%.  New wind and solar will be competing with partially depreciated coal and gas plants.  Maybe that works, but I doubt it.  Moreover, Boulder is probably not going to be able to make a clean break with Xcel, because it will nee the balancing resources in Xcel's grid to deal with the variability and uncertainty of all that wind and solar.  I expect the cost of those balancing services to be pretty steep, because other than Denmark, which has the much larger Nordic hydro and German thermal-based grids at its disposal, all Boulder has is Xcel, and Xcel's system is not nearly as flexible.

Jack Ellis, Tahoe City, CA

Watching Xcel shoot themselves in the foot

Your points about the business end of Boulder not liking uncertainty are well taken. What astounds me watching this play out is Xcel behaving in ways that are duplicitous by any standard - the "Boulder Smart Energy Coalition" which is basically Xcel masquerading as the citizenry, initially telling Boulder that it was going to give them a special deal on a wind farm if they'd can the vote, then doing the wind farm anyway even when it was clear the two sides weren't going to cooperate. That's the kind of thing making people run from corporate control over their utilities. I don't get to participate in this vote, but I fail to see the logic of the claim that Boulder can't handle this. Hundreds of municipalities already do. Why not one packed with some of the smartest and most educated people in the world? If Xcel wants to show its corporate love for Boulder, how about acting in ways that engender respect?

To be fair...

Thanks for your comment.

One might also say that the "Boulder Smart Energy Coalition" is in fact a citizen's group, one that simply received the bulk of its funding from Xcel, which has another, more up-front informational campaign group going as well. Yes, Xcel declined to state that it was funding the group, but it was the group's leader that misled by explicitly denying that Xcel was the main funder. Perhaps a subtle point in favor of fairness.

Also, I'd give Xcel credit for attempting to meet Boulder's stated goals, though again, it's actions are open to interpretation.

Outside of the protagonists in this drama, it has been pointed out that no sizeable cities have municipalized in recent years, possibly because of the capital costs, possibly because of the legal issues and costs. In the past, in my limited knowledge of, say, Colorado Springs, the move was made more than a half-century ago to end price gouging by a private entity. Boulder's impetus is its desire to lead in decarbonization, use local energy sources and high tech -- a new driver.

Boulder's ambitious goal for non-coal generation, including limited natural gas and a renewable portfolio that reaches perhaps doubles Xcel's near-term goal of 30 percent, may also be unrealistic technically or less feasible financially, if the city tries  to match or reduce current Xcel rates to its citizens.

While it's easy to cast this situation as "progressive city" versus "corporate utility control" -- and it has plenty of that theme threaded through it --  it also presents other elements with bigger upshots. One I alluded to is the sense of embarking on a truly ambitious path with uncertain outcomes during a dire economic situation. The other is the sheer organizational, financial and technical aspects of succeeding at municipalization.

To be honest, it's easier to observe from 30 miles away than to participate, given the unknowns. This truly is a fascinating case.

We appreciate your readership.

Regards, Phil Carson