Boulder to up spending as utility enters transition phase

Aug 15 - McClatchy-Tribune Regional News - Erica Meltzer Daily Camera, Boulder, Colo.

To hire new employees, line up power contracts, set up billing and dispatch operations, and do all the work necessary to take over Xcel Energy's electricity distribution system, Boulder expects to spend "significantly more than we have been spending on an annual basis so far," city spokeswoman Sarah Huntley said.

Huntley said city officials won't have specific numbers until late August or early September, when the draft 2015 budget is released, but city officials always expected that costs would go up in advance of the city acquiring Xcel's system and starting its own utility.

"This is something we fully anticipated," she said. "When we did our modeling, we looked at startup costs."

On Thursday, Boulder released a report from consultant PowerServices Inc. that described the transition plans under two scenarios: one in which Boulder and Xcel cooperate on an orderly two-year transition; and one in which Boulder has to sink or swim on "Day 1."

That latter "Scenario B" requires the city to do a lot more preparation in advance of taking ownership of the system, including having contract crews and power supply agreements ready to go, all while the city won't know for sure if the distribution system and regulatory costs will be within the city's means or too costly to allow the formation of the utility.

"The most significant prerequisite for transition is flexibility in the sequencing and scheduling of activities," PowerServices wrote in the report. "The path towards electric municipalization is not one-dimensional. Uncertainties are amplified if the owner of the system to be acquired does not cooperate and acts as an impediment to the acquisition process. ... The city must first manage the risks of acquisition while prioritizing the fundamentals of an electric utility: safety and reliability."

Boulder filed to condemn Xcel's local distribution system, including all or part of nine substations and a high voltage transmission line that rings the city, in July. At that time, the city put the value of the system at $120 million, well south of the $214 million cap on debt related to acquisition that voters approved in 2013.

Xcel has not yet revealed its own valuation, expected to be much higher, and on Tuesday, the company asked a Boulder District Court judge to throw out the condemnation case as "premature." Last year the Colorado Public Utilities Commission ruled that Boulder should bring its acquisition plan to it before filing for condemnation, a ruling that Boulder appealed and then ignored.

Xcel spokeswoman Michelle Aguayo said the company had not had time to review the transition plan in detail, but it, too, seems premature considering the outstanding legal issues.

Aguayo said she could not comment on how much assistance Xcel might provide Boulder in creating a smooth transition in which the city would likely continue to buy power from Xcel because so many legal issues are in play.

"We have too many unanswered questions, especially with regards to the PUC case, that we just can't talk about that at this time," she said.

Huntley said Boulder will have a sense, as the court case plays out, of which direction things are headed and will have time to shift transition plans in response.

"As in any litigation, there will be rulings along the way, and some will be in our favor and some will be against us," she said. "There are some key decisions that will give us better information about how to proceed."

She said that Xcel could also be ordered, by the PUC or the court, to work with the city on transition plans.

Huntley said Boulder is reaching a point where the city will spend money well above the $1.9 million generated by the utility occupation tax. Voters approved an increase in that tax in 2011 specifically to pay for research into municipalization, and that money cannot be spent any other way.

The city has also approved general fund transfers of $300,000 the last two years to pay for additional municipalization requests.

Boulder had budgeted $2.3 million for the municipalization effort in 2014. City officials have said legal costs are likely to push that number higher, in part because the city moved up certain parts of the legal process. However, up-to-date spending numbers were not available Thursday afternoon.

Starting in 2015 and continuing until a municipal utility starts to collect revenue, city spending will go up significantly, Huntley said.

Huntley said that number should be kept in the context of the estimated $30 million in profit that Xcel gets just from Boulder each year.

"People hear the kinds of numbers we're talking about -- and it's true, they are in the millions -- but the kinds of revenues collected by a utility like this are also in the millions," she said.

She said a municipal utility will re-invest that money in infrastructure and innovation instead of paying corporate shareholders.

However, if Boulder does not form a utility, it will have no way of recouping those costs, Huntley acknowledged.

Huntley said no decision has been made about whether a future utility would pay back the general fund for those startup costs. Boulder officials have also discussed the idea of asking voters for a tax to cover startup costs, but no such tax will be on the ballot this year.

The report on the transition plan described a "Day 1" coming in the third quarter of 2016, with Boulder taking possession of the system after an 18-month to two-year court battle and beginning billing at that point. Various separation points and connections would need to be built between Boulder's system and Xcel's system. PowerServices estimated that would take another two years.

If Xcel works with Boulder, Xcel could maintain certain operational aspects and sell power to Boulder during that time. If not, Boulder would need to have contracted crews ready to take over operations on Day 1, as well as power purchase agreements with third-party suppliers in place.

Any such contracts would need to be prepared in advance with termination clauses in case the utility does not move forward, PowerServices said.

The utility would start with a combination of new city employees with energy expertise and outside contractors. Over time, the city could decide whether to bring all operations in-house or continue to contract for certain services.

Huntley said the condemnation filing and the release of the transition plan move the city into the next phase.

"We are very actively transitioning away from a research endeavor toward implementation of a vision that our community has," she said. "We are preparing in a very focused and strategic way for that implementation."

Huntley said the city would continue to assess the feasibility of municipalization and made "prudent" decisions about spending.

"We do understand we have a cash flow situation we have to address, but there is some uncertainty about the outcome," she said. "We want to make decisions wisely. Our community expects that of us."

Contact Camera Staff Writer Erica Meltzer at 303-473-1355 or meltzere@dailycamera.com.

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