Xcel franchise renewal: the backstory

Decisions coming due in August, with more to follow

| Jul 14, 2010

By Lisa Han | New Era News

Right now, the City of Boulder has a franchise agreement with Xcel Energy that essentially allows Xcel to put its equipment in the city and act as Boulder’s primary energy utility. It also gives Xcel the authority to collect a franchise fee — a 3 percent sales tax of $4 million — and deliver it directly to the City of Boulder for city services.
The disputed Valmont plant

The disputed Valmont plant

At the end of the year, that franchise will expire. By August, the city must decide whether or not to create a ballot measure for residents to vote on another 20-year-long franchise with Xcel. To replace the franchise fee in the event that the franchise is not passed, they may also place a new excise tax on the ballot. The sticking point is, Boulder citizens are increasingly concerned about meeting their high renewable energy standards, and are afraid that Xcel, an investor-owned utility, will not take this seriously enough.

Working with Xcel

If the franchise is approved, we would continue to receive a franchise fee, and will hopefully negotiate side agreements that will focus on a joint study and strategy for decarbonization, tracking customer data for the Climate Action Plan, Solar Gardens, Windsource, and the continuation of the SmartGridCity project.

Working with Xcel may also prove to be important for students in particular. Currently, CU is Xcel’s biggest customer in Boulder, and it has its own separate agreement with the company. In January, CU installed solar panels on three buildings, including the Coors Event Center. In fact, it planned to use its solar panels to sell energy back to Xcel. Ken Wilson, the Deputy Mayor of Boulder City Council, outlines a dilemma for students, who pay for utilities either in the dorms through the university or in their rental properties:

“The question for students is, how much are you willing to pay [for renewable energy] and help us convince your parents that they should pay more for the environment? That’s the fight,” said Wilson.

Municipalization

If we do not renew the franchise agreement, our option will be municipalization: the purchase of Xcel equipment by the city that could allow us to go further with clean energy options, and in particular, locally produced energy (distributed generation). This is a big deal, because buying infrastructure from Xcel will cost anywhere between $100 million to $50 million. In order to pay this, the city will have to float a bond, and then pay it over time.

According to Wilson, the process of becoming a municipal power would take about five years, with at least $100,000 per year to conduct research and deal with legal fees. However, the city may recruit assistance from organizations out of state to manage municipal power, as well as through local companies.

“We would have to recreate all of those projects like solar rewards for photovoltaics on rooftops. We would have to come up with our own programs and fund it ourselves,” said Wilson.

On the other hand, there are cost benefits to becoming a “muni.” Steve Pomerance, a member of the Decarbonization Tech Team, emphasizes that financing will be cheaper because the city can receive lower bond rates. Because the utility will run like a non-profit, the city will also not have to subsidize Xcel shareholders.

Pros of the Franchise

Staying with Xcel has its benefits in the certainty of operations and defined roles. It will also guarantee revenue for the city, and could be a useful avenue for expanding on clean energy goals. Though it is an investor-owned utility, Xcel also shows promise in becoming green, as evidenced by its decommissioning of coal plants through HB 10-1365. Craig Eicher, Xcel’s Area Manager, points to Windsource as an example of a successful Xcel renewable energy project.

“Ten percent of our population are currently subscribing to Windsource,” said Eicher. “We will partner with the city in having a very strong and aggressive promotions campaign to drive participation in Windsource.”

Xcel also has shown interest in raising the cap on rate increases, which would allow the city to put in more medium scale locally-produced energy. Without the franchise, the city would also mostly likely purchase Xcel’s SmartGrid infrastructure, something Wilson considers “an asset that we would need to use.”

Wilson himself stated that he wanted Boulder to be a muni, if only it had done so 50 years ago. Now he sees a long and costly battle, that may be rendered excessive given the political advantages to the franchise. Xcel provides about 60 percent of the state’s energy, including to Denver and Aurora.

“When we are part of the Xcel family, we then have a voice on the state level,” said Wilson. “I’d rather see us be a leader at the state level than go off on our own.”

Wilson also clarified that the 20-year agreement is really a 10-year agreement because we can opt out in 10 years according to state law. Furthermore, Eicher stressed that adding the franchise will not restrict the city’s choices for renewable energy. Rates will also likely be cheaper for consumers with this option.

Cons of the Franchise

Opponents of the franchise agreement cite a number of disadvantages, including the reduced ability to support locally-supplied clean energy. According to Pomerance, Xcel still has too high of a stake in their own fossil fuel plants to fully commit to the city’s desires. In addition, if the city tries to bail out early from the franchise, it may be faced with stranded investment costs. Pomerance also considers many of Xcel’s projects and side agreements to be a waste of time, including the joint study and the $100 million SmartGridCity project.

“When Xcel put it in [SmartGrid], it was way too big and way too premature, and there were no standards,” said Pomerance. “Boulder could in fact have a state of the arts system if they didn’t buy the distribution system from Xcel.”

Pomerance also responded to the idea of the franchise fee.

“if you actually evaluate the money, what we pay for Xcel just to pay for their distribution system could actually be used to pay for the whole franchise fee,” said Pomerance.

Wilson, however, stresses that the franchise fee is not something to take lightly, as the $4 million accounts for 5 percent of the city’s general fund. Without the source of income from the fee or a replacement tax, “we would be closing libraries and rec centers… we would be in no man’s land,” said Wilson. Supporters also cite examples of successful munis, such as Marin County, Cali., which got rid of Pacific Gas and Electric to opt for community choice aggregation. The change, however, also comes with a higher price of electricity, which is double that of Boulder in Marin County.

Outlook

Right now, the franchise seems to lack support from residents. According to a recent survey by Talmey-Drake Research, only 43 percent of voters said they would vote for the franchise, 23 percent were against, and 33 percent were undecided. In terms of having an excise tax, 45 percent of voters were opposed and only 34 percent were in favor. The Daily Camera reported:

The firm surveyed 625 people and found that neither issue would be likely to pass if the election were held now. But the results also showed that people’s support or opposition to the measures was generally weak – and that many people were still undecided.

It looks likes both sides still have a chance to sway residents and get them out to vote. Let’s just hope that these preliminary findings for the franchise and the tax don’t become the final decisions- I want to keep my rec centers!

This article originally appeared in New Era News


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