Critics are raising questions about whether Boulder has adequately anticipated the costs and risks of running its own municipal utility as the city prepares to enter the next stage of the municipalization process.
The Boulder City Council is expected on Tuesday to vote to move into Phase 2 of research into municipalization, including doing due diligence in preparation for acquiring Xcel Energy’s distribution system, refining the city’s models and hiring a third-party independent reviewer to take another look at the city’s analysis.
That vote will not be a final decision, but it does reflect the belief of a majority of City Council members that Boulder could run a utility that meets the charter requirements of offering similar or lower rates to Xcel while supplying significantly more energy from renewable sources and maintaining good reliability.
Proponents point to the many municipal utilities around the country that offer competitive rates and have good reliability ratings, including some that supply a large portion of their electricity from renewables.
Denton, Texas, a city of 113,000 near the Dallas-Fort Worth area and home to the University of North Texas. The city has run its own utility since 1905, and in 2009, citizens there decided they wanted to significantly increase the amount of energy they get from renewable sources.
Now, a single wind contract supplies 40 percent of the city’s energy supply.
“Because they own their own utility, they could say they wanted to go in this direction,” said Brian Vaskam, a spokesman for Denton Municipal Electric. “They wanted more renewable energy, and of course they wanted stable and competitive rates. We were able to include that 40 percent wind energy without increasing rates.”
Denton also harvests methane from its landfill.
Mike Grim, executive manager of Denton’s utility, will be in Boulder on Tuesday to talk to the council about his city’s efforts.
Xcel exec cites ‘missing pieces’
Xcel Energy President and CEO David Eves said analysts are still poring through the city’s documents, and the company doesn’t yet have all the information Boulder used to do its analysis. However, it appears to him that the city has assumed tariffs for wind transmission are not going to change significantly, where Xcel believes they are going to go up as wind takes up more of the nation’s electrical supply.
He also said the city has not adequately accounted for curtailment costs, or the cost of unloading excess electricity at times when too much wind is available.
“We see some very significant missing pieces,” Eves said.
Xcel officials believe the city has underestimated the costs of running a utility by as much as $10 million to $15 million a year.
City officials have said they believe they will be able to lock in contracts for steady prices on firmed wind power, in which natural gas would be turned up or down to stabilize the energy supply.
The city’s entire power load is a fraction of Xcel’s, and officials do not believe the grid will have a problem handling a larger supply of renewables for Boulder.
Ron Laughery, a Boulder resident who is concerned about but not necessarily opposed to municipalization, said the city needs to hear more of Xcel’s critiques and should release all of its data to the energy company.
“Xcel is going to have some biases, but the citizens of Boulder will be that much wiser if Xcel does the model and we listen to their case,” said Laughery, a systems engineer and former business owner who also writes a column for the Camera. “What you really want is the expert who thinks you’re wrong to look at it and tell you where you are wrong. That will give you a better model.”
City spokeswoman Sarah Huntley said the city is sharing a lot of information with Xcel. It denied an earlier request for public records because it was too broad and included a request for software, but now that Xcel has refined its request, the city is cooperating.
At the same time, city officials have said they will update their models if and when Xcel shares more information about its own plans.
Xcel’s Eves said that Boulder’s modeling of Xcel’s future energy mix and rates was very unfavorable to the company and assumes it won’t change its practices in response to either a carbon tax or a cap-and-trade system.
‘Unknowns’ could break in city’s favor
In the most recent memo to City Council, officials said they had revised some of the models based on new PUC filings from Xcel and that they would continue to do so over the next several months as they get more data from Xcel.
Those most recent revisions mean that Boulder is 5 to 10 percent less likely to save customers money, compared to Xcel Energy’s rates, the memo said. However, the city could still offer lower rates over a 20-year period if acquisition costs are at the middle or lower end of the spectrum.
The memo notes that some other unknowns – like rising coal prices –could work in the city’s favor.
Critics also question whether Boulder can provide the same reliability that Xcel does.
Jack Mason, who has worked in utility risk management for 40 years and who served on the reliability working group before taking a position with Duquesne University in Pittburgh, said he teaches his students that diversification – in resources, in capital, in geography – is the best way to manage risk.
He said there are “unknown unknowns” that Boulder cannot prepare for. An early fall snowstorm that fells lots of branches is one thing; a catastrophic failure of Barker Dam would be another.
“You have to be prepared to deal with things you can never imagine,” he said.
Like many critics of municipalization, Mason said the city’s money would be better spent doing a wide range of energy efficiency programs and local renewable generation.
“Instead of paying $200 million to do this, you could fund a much more diverse portfolio of energy initiatives, including lots of local, renewable projects,” he said.
Huntley said the city is pursuing municipalization after failing to make progress with Xcel. In some cases, the investor-owned utility had regulatory constraints that limited its ability to offer more renewables. Forming a municipal utility would offer the community much more control.
As for reliability, Huntley said Boulder would have some advantages over Xcel.
“Having local crews that are familiar with a local system and doesn’t have some of the complexities in Xcel’s system – like remote mountain areas – is going to be a benefit to those in our local service area,” Huntley said.
That’s true in Longmont, said Matt Scheppers, chief electrical engineer, with Longmont Power and Communications. When asked about reliability, they point to the good ratings posted by other municipal utilities, including Longmont, which has run its own utility for 110 years.
Scheppers said the utility has invested in technology and infrastructure to help it identify the source of outages more quickly and provide work-arounds that restore power while crews fix the problem.
“Our line crews are restoring power for their friends and neighbors,” said LPC spokeswoman Deborah Cameron. “They really, really know the system. It could be right down the street from where they live.”
homework remains, following Tuesday vote
If the City Council decides to move forward, consultants will also work to further refine their models and model new scenarios. They’ll also consult with the Federal Energy Regulatory Commission to try to get a better sense of how that agency will rule about whether Boulder would owe Xcel stranded costs and going concern payments for severing service agreements.
The critical vote will come in August, when Boulder officials must vote on whether to start condemnation proceedings against Xcel’s distribution system.
Eves said Xcel officials fully expect Boulder to move forward on Tuesday, but they still hope the working group can come up with an alternative to municipalization.
“We still very much want to see what we can do to help the city meet its goals, and not just for Boulder but for all our customers,” he said.
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