Sticking with Xcel risky; ‘muni’ a better deal

Why is Boulder pursuing creating a municipal electric utility? Because it’s a better deal both environmentally and financially.

The city’s modeling, reviewed by outside experts, demonstrates that we could quickly far exceed Xcel’s level of renewable energy and cut our GHG emissions in half. We could do this with equal or better rates and reliability, and solid financial performance. We could promote economic growth in our energy innovation sector, and keep our energy dollars at home. As the price of renewable energy drops and fossil fuel prices rise, we would save even more and be even greener. (Even Xcel has found that adding wind and solar lowers costs.)

Sticking with Xcel is risky business. In the last decade, Xcel committed more than $1.5 billion to building and refurbishing coal plants. These coal plants don’t integrate well with renewables, and will have to be paid off even if they are shut down by future federal mandates. Replacing these coal plants with cleaner, more flexible generation will just add more costs.
Unlike most businesses, Xcel makes money by spending money – by investing its equity in power plants, transmission lines, and the like. The more Xcel invests, the more it makes. The Public Utilities Commission awards Xcel a return on this equity that is legally required to be based on what comparable utilities earn. In 2012, this circular process gave Xcel a more than 10 percent return, with virtually no risk. No surprise, Xcel’s capital structure is weighted toward equity, 56 percent in 2012. Xcel’s Colorado profits have skyrocketed in recent years, despite the recession and even though the amount of electricity it has sold has remained essentially flat.

On the other hand, munis have no such massive investments of equity and, in general, pay a lower rate of interest on bonds, especially tax-exempt ones. A nonprofit Boulder muni also is strictly limited by the City Charter in transferring funds to the rest of the city government; it can only transfer the amount that Xcel extracted from ratepayers as the franchise fee plus taxes.

As of the end of 2012, Xcel had about $5.6 billion in its electric “rate base.” the unpaid-back investments in its Colorado system. Several billions more are expected to be invested in the near term. Boulder’s share of this “debt” to Xcel will run into the many hundreds of millions. After it’s paid off, we will own nothing.

We have little say about how much and on what Xcel invests. Most of this is decided at the PUC, where many “settlements” of significant issues are resolved behind closed doors. The Boulder City Council is far more responsive than this unelected body, where, even with an expensive attorney, a stakeholder may not be allowed into the process.

Upgrading the local distribution system will cost us whether we stick with Xcel or go with a muni. The difference is that a muni has no incentive to invest where it isn’t needed, as it has no profit motive. A muni does, however, have an incentive to invest in better reliability because of the greater local accountability.

The major Front Range munis all have significantly better reliability than Xcel has in Boulder/Denver. Munis generally have better reliability than IOUs such as Xcel, in part because it’s a lot easier to call a City Council member than to try to get your concerns addressed at the PUC.

Hiring expert management for a Boulder muni is not an issue. Several very experienced companies have expressed strong interest.

In the end, a renewables-based municipal utility can be cleaner, financially less risky, more reliable, have more stable rates, and provide more community and economic benefit. But if Ballot Question 310 — also known as the “Xcel Profit Protection Plan” — passes, none of this will happen.

As written, Ballot Measure 310 can’t be realistically implemented, so it acts like a “poison pill” designed to keep Boulder tied to Xcel’s fossil fuel-dominated system and never-ending rate increases. (We’ve had five rate increases in the last seven years, not including the pass-through of increasing costs of coal.) Ten of the 11 council candidates are against 310.

Even if you believe that working with Xcel is the right way to move forward, a “No” vote on 310 is still the right choice because it preserves Boulder’s negotiating power with Xcel. Either way, the best deal is to vote no on 310. That’s just good business.

Steve Pomerance is a former Boulder City Council member. He can be reached at stevepomerance@yahoo.com.

on Facebook on LinkedIn