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Energy report: A power couple on the rocks

Climate-conscious Boulder explores split with Xcel


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Donald and Ivana Trump. Elizabeth Taylor and Richard  Burton. The City of Boulder and Xcel Energy.

Okay, the latter divorce is not a done deal, nor is it as titillating. No shouting, no drunken skirmishes. In fact, Boulder city officials have conceded that, among the nation’s investor-owned utilities, Xcel may be among the best.

But given the magnitude of the climate risk, Boulder finds Xcel lacking, a lead-footed dance partner. Some liken Xcel’s effort to innovate to that of a sumo wrestler trying to perform ballet. And, as a monopoly, they say, it has too little incentive to be entrepreneurial.

So, better to dance solo? Since refusing to renew its franchise with Xcel in 2010, the city has spent $7.6 million to investigate whether it can establish its own electric utility. A critical question is how much Boulder would have to pay Xcel for its transformers, distribution lines and other infrastructure. City planners have estimated the value at anywhere from $150 million to $400 million, but most likely $214 million. Xcel, of course, will likely think more. A court will decide, and Boulder voters ultimately will choose – possibly before the end of 2017 – whether it’s worthwhile to become Colorado’s 30th municipal utility.

Colorado’s 29 existing muni’s range from Colorado Springs, population 439,886, to Fleming, east of Sterling, population 400. Some care only about cost and reliability. Fort Collins and others are focused on shrinking the carbon intensity of fuels. Aspen Electric leads all in that department. Last year, it achieved a 100 percent carbon-free portfolio, one of the few in the nation. It did so while maintaining middlin’ electric rates.

And Boulder would like a carbon-free portfolio, too. It embraced Kyoto Protocol greenhouse gas reductions in 2002 (only partially realized) and a carbon tax in 2006, a first in the country. Local activists pushed the city council toward more muscular action. In 2011, by a thin majority, voters agreed to a tax that essentially funds the investigation of municipalization.

No insurmountable barriers have been identified in that investigation. Ancillary benefits have. One is economic development, says Heather Bailey, who directs the city’s investigation. Boulder is thick with ideas-people and business builders, including 30-some companies already engaged in the energy sector. The common denominator is change. They sense an opportunity in what former Gov. Bill Ritter calls the new energy economy.

Grid resiliency would also benefit. Bailey says the floods of 2013 underscored the value of more localized production and consumption of energy in a microgrid. A microgrid can operate within the larger grid but disconnect and function autonomously as physical and economic conditions dictate.

For decades, the nation’s electrical utilities were like those dingy bars with a pink martini glass in the window and Perry Como on the jukebox. They were set in their ways and averse to risk. The business model for Xcel and other investor-owned utilities was more than a century old. Samuel Insull, a one-time assistant to Thomas Edison, saw the value of gaining a monopoly for electrical service in Chicago in exchange for government regulation. He also saw the value of increasing efficiencies by building ever-larger power plants. This held true in Colorado. The state’s largest, Comanche 3, began production in 2010.

Xcel has changed, though. It opposed Colorado’s first voter-mandated renewable portfolio standard of 10 percent but now expects to meet its 30 percent mandate ahead of the 2020 deadline. Carbon dioxide emissions in 2020 from Public Service Co. of Colorado, the Xcel subsidiary, are projected to be 35 percent below those of 2005. A variety of programs seek to expand renewable energy options for consumers.

“They are at the head of the class, but the class needs to elevate their game just a tremendous amount,” says Boulder’s Leslie Glustrom, a climate activist and co-founder of Clean Energy Action. “We’re just drowning in wind and solar potential in Colorado.

We should be on track for 60 or 70 percent renewables in the next decade and with a grid that is more reliable and resilient.”

Glustrom says Boulder is driven by a moral obligation to address greenhouse gases. A biochemist, she says the municipalization was not her first choice. “But it was so difficult to get their attention, so municipalization, as I saw it, was the only avenue we had,” she says. She advises perspective on Boulder’s costs. Xcel takes $40 million a year in after-tax revenue from the city, she says. She also sees Xcel’s investment in coal generation – $1.5 billion in the last decade at Pueblo, Brush and Hayden – as wasteful. Those plants will soon be obsolete, she says, stranded by more economical renewable energy.

Do monopolies innovate well? The argument in Boulder is that they don’t — and customer satisfaction suffers. “They have struggled for the last decade to grasp the concept of choice,” says Glustrom. She likens Xcel’s monpoly to a one-restaurant town. “They can serve liver and onions — and if you don’t like it, too bad.”

Then there’s state regulation, which rewards investor-owned utilities based on their ownership of assets, whether coal plant or wind farms. Innovation itself is not rewarded. Ron Lehr maintains that Xcel needs new incentives. He’s a former chairman of the Colorado Public Utilities Commission, the body given statutory responsibility for regulating Xcel Energy and Black Hills Energy, the two investor-owned utilities in Colorado. Lately, he has teamed with another former PUC chairman, Ron Binz, in studying how state regulations here and elsewhere should change to create utilities focused on delivering energy services, not just electrons. As Aspen’s Amory Lovins long ago observed, you don’t care how many electrons it took, only that your beer is cold and your shower is hot.

Different regulations would produce a different business model. “Is it any surprise that’s how they (Xcel) organize themselves to do business?” asks Lehr. “If you pay them to do something else, they might do something else.”  

But even without regulatory reform, the utility sector has been changing rapidly. Prices of renewables have been plummeting. Wind generation is now coming in lower than coal or natural gas. Giant wind farms are planned, including Philip Anschutz’s proposed Chokecherry and Sierra Madre Wind Farm in southern Wyoming.  Taking a longer view, the looming question is whether Xcel and other utilities would come out ahead by abandoning their coal and natural gas plants.

   The central question for Boulder, Lehr adds, is whether the city can more effectively achieve its greenhouse gas reduction goals as a partner of Xcel, to secure the transmission.

From the outset of this divorce talk, Xcel has maintained that Boulder can best achieve its goal as a “partner.” More fiber emerged this year as the company revealed its Our Energy Future plan. It looks as if it were designed to counter Boulder’s key arguments. Xcel says key elements are providing increased customer choice, local economic development, and technological energy innovations.

David Eves, president of the Public Service Co. of Colorado, describes a bottom-up approach to building renewable energy generation in Colorado. The company is expanding its customer choice programs, letting consumers define how much of their power supplies they want from renewables. 

Communities can leverage those programs to significantly shrink their carbon footprints, he says. If Boulder aggressively embraces the opportunities with Xcel, says Eves, it could achieve carbon-reduction goals and “become an example for other communities and an example for our customers.”  

Boulder is responsible for 250 megawatts of Xcel’s demand. The company already is proposing to expand ownership renewables by 100 megawatts per year as it adds new wind, especially, but also solar. “It’s very significant,” says Eves. Xcel also proposes to integrate advanced communication technology into its delivery grid. Battery-storage projects, one at Stapleton and another at the new Panasonic innovation center, both in Denver, are also planned, to better integrate renewables.

“We think this addresses the infrastructure, pricing, customer choice, and it is also built around encouraging new technology and more renewable energy,” he says.

Eves also disputes that Xcel’s monopoly slows or blocks change. “I think this is a new business model. It can be done within the current statutory and regulatory framework – if not completely, then to a very, very large degree,” he says.

Of course Boulder should stay. “ We are a fleet-footed dancer,” he says.

In Boulder, though, climate activists remain skeptical.  They say Xcel has picked up its pace, partly a result of the threat of divorce. But the company – well, as a dance partner, it’s always a half-step behind the beat.

WHO SERVES YOU

Colorado has three types of electrical utilities. Xcel Energy, through its subsidiary, Public Service Co., and Black Hills, are the two investor-owned utilities. Together, they serve 63.1 percent of electrical customers in Colorado. The 29 municipal-owned utilities service 18 percent of the state’s customers.

The final category consists of the 22 cooperatives. They are mostly found in areas that, when the co-ops were formed in the late 1930s, consisted of farms and ranches. In some cases, notably Sedalia-based Intermountain Rural Electric Association and Brighton-based United Power, the exurbs and suburbs have arrived in the country. They serve 18.9 percent of customers.

Source: Navigant Consulting, via a 2010 report on the Colorado Energy Office website.

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Allen Best

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