Municipalization now at cost-determining phase

The city of Boulder is still trying to form its own power utility, even after more than a decade of trying to purchase the city’s existing power company assets from Xcel Energy.

A recent decision by the Colorado Public Utilities Commission paves the way for condemnation, which is a process through which a municipality can condemn assets to bring the current utility provider to the negotiating table.

In October, the PUC determined which assets could be transferred from Xcel Energy to the city of Boulder.

“The matter has moved to the condemnation court to determine the value of the assets and the PUC is no longer involved,” said Terry Bote, external affairs manager at the Colorado PUC.

Boulder’s City Council began the quest for municipalization in the late 2000s. Xcel Energy at the time was producing 98 percent of its electricity from coal and natural gas and 2 percent from renewables and that didn’t fit with Boulder’s efforts to reduce greenhouse gas emissions.

“We signed onto the Kyoto protocol,” said Emily Sandoval, communications specialist in charge of municipalization for the city of Boulder. “It was clear to us after working on efficiency programs, recycling and composting, it wouldn’t be enough to get to our goal unless we added renewables to our electric system. We thought about working with Xcel and finding new agreements with them. But the most viable solution was becoming our own electric utility.”

Sandoval said that in Colorado, municipalities don’t get a say in how their electric provider produces that energy. Municipal utilities, of which there are 29 in the state of Colorado, are “free to choose their power providers from all over the place. They don’t have to purchase from Xcel.”

Since that time, Xcel has added renewables to its system.

“Our priority is to ensure that we are protecting the best interest of all our Colorado customers. Xcel Energy is committed to our clean energy leadership — delivering safe, reliable energy that is affordable for our customers — as we continue on the path to achieve carbon emissions reductions of 80 percent by 2030 with a vision to provide our customers with 100 percent carbon-free energy by 2050,” said Michelle Aguayo, spokesperson for Xcel Energy.

Sandoval agrees that Xcel has changed quite a bit since the city first began exploring the idea of forming it own local power utility. “Part of it is economics and part of it is state law and part of it is what makes sense for them as a business,” she said.

In 2018, Xcel gleaned 28 percent of its electricity from renewables.

The city of Boulder wants to reach 100 percent renewables by 2030.

The city has put the idea of municipalization before its voters a couple of times and each time they voted to fund the city’s efforts. In 2021, the city would like to ask voters one more time if having a local power company is indeed what they want. That’s why the condemnation process is so important. That process will determine how much money the city will pay Xcel for its transmission lines and equipment so that voters will know how much a local power company will cost taxpayers.

This is uncharted waters. No city in Colorado has municipalized since 1915. That one happened before the regulatory system existed.

“We’re in the middle of defining a path for the city to municipalization. We have taken some guesses to how that should be accomplished,” Sandoval said. “This is our third condemnation attempt.”

In 2013, the city tried to use eminent domain to condemn the poles and wires in order to purchase them. That attempt was denied because the PUC hadn’t approved the plan. Over the next four years, the city worked with the PUC on a separation plan, which was just approved in October 2019, so now the city has filed for condemnation again.

The current condemnation proceeding is pending, said Kathy Haddock, Boulder’s condemnation attorney. Xcel was due to respond by Jan. 27. If Xcel doesn’t respond or it disputes negotiations the case will go to trial. It is then up to Xcel to “prove that the value of the property is more than we say it is,” she said.

“The government has the power to take property from other people for public purposes that are necessary but we have to pay just compensation,” Haddock said.

In November, the city offered Xcel Energy $93.96 million to purchase pieces of its electric infrastructure in the area. The appraised value of the assets, outside substations, is $62.3 million. The offer is double the original cost of the assets, less depreciation, according to the city of Boulder.

The condemnation proceedings cover everything from the substation to the customer, including transformers, poles and power lines. Those are the items the PUC approved Boulder to acquire.

“It is very common that the property owner doesn’t want to sell or they want to get more money than the government is offering,” Haddock said.

“If there wasn’t this right of condemnation then the landowner could demand an unreasonable amount and add more to the public project,” she said. “They balance the interest of the taxpayers and the landowner to make sure the landowner is fairly compensated but the taxpayer is not overpaying for the property.”

Ursula Schryver, vice president of education and customer programs at the American Public Power Association in Arlington, Virginia, said that new municipal utilities form every couple of years but that Boulder’s situation is a little more drawn out than some cases.

Most existing utilities faced with this situation “do fight the sale because they lose customers and profits by selling the system to the public community. They fight it pretty strongly. It does drag out the process, increases costs and there are typically lawsuits,” Shryver said.

Municipalities go through this process for many reasons. Some want to buy more renewable energy. Others want to reduce costs but much of it comes down to those municipalities gaining local control and decision-making capabilities in that space.

“That’s the primary benefit of public power is its ability to make decisions locally, decide where the money is spent, increase reliability and reduce rates,” said Shryver.

She added that most of the utilities that have formed a municipal power company were smaller communities.

“The larger communities, the investor-owned utilities are going to fight that effort even harder than would a smaller community because there’s a lot more revenue and profits they lose by losing those customers,” she said.

If the parties can’t agree on a sales price through negotiations, the court will determine the cost, which will be somewhere between what the two parties have proposed.

Editor’s note: This story was edited to correct the amount of Xcel’s Energy generated from renewable sources in 2018.

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