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

1. Boulder Light & Power:   Exploring the Creation of a Municipal Utility 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 Section January 24, 2012

2. 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

3. Part 1- Local Utility-Big Picture Background on Boulder’s Investigation into Municipalization

4. Part 2- Franchises and Utilities

5. Part 2- Franchises and Utilities

6. 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

7. Ballot Issue No. 2C LIGHT 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 Specific Ballot Language

8. Part 3- The State Regulatory Context The Colorado Public Utilities Commission (PUC)

9. History of the PUC Gen’l William Jackson Palmer William B. Strong September 17, 1836-March 13, 1909 May 16, 1837-August 3, 1914

10. Bartholomiew Masterson (William Barclay "Bat" Masterson)1853-1921 History of the PUC

11. 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

12. PUC Organization • Energy • Telecommunications • Transportation • Economics • Rail/Transit Safety and Water • Gas Pipeline Safety • Research and Emerging Issues

13. Constitutional, Statutory & Regulatory Authority 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.

14. Constitutional, Statutory & Regulatory Authority C.R.S. § 40-3-101 et seq. 4 Colorado Code of Regulations 723-1

15. Effect of Regulatory Scheme • 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.”

16. 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

17. Part 4- Why Municipalization? What must a jurisdiction learn in order to assess the feasibility of creating a municipal utility and explore the opportunities?

18. 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

19. 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

20. 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

21. Local Utility-Big Picture • 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) 21 21

22. 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

23. Setting a Course for the Future 23 23

24. City-Funded Analyses • 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 at • www.boulderenergyfuture.com

25. Energy Baseline Analysis Understanding Boulder’s past, present and future related to energy

26. Localization Report

27. 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

28. 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)

29. Cost Modeling

30. 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

31. What Is An Off-Ramp? • Financial impact of “variables” • Acquisition • Stranded Cost • Bond Rating • Interest Rate • Identification of alternative paths • ??

32. Next Steps • Hire/retain key experts • Conduct next step analyses and initiate negotiations/ condemnation • Distribution system appraisal • Separation/severance planning • Develop Energy Action Plan 4 4

33. Part 5- The Federal Regulatory Context The regulatory framework established by the Federal Energy Regulatory Commission (FERC)

34. Part 4- The Federal Regulatory Context Shively, Bob andJohn Farrare, Understanding Today’s Electricity Business, Enerdynamics (2010), p. 55.

35. Part 5- The Federal Regulatory Context STRANDED COST FORMULA Stranded (Revenue __ Competitive) Length of Cost = (Stream Market Value) x Anticipated Obligation (Estimate Estimate) Service

36. Contacts Macon Cowles - Lawyer, Boulder City Council Member (303) 381-3406macon@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