WANTED: Smart grid from scratch

Boulder seeks leader of energy strategy, and its own utility

Phil Carson | Dec 18, 2011

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Having narrowly voted in favor of exploring municipalization, and a break with Xcel Energy, Boulder, Colo. is moving to hire someone to guide its energy strategy, including the development of its own electric utility.

The search reflects Boulder's first steps in pursuit of a municipal utility following a related vote last month. Should Boulder succeed in an effort widely viewed as a multi-year endeavor fraught with technical, financial and political hurdles, it would be the first relatively large-scale municipal utility formed in decades.

So the effort is being closely watched nationally for at least three possible implications: How does a city build a smart grid virtually from scratch? What is the impact for an investor-owned utility facing the defection of a major customer? And what are the lessons for at least small cities that might aspire to follow suit?

The stated objectives for the job of energy strategist in Boulder make it clear that in addition to determining short-term, tangible steps towards Boulder's energy future, the "executive director of energy strategy and electric utility development" will lead what may be a historic quest. There's probably no modern precedent for a city of Boulder's size shedding its provider and setting up shop on its own. The context is a 20-30 year vision that includes "new methods of energy management."

The job description cites the need for "a new business model" that emphasizes "energy as a service," and cites Boulder's goals for reducing greenhouse gas emissions and promoting economic vitality, customer choice and the perennial values of reliable and affordable electricity.

As Boulder's aspirations include reaching 80 percent renewable energy and any strategy that looks out a couple decades must include digital smarts for an interactive grid with lots of moving parts, well, the shorthand for all of the above is "smart grid."

(For background on Boulder's stance, see its "Know Your Power: A Community Guide.")

Frankly, I think that, much like the space race, Boulder's mere exploration of creating its own utility will have spin-off benefits in terms of knowledge around technical feasibility and financial and legal challenges. The question for Boulderites is: at what cost? The potential outcomes are many, including the possibility of a new paradigm for its relationship with Xcel, should it find municipalization technically or financially unfeasible.

How both parties conduct themselves as the process unfolds will speak volumes to the aspirations of a city whose citizens want to take a leadership role in an emerging, energy-centric economy and society and to the tactics of an investor-owned utility facing societal shifts that disrupt a traditional business model.

Admittedly, that's some highfalutin' language, considering that both parties have very pragmatic, short-term interests at stake. Boulder is fairly evenly divided on municipalization, with aspirations tempered by financial realities—mostly a fear that the city may not be able to match Xcel's electricity rates as it builds a grid of the future. That could dampen the local economy rather than support its vitality. But who knows? Perhaps Boulder can pull it off. Perhaps Boulderites will elect long-term sustainability and embrace a shift away from coal and accept higher costs. Perhaps the city's mission will divide its citizenry and establish the futility of its vision.

Xcel operates an immense set of grids across eight states and in Colorado is moving to transition coal-fired power to natural gas and incorporate wind at ambitious levels under the state's renewable portfolio standard of 30 percent by 2020. As an investor-owned utility, it seeks to maximize profit while navigating state-level regulatory demands, balancing responsibilities to shareholders with obligations to customers. Its stance and behavior leading up to last month's vote reflected its interest in keeping Boulder and its $100 million contribution to the company's annual revenue in the fold.

That said, starry-eyed Boulder is girding for a street brawl. The city is also seeking two attorneys, one an expert in condemnation proceedings and another wise in the ways of the Federal Energy Regulatory Commission (FERC), which in a disputed case would assess the value of Xcel's stranded assets for which Boulder would have to pay. That value is a major unknown variable with the potential to deal Boulder's municipalization dream a rude awakening. 

FERC's rules regarding the assessment of stranded assets changed in March, according to Boulder spokesperson Sarah Huntley, communications coordinator for the city manager's office, making it difficult to forecast the outcome of that piece of the puzzle.

If I had to make a prediction, it's that Boulder will proceed to develop its multi-faceted plans for its energy future, including assessing the daunting technical, financial and political challenges of municipalization. It must attempt to persuade nearly half its citizens, including the critical business sector, that the benefits outweigh the costs and that big unknowns can be made tangible to manage risk. Prudence would dictate the development of criteria for ending its quest for a municipal utility and a vision for what a resulting relationship with Xcel might look like. I'd expect to hear discussion of microgrids emerge, as that option might allow a degree of independence and self-sufficiency, while retaining Xcel as a provider of last resort. 

On Xcel's side, I see a multi-pronged effort to retain a significant customer. That might mean driving a wedge into the Boulder community, using the fear of the unknown, particularly costs, to sow doubt in the influential business sector. Meanwhile, playing legal rope-a-dope might run up the city's legal bills and contribute to doubts in the community. And who knows? Xcel might play a  very skilled PR game that precludes wearing a black hat.

Meanwhile, another factor of unknown import circles the two protagonists: some Boulderites believe that Xcel chose their city for the SmartGridCity experiment in order to keep the Boulder franchise in place. SmartGridCity, of course, famously ran into huge cost overruns and a controversial cost recovery process. In its latest filing for further cost recovery, Xcel assured the Colorado Public Utilities Commission that Boulder's vote to pursue municipalization bore no relevance to the technical success of SmartGridCity.

So let the dance begin. I hope to bring you Xcel's view of this impending pas de deux soon. I believe this will be one of the most intriguing stories of the coming decade.

A few related pieces we've run recently:

"SmartGridCity: Did Xcel Get Results?"

"Outages Drive Smart Grid, and Muni Legislation"

"ComEd, Xcel: Readers Say There's a Better Way"

"Boulder Rejects Xcel"

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

 

 

 

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Comments

Affordable electricity

I agree with much of what Phil posted.  I would only challenge the term "affordable electricity".  What is the definition of affordable?  The cheapest possible?  The net retail rate after factoring in renewable portfolio standards, carbon impact fees, system benefit charges etc.?  The thing is for the U.S. to be economically competitive we have to keep the costs of production as low as possible.  The global marketplace makes no distinction for the price/benefit calculation of paying more for say renewable power as opposed to coal, to provide the starkest example.  If at the end of the day on a net net basis your costs of production are higher, the products will be produced where they are lower.

I see and hear the term affordable but more often than not cost is set aside in pursuit of larger environmental or societal goals.  I am not arguing against such qualitative aspects of energy policy, just merely drawing the connections, the cause and effect.  The general public en masse knows very little about how electricity is generated and transmitted and the relative costs of various sources.  This leads to the contradiction of supporting solar, wind, distributed generation while bemoaning high rates.

I do not have a ready answer to this quandry except to suggest that is up to us who know better to clearly communicate the pros and cons of different choices.  Those of us in the industry or in an oversight/governmental position should draw clear comparisons.  If at the end of the day we stay on a path that is more expensive, we will also have to commit or accept a particular economic future that comports with our cost of production.

Well said

Like you, I take no position here. "Affordable" is Boulder's language. How that is defined in their case is yet to be determined, I'd guess.

Indeed, to your point, if the city and its residents decide that paying a premium for electricity is the cost of  greater sustainability and less pollution, then manufacturers in the business sector indeed may relocate. One such company is Ball Aerospace, which made its  voice heard and no doubt will again, as the process unfolds.

That's democracy and the market. And the result would seem to fall into that debated area of whether a society can thrive long-term in a knowledge-based economy versus one with a manufacturing base. Good arguments have been made that a mix is critical, nationally, for security and independence.

Thanks for pointing up  the economic basics inherent in Boulder's search for its own energy future.

Regards, Phil Carson

Sand Continues To Shift

As stated in my comments I gave for the past article, "Utility challenges of 2012: the list lengthens", the sand is shifting under the feet of the utility industry.  The growing social unhappiness with present status quo along with drastic changes in the basic lives of many Americans is bringing a new focus.  This is putting new eyes on the industry in ways the industry is not use to being viewed.  A very key point that Phil pointed out is the concern by some in Boulder that this action could, "dampen the local economy rather than support its vitality".  This issue is as complicated to understanding as is any aspect of the US economy and yet it is vital to the very basic fabric of our modern society.  Arriving at the correct answers of what does it take to support and keep the local economy robust is critical.   Clear away the myriad of opinions and you will always find sitting at the bottom support levels of any economy is affordable electricity.   Whether you are for green, coal, nuclear, or etc., the bottom line for any community is affordable electricity.  The strange thing about this monster is the need for it exists across the planet.  This means there are many other people far outside of Boulder viewing and wrestling with this issue.  He, who gets their first, with acceptable answers, will change the dynamics of modern living.

 

Richard G. Pate

Pate & Associates, Principal

 rgpate@pateassociates.com 

 www.pateassociates.com 

 

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