Report details options for municipal utility
Those were some of the most important questions Boulder’s energy staff, hired consultants and community volunteers spent the past few months trying to answer. Their findings were released Feb. 21 in a report for the city council.
The group first was trying to answer a more pivotal question: Is there any way Boulder could create a utility that would meet its energy objectives and requirements established in the city charter?
To meet the requirements, a utility would have to be as reliable as current owner-operator Xcel Energy Inc., offer rate parity given certain assumptions about future legal and regulatory rulings, cover debt payments, reduce greenhouse gas emissions and increase the use of renewable energy.
The report’s answer is yes, assuming the methods and models the team used are correct. That’s a big assumption that could draw a high level of scrutiny in the next few months.
The report compares a hypothetical utility that could focus on five different sets of goals and a projection of what Xcel could offer Boulder. The comparison is designed to cover a 20-year period. The time frame starts in 2017, which is presumed to be the soonest a utility could be launched given the extensive technical, operational and legal work needed to be done.
Xcel is the investor-owned utility that currently owns and operates the Boulder-area electric system. The company has made clear it does not want to sell the system, which would require Boulder to take it via eminent domain.
Three of the five hypothetical paths taken by the municipal utility would meet those five requirements from “day one,” according to the team. One would be a “phase out” option, under which the city envisions purchasing power from Xcel for five years. It presumes the power would be generated from Xcel’s current “mix” of coal, natural gas and renewable energy, which the state requires to be 30 percent of Xcel’s supply. After five years, Boulder would be able to get power from other energy providers.
The “low cost” and “low cost, no coal” options also would make the cut. Both options found that a utility could exceed its standards while keeping generation costs as low as possible and still exceed the city’s greenhouse-gas emissions reduction goals.
The “low cost” option would draw 25 percent of its power from coal at the start, while the “low cost, no coal” option would not utilize coal at all. The city assumed Xcel will draw 50 percent of its power from coal in 2017.
Utilities that put the priority on reducing greenhouse gases as soon as possible without requirements for low generation costs would not be able to meet the rate-parity requirement, the city found.
A couple major assumptions are behind the city’s findings, which the city acknowledges could be subject to change.
The rate-parity estimate tries to account for one of the major unknowns in the municipalization debate: exactly how much it would cost Boulder to acquire Xcel’s assets if the parties went to court.
The cost estimate has two elements. One is what a state court would find Boulder would have to pay Xcel as fair compensation for its assets. An Xcel consultant has put that price at $150 million, according to the report. The city’s assumptions use that number, although the court could come in with a lower or higher valuation.
The second piece is what the Federal Energy Regulatory Commission would find Boulder owed Xcel for “stranded costs.” The payment to Xcel would help the company recover money it lost because of upgrades it made to the Boulder-area system that were based on the assumption it would still own it and collect revenue from it.
The stranded cost figure could be between $0 and $255 million, which is based on a number provided by Xcel Energy.
Under what Boulder calls its “best-case” scenario, it would owe nothing for stranded costs and pay $150 million in acquisition costs. Under that scenario, the “phase out,” “low cost” and “low cost, no coal” options would have an 80 percent likelihood of meeting the rate parity goal.
Under the worst-case scenario, in which Boulder would owe Xcel all $405 million it is asking for, only the “phase out” option would have a 50 percent likelihood of meeting the cost goal.
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