Hidden costs lurk beneath municipalization

The desire to do more for the environment and strengthen Boulder’s green leadership by controlling our electric supply resonates with anybody who cares about the planet.

Ballot issues 2B and 2C hold that passion, that good intention. Unfortunately, the good intentions and passions here may be lost in the implementation.

My Boulder-based company, Ascend Analytics, has no business ties to Xcel Energy, but we’ve helped dozens of utilities build the analytic software infrastructure to manage energy portfolios for lower costs and risks. I’ve studied and served as an expert witness on energy markets and risk management, and when I look at 2B and 2C, I see operational and financial hurdles that could keep the city from finding cleaner and greener energy at comparable costs. Four key issues emerge: transmission rights, ancillary services, buying power in bulk and climate impact.

Transmission rights

Unfortunately, availability on the lines between Boulder and the wind farms of Wyoming and Colorado’s eastern plains is extremely constrained, and, when it does become available, the seller garnishes a large premium. Assuming the city could procure transmission, these premiums could add 20 percent or more to the cost of wind energy.

Ancillary services

As load increases or wind generation vacillates, ancillary energy covers the slack by ramping generation up or down to balance demand and supply. Traditionally, ancillary energy services were like cream in your coffee – the charges were immaterial and you took what you needed.

With the introduction of wind generation, the value of ancillary services rose dramatically with market prices averaging about 10 percent of energy costs. Ancillary service costs are not included in the city’s analysis. The city’s relatively small portfolio would be less able to absorb shifts in wind or a parting of clouds that could incur proportionately larger costs to ramp-up generation and keep the system in balance.

The loss of economy of scale becomes more acute as the city moves to exceed Xcel’s planned mandate of 30 percent renewables. We could go from ordering a black coffee to a vanilla latté with a slight change in the weather.

Buying in bulk

Power on the wholesale grid is sold in “tranches,” 50 megawatt blocks of power. Boulder is a small 200-megawatt system. Our needs don’t match the serving sizes – a single person living alone buys milk by the pint, not by the gallon. We’d end up buying power we couldn’t use or paying premiums for nonstandard tranches. Companies like Xcel budget in the thousands of megawatts.

Climate impact

Natural gas generators emit less carbon dioxide than burning coal, and replacing coal with gas is part of the municipalization plan, theoretically lessening the city’s climate impact.

It may not be that simple. A National Center for Atmospheric Research study published this month found that methane leaks during natural gas production and other factors could negate the carbon dioxide benefit of gas over coal.

Renewable energy does provide definitive benefits. However, current portfolios considered by the city may require a smaller share of renewables than Xcel’s to maintain comparable rates and instead rely on a dubious shift in energy production from coal to natural gas.

Phrases like “ancillary services” and “indentured transmission rights” do not inspire passion. But they are very much the reality of the power industry. Examining the issues 2B and 2C at this level of complexity makes it clear the hypothetical benefits could come at much higher-than-expected costs.

I suggest an alternative plan.

Instead of spending another $10 million studying the issue and battling Xcel, the city could allocate that money to a solar subsidy program bringing Boulder closer to the real objectives. In tandem with existing Xcel and government solar rebate programs, the city could get more panels on more roofs.

Combining city, private and government resources, the $10 million in municipalization costs could translate into $1,000 solar credits to 10,000 homes, enough to tip the investment for many households from marginal to cost-effective. That would mean even more Xcel subsidies and a bigger share of what we are all seeking: cleaner energy at lower cost.

Confronted with the uncertainty and risk in transmission costs, ancillary services, wholesale power transactions and climate change, I cannot support 2B and 2C – not when the good intentions can be realized with less cost.

Gary Dorris is president of Ascend Analytics in Boulder. He can be reached via email at gdorris@ascendanalytics.com.

on Facebook on LinkedIn