boulder light & power:   exploring the creation of a municipal utility

Boulder Light & Power:  Boulder Light & Power:  Exploring the Creation of a Municipal Exploring the Creation of a Municipal

UtilityUtility

Macon Cowles - Lawyer, Boulder City Council Member

Debra Kalish- Senior Assistant City Attorney

David Gehr- Deputy City Attorney

Jonathan Koehn- Regional Sustainability Coordinator

City of Boulder Presentation to the CBA Environmental Law City of Boulder Presentation to the CBA Environmental Law Section Section

January 24, 2012January 24, 2012

Agenda

1. Macon Cowles - Introduction

2. David Gehr – Franchises and Ballots

3. Debra Kalish - Colorado Regulatory Context

4. Jonathan Koehn- Why Municipalize?

5. David Gehr- The Federal Regulatory Context

6. Macon Cowles - Lessons Learned / Wrap-up

Part 1- Local Utility-Big Picture

 Background on Boulder’s

Investigation into Municipalization

Part 2- Franchises and Utilities

Part 2- Franchises and Utilities

Specific Ballot Language

Ballot Issue No. 2B

INCREASE AND EXTEND THE UTILITY OCCUPATION TAX

Key points:

Increases Utility Occupation Tax $1.9 M annually For the purpose of funding planning to create a municipal electric utility

and acquire the existing distribution system Extends tax for two years Expires Dec. 31, 2017, or when the city chooses not to create a utility,

or when a municipal utility starts

Specific Ballot Language

Ballot Issue No. 2CLIGHT AND POWER UTILITY

Key points:

Authorizes the creation of a municipal electric utility ONLY IF:

City Council determines that it can acquire the electrical distribution system in Boulder and charge rates that do not exceed those rates charged by Xcel Energy at the time of acquisition, and

Such rates will produce revenues sufficient to pay for operating expenses and debt payments, plus an amount equal to twenty-five percent (25%) of the debt payments, and

Utility can demonstrate comparable reliability to Xcel Energy and include a plan for reduced greenhouse gas emissions and other pollutants and increased renewable energy

Part 3- The State Regulatory Context

The Colorado Public Utilities Commission

(PUC)

Gen’l William Jackson Palmer William B. StrongSeptember 17, 1836-March 13, 1909 May 16, 1837-August 3, 1914

History of the PUC

Bartholomiew Masterson (William Barclay "Bat" Masterson)

1853-1921

History of the PUC

The PUC “serves the public interest by effectively regulating utilities and facilities so that the people of Colorado receive safe, reliable, and reasonably-priced services consistent with the economic, environmental and social values of our state.”

PUC Mission Statement

EnergyTelecommunicationsTransportationEconomicsRail/Transit Safety and WaterGas Pipeline SafetyResearch and Emerging Issues

PUC Organization

Colorado Constitution, art. XXV, Public utilities

In addition to the powers now vested in the General Assembly of the State of Colorado, all power to regulate the facilities, service and rates and charges therefor, including facilities and service and rates and charges therefor within home rule cities and home rule towns, of every corporation, individual, or association of individuals, wheresoever situate or operating within the State of Colorado, whether within or without a home rule city or home rule town, as a public utility, as presently or as may hereafter be defined as a public utility by the laws of the State of Colorado, is hereby vested in such agency of the State of Colorado as the General Assembly shall by law designate.

Until such time as the General Assembly may otherwise designate, said authority shall be vested in the Public Utilities Commission of the State of Colorado; provided however, nothing herein shall affect the power of municipalities to exercise reasonable police and licensing powers, nor their power to grant franchises; and provided, further, that nothing herein shall be construed to apply to municipally owned utilities.

Constitutional, Statutory & Regulatory Authority

C.R.S. § 40-3-101 et seq.

4 Colorado Code of Regulations 723-1

Constitutional, Statutory & Regulatory Authority

The current state regulatory system is based upon the state’s regulation of a monopoly

Treating all similarly situated customers similarly

40-3-101: No “unjust discrimination or the granting of a preference.”

Effect of Regulatory Scheme

Effect of Regulatory Scheme

Effect on City’s Negotiations with Xcel Energy– No “Boulder Rate” for different mixes of power– Nothing that couldn’t be offered to another

community

Effect on City’s Ability to Meet its Goals– Everything needs PUC approval, not just local

approval– Limited by state statute and PUC regulations

Part 4- Why Municipalization?

What must a jurisdiction learn in order to

assess the feasibility of creating

a municipal utility and explore the

opportunities?

Local Energy Goals Ensure a stable, safe and reliable energy

supply

Ensure competitive rates, balancing short-term and long-term interests

Significantly reduce carbon emissions and pollutants

Provide customers with a greater say about their energy supply

Promote local economic vitality

What Are We Trying to Achieve? Respond in a responsible and pro-active manner to a

changing energy economy

Reduce our exposure to fluctuating energy prices and long-term fuel availability issues

Reduce our greenhouse gas emissions

Maximize the local benefit of our energy investments

Create more choice and more competition, and position Boulder as a center for energy innovation

The Choices Stay with Xcel under “status quo” (no franchise)

Continue to focus on demand-side management Pursue options as they become available Negotiate a new 20-year franchise?

Create a municipal utility that owns and operates the distribution system Fee for service, nonprofit enterprise; there are 29 other

munis in Colorado; 2,000 nationally Pursue new partnerships and strategies to achieve

short-term and long-term goals and objectives

2121

Municipalization

Process of a city acquiring ownership and assuming responsibility for operation of the electric utility system

Locally-Run Electric Utility

Fee for service vs. profit based entity

29 in Colorado, 2000 nationally (14% of consumers)

Local Utility-Big Picture

Potential benefits of a local utility Local management

Emphasis on long-term community goals

Lower electricity rates with equal or greater reliability

Not for profit

Opportunities for innovation and partnership

Access to tax-exempt finance for capital projects

Local jobs creation

Ability to tap wholesale electricity market

Local Utility – Big Picture

2323

Setting a Course for the Future

Energy Baseline Analysis

Localization Report

Smart Grid Evaluation

Local Utility FeasibilityAnalysis

Cost Model (initial and additional runs)

All reports and City Council materials are available atwww.boulderenergyfuture.com

City-Funded Analyses

Energy Baseline Analysis

Understanding Boulder’s past, present and future related to energy

Localization Report

Feasibility Modeling Fully Reliable Grid (99.99% plus)

Grid Design Must Be Robust and Scalable and Implementable

Minimize CO2 and Pollution Emissions

Maximize Grid Ability to Accept Increasing Renewables/Storage

Minimize Resulting Electricity Rates

Be Conservative! Most Generation Pricing Data from Xcel Filings

Assume Current Load, Energy Prices, Generation Prices

Require FERC Levels for Reliability

Identify Modeling Plan for Future Improvements to Reduce Rates

Cost Modeling

$120M Startup Costs (Estimates $120M -$600M)

7% Bond Interest Rates

Equipment Costs from Xcel (mostly) and Literature

25-Year Program for Costs of Generation

15% or Higher Annual Operating Reserve (FERC)

7% Hourly Operating Reserve (WECC)

Cost Modeling

Are We Ready to Move Forward?

Yes. We know that a municipal utility is technically, legally and financially feasible

November’s vote will allow Boulder to determine the costs that can only be known through further proceedings

There are suitable off-ramps to protect the city’s and customers’ interests

The potential benefits outweigh the risk of investing time and resources and deciding not to move forward

What Is An Off-Ramp?

Financial impact of “variables”

- Acquisition

- Stranded Cost

- Bond Rating

- Interest Rate

Identification of alternative paths

??

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Hire/retain key experts

Conduct next step analyses and initiate negotiations/ condemnation

Distribution system appraisal

Separation/severance planning

Develop Energy Action Plan

Next Steps

Part 5- The Federal Regulatory Context

The regulatory framework established by the Federal Energy Regulatory

Commission (FERC)

Part 4- The Federal Regulatory Context

Shively, Bob andJohn Farrare, Understanding Today’s Electricity Business, Enerdynamics (2010), p. 55.

Part 5- The Federal Regulatory Context

STRANDED COST FORMULA

Stranded (Revenue __ Competitive) Length ofCost = (Stream Market Value) x AnticipatedObligation (Estimate Estimate) Service

Macon Cowles - Lawyer, Boulder City Council Member(303) 381-3406

macon@easonrohde.com

Debra Kalish - Senior Assistant City Attorney(303) 441-3020

kalishd@bouldercolorado.gov

David Gehr - Deputy City Attorney(303) 441-3020

gehrd@bouldercolorado.gov

Jonathan Koehn- Regional Sustainability Coordinator(303) 441-1915

koehnj@bouldercolorado.gov

Contacts