Boulder Municipalization

May 16, 2013

The City of Boulder has released study information concerning how it believes it can finance a takeover of Xcel Energy’s electric utility system and service in the city and in certain areas of Boulder County. That study is being used as justification for Boulder to continue spending millions of dollars and city resources to possibly and forcibly acquire the electric utility business from Xcel Energy, most likely through a condemnation (eminent domain) process expected to take years to complete.

To ensure those customers potentially affected by Boulder’s decision have a more complete perspective on the issue, Xcel Energy will provide a series of issue briefs that examine key assumptions and conclusions in Boulder’s study. The first issue paper is a look at the city’s plan to provide rates equal to or lower than Xcel Energy’s on the day the start-up utility begins and how those rates could change over time. Use the link in the upper right of this page to read our analysis.

May 12, 2013

Clarification sought on Boulder’s move to add county customers
Xcel Energy has filed a petition with the Colorado Public Utilities Commission (CPUC) asking the Commission to confirm that the city of Boulder cannot unilaterally reach beyond its boundaries to serve the electric customers outside the city.

Xcel Energy is asking the CPUC to confirm that the CPUC assigns these service territories, not the city of Boulder. The CPUC has already assigned to Xcel Energy the service territory in the county areas in dispute.

“Our customers outside the city limits had no say in the matter of Boulder’s pursuit of a municipal utility,” said Jerome Davis, regional vice president for Xcel Energy. “The best way we can protect them is to ask the commission to clarify its authority.”

“All of the Boulder municipal utility options studied by the city assume that Boulder can just choose to serve the county customers. This assumption is in direct conflict with the Colorado Commission’s constitutional and statutory authority regarding service territory certificates,” Davis says.

“We think it is important to ask the commission to rule on this before both Boulder and Xcel Energy spend several years and significant dollars litigating a plan that is based on a fundamental assumption that is erroneous.”

Xcel Energy is asking the CPUC to declare:
• If a municipal utility seeks to serve customers located outside the city’s boundaries, it is subject to the certificate jurisdiction of the Commission;
• The commission has already granted to Xcel Energy a certificate of public convenience and necessity covering the territory in Boulder County, outside the Boulder city boundaries, in which the 5,800 customers are located;
• Under Colorado law, there can only be one certificated utility per geographic area;
• The certificate of an existing utility cannot be taken away without due process of law which requires a hearing before this commission and proof by substantial evidence that the existing certificated public utility is unwilling or unable to serve the certificated area, and
• The need to construct replacement facilities as a result of actions taken by a challenging utility does not constitute an inability to serve. The city of Boulder has set an aggressive timeline to move forward with municipalization, with a vote to condemn Xcel Energy property coming as soon as Aug.6.

A new video program that shows how Xcel Energy is meeting the challenge of renewable energy is available on YouTube (link at upper right). 

If you’re interested in more information about municipalization or would like us to speak to your business or organization, please contact Craig Eicher.  His contact information is below.

• Q:
  What is municipalization?
  A:
  Municipalization is the process the City of Boulder is pursuing to condemn and take over Xcel Energy’s electric infrastructure within city borders, including the utility’s substations, poles, wires and other equipment. The process is estimated to cost hundreds of millions of dollars. The actual total cost will be settled through two legal paths in state condemnation court and before the Federal Energy Regulatory Commission. The process could take five years or more.
• Q:
  What was the Boulder City Council's decision?
  A:
  The Boulder City Council decided to place two measures on the November ballot that could ultimately lead to the condemnation and take over of Public Service Company of Colorado’s (PSCo) electric distribution system in Boulder (PSCo is Xcel Energy’s operating company in Colorado). Measure 2B approves an increase in the utility occupation tax to fund the condemnation and purchase of the electric system. Item 2C gives the city permission to form a municipal utility. The Nov. 1 election is expected to be the only opportunity for citizens to vote on the issue.
• Q:
  What are the costs involved in a takeover?
  A:
  The city is budgeting $286 million and years of effort to complete the acquisition; however, the actual cost could well be hundreds of millions more because Boulder assumed it would not have to compensate Xcel Energy for a number of costs, including going concern, stranded costs, or reimbursing the utility for its solar, demand-side management (DSM), and SmartGridCity™ investments. These items represent hundreds of millions of dollars in potential liabilities. Boulder has also only budgeted $15 million to separate the power system at the city limits. A full engineering design is required to determine a final system separation cost, but costs in the neighborhood of $100 million are certainly possible given the irregular shape of Boulder’s city limits and other factors.
• Q:
  What other cost factors have to be considered?
  A:
  Boulder’s feasibility study does not include any costs to achieve lower emissions, rather it is based on a least-cost design that provides only rate and emission parity with Xcel Energy. Xcel Energy’s consultant analyzed the city’s study and concluded the city council’s takeover plan is based on optimistic assumptions and does not provide adequate budgets to replace tens of millions of dollars in lost tax benefits and Xcel Energy’s large-scale solar and DSM programs investment. When the study is adjusted for these items, the city could see millions and even tens of millions in financial losses.
• Q:
  Could the city's takeover result in higher rates?
  A:
  The economics of rates are very sensitive to acquisition costs, wholesale (generation) costs and operating expenses. According to the city’s own model, just a $72 to $112 million increase in acquisition costs OR a ten-percent increase in total wholesale and operating expenses would push results financially negative. City staff has publicly represented that financial losses in the 7-15 percent range are possible if higher cost are incurred compared to plan, which would be over $10 million per year in higher rates paid by Boulder customers.
• Q:
  Have utility condemnation cases been successful elsewhere?
  A:
  In recent times, nearly all contested condemnation attempts to take over a private electric utility system have failed. It was during the early decades of the last century that most municipal utility systems that exist today were formed. Virtually all recent efforts to create a municipal electric system through a hostile takeover have failed due to high legal costs, inaccurate estimates of the real costs to acquire and operate the system, and lack of public support from the community for taking over the utility business.

We invite you to read a full or summary analysis of Boulder's feasibility study on municipalization to learn more about the costs and risk of this option. 

We also are providing other useful links to help you become an informed voter.