Xcel, Boulder square off over franchise rights, clean energy options

Barry Cassell | Dec 25, 2012

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The idea of a 200-MW wind farm devoted to supplying power to the city of Boulder, Colo., has been floated in a series of ongoing, though so far fruitless, talks between local utility owner Xcel Energy (NYSE: XEL) and Boulder city officials.

A memorandum describing those talks was filed Dec. 20 at the Colorado Public Utilities Commission. The Dec. 6 memo is addressed to the Boulder City Council and was prepared by the city manager and other city officials.

The talks with Xcel are keyed by the fact that in November 2011, Boulder voters agreed to allow the City Council to issue bonds to purchase Xcel’s local system if certain criteria related to rates, reliability, bonding revenue, more renewable energy and goals for lowering greenhouse gas emissions can be met.

Voters also agreed to pay a Utility Occupation Tax of $1.9m a year for five years to fund attorneys, engineering and other costs related to the city’s continuing research into the possibility of municipalization. Xcel has opposed municipalization and pledged to its shareholders that it will vigorously defend its interests in court and before regulatory bodies that would consider such a request.

The memo noted that recently, representatives from Xcel have suggested that a partnership with the city is not possible because the city is focused on “localizing” its power. “While it is certainly true that creating a municipal electric utility would give the city the greatest degree of control over its energy future, the fourth goal, ‘providing Boulder energy customers with a greater say about their energy supply,’ could also be met through a genuine partnership with Xcel,” the memo added.

Within the city’s definition of localization, the memo said a wide range of strategies could be executed, including: an increase in distributed generation and local renewables; investments in energy efficiency and demand management; and increased customer choice for clean energy sources.

Xcel’s Public Service Co. of Colorado unit has served the Boulder community since 1929. For most of those 83 years, this service was provided pursuant to a franchise agreement. Franchise agreements give utilities the right to use the public rights-of-way and provide additional terms with which the utility must comply when using the public rights-of-way.

In 2005, the city, a relatively wealthy town, began exploring ways to reduce its greenhouse gas (GHG) emissions. In Boulder, 75% of those emissions are the result of residential and commercial energy consumption. The city began to focus on both the reduction of energy consumption by residents and businesses (demand-side) and the shift away from those fuels that create GHG emissions (supply-side).

The focus on supply-side issues caused the city to begin exploring the possibility of not renewing its franchise agreement with Xcel, but rather forming its own municipal utility, which would use its revenue to increase the amount of renewable energy, the memo noted. City Council authorized and appropriated funds to conduct a feasibility study designed to begin a high-level analysis, identifying any significant obstacles that would preclude the city from moving forward with its investigation in creating a municipal utility. The study concluded that there was a reasonable expectation that the city could acquire the Xcel distribution system without any rate increases.

The municipalization study was halted in 2008 when Xcel proposed making Boulder its SmartGridCity. With the franchise agreement set to expire in 2010, the city began negotiating with Xcel regarding not only the “nuts and bolts” franchise agreement, but also other opportunities to partner that would move Boulder closer to its goal of a cleaner fuel mix, the memo said. For nearly two years, city staff and Xcel staff met to discuss possible ways to reduce demand and “green up” the city’s fuel supply.

Many ideas floated, few accepted

Some of the ideas suggested by the city, but ultimately rejected by Xcel for a variety of reasons, included changing the city’s fuel source mix to increase renewable energy, installing solar at Valmont Butte and Windsource aggregation. In some instances, the parties had different visions of the future of electric service in Colorado, but in many cases, Xcel could not agree to certain proposals from the city because state laws and regulations require investor-owned utilities like Xcel to treat each of its customers similarly or do not currently permit the suggestions proposed by the city, the memo pointed out.

Xcel did agree:

to support Community Solar Gardens;
to confer regularly with the city regarding SmartGridCity;
to work with the city to design and operate a customer usage data access pilot program;
to collaborate with the city on energy efficiency and demand-side management programs;
to apply to decommission the Valmont coal-fired generation or complete conversion of that unit to natural gas by Jan. 1, 2013;
to study and develop a shared strategy to develop a plan that will allow the city to accomplish 100% decarbonization of its electric supply on an accelerated basis; and
to advertise the Windsource program in an effort to increase subscriptions to the program in the city.

Barry Cassell is chief analyst, coal sector, GenerationHub

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