Electrical empires in Colorado

Can Colorado’s largest utilities thwart fragmentation?

 by Allen Best

Colorado’s two largest electrical utilities this autumn are trying to quell revolts, to keep their empires intact.

Money and the pace of change lie at the core of revolts faced by both Xcel Energy and Tri-State Generation and Transmission.

The fundamental question is whether the utility paradigm of the latter half of the 20th century can survive the rapid changes now underway in how we produce and consume electricity.

Xcel has been fighting the municipalization effort in Boulder for more than a decade. Tri-State has been skirmishing with members for just as long, although the attempts by United Power and La Plata Energy are relatively new.

Boulder and Xcel Energy

In Boulder, voters must decide whether to accept a new franchise agreement proposed by city leaders and Xcel Energy. The agreement speaks vaguely to accelerating changes by Xcel, already considered one of the nation’s most progressive utilities. Opponents say Xcel has moved more slowly than it can and should.

The unrest in Boulder began more than a decade ago. As much or more than any other municipality in Colorado, Boulder residents have been attentive to the consequence of greenhouse gas emissions. The city government has embraced goals and taken actions on a long agenda from electrifying transportation to reining in emissions from buildings.

It can also be argued that the city and surrounding county have had an outsized impact on Colorado’s cutting-edge efforts to decarbonize the economy. Jared Polis, the governor, made his fortune and began his political career there, and most of the top legislative leaders of the last two years, including the 2019 session that produced such far-reaching legislation, call Boulder home.

Dissatisfied with Xcel’s pace of decarbonization, advocates about a decade ago began to make the case for municipalization. Colorado has 28 community-owned electric utilities, from Colorado Springs to Gunnison, Trinidad and Wray, that together deliver 17% of the electricity in the state, according to the Colorado Association of Municipal Utilities.

Xcel, of course, has no interest in this proposed divorce and has spent a lot of money to keep Boulder. And within Boulder, there’s considerable disagreement about whether the city government can deliver the goods as effectively as the investor-owned utility. Legal and other costs have already been massive—although opponents argue that Xcel makes massive amounts of money from Boulder each year.

Xcel drew national attention in December 2018 with its announcement that it intended to achieve dramatic reductions in the carbon intensity of its electricity.

At the announcement at the Denver Museum of Nature and Science, Polis—by then elected but not yet governor—pointedly suggested that his election had something to do with the timing of Xcel’s announcement. He was probably right.

The proposed agreement offered by Xcel to Boulder voters would modestly accelerate the decarbonization of Boulder’s electrical supply and vaguely dangles the experimentation of two microgrids. It gives the city several off-ramps from this new franchise agreement.

The Boulder Daily Camera on Oct. 10 endorsed the new franchise agreement. The underlying justification was the risk of a costly divorce from Xcel:

“If Boulder residents choose to reject the franchise agreement and continue on the path toward municipalization, it will prolong a legal battle with Xcel that has already cost tens of millions of taxpayer dollars and countless hours of city staff time,” said the newspaper “It’s simply not realistic to expect the company to surrender a chunk of its business without a fight.”

Boulder’s city council has split on this issue. Mayor Sam Weaver has been ambivalent after early and even recent support for municipalization. Strikingly, nearly all the mayors of the last decade support municipalization and oppose the ballot question 2C. One of their arguments is that Xcel takes $25 million or more out of the community each year.

This is from the Oct. 16, 2020, issue of Big Pivots, an electronic e-magazine. To get on the e-list, go to BigPivots.com

Matt Appelbaum, a former mayor, this week wrote a lengthy analysis that talked about the superior prices of electricity available from municipal utilities and the now improved potential for internet with city-owned utilities in Colorado, including nearby Longmont.

“Xcel sure would love to kill the muni before it becomes obvious to everyone that competition is coming and big, vertically integrated monopoly energy providers are grossly expensive, inefficient, unable to keep up with technology and cities’ needs for more resilient power, and, essentially, historical artifacts that should have been eliminated years ago,” he wrote.

Underscoring Appelbaum’s argument was a report issued yesterday, Oct. 15, by Empower Our Future, a pro-municipalization group. The report cited modeling that showed that “Boulder citizens can, with confidence, expect that a locally owned utility would at least break even financially within 5 to 10 years of startup, relative to continuing to source more carbon-intensive electricity from Xcel.” Those savings, added the report, would be sufficient to lower electricity prices while achieving 100% renewable electricity and modernizing Boulder’s electric system.”

(Whew – and if only municipalization could also end the country’s semi-civil war.)

For an issue underway since 2017, this proposal came about with remarkable speed relatively late in summer. Appelbaum says he thinks the city council would not have approved sending it to voters if they had not been panicked about the impact of covid-19 on the city’s revenues. He points to several things that should have been done by the city but which were not.

Also a last-minute addition to the conversation was the city’s request for proposals. The RFP was issued on June 17. The deadline on Aug. 14 yielded two bids proposing to provide all of Boulder’s power at 8 to 15% lower than a similar RFP in 2018. The bids promised to achieve 100% renewable electricity for the city by 2030.

Electricity prices are coming down, plunging, really, just as the costs of telephone and internet connectivity did.

Do you remember the costs of long-distance telephone service? In the early 1980s, when I was in Colorado’s Grand County, it was a long-distance call from Fraser to Granby, and from Granby to Grand Lake another long-distance phone call, each of these at 30 cents a minute. West along Highway 40, it was the same thing. The next town 10 to 15 miles down the highway was another long-distance call.

In 2007, when Boulder set out on this municipalization odyssey, who would have imagined the changes that would arrive by now. Can Xcel hold together its empire? It lost a a wholesale contract earlier this year to supply the municipal utility serving  Fountain, the city south of Colorado Springs. Boulder matters far, far more.

Tri-State has plans to close all three coal-burning units that it operates at Craig, two in conjunction with other utilities, by 2030 but has not yet announced its intentions regarding a power plant at Wheatland, Wyo., of which it is a part owner. Photo/Allen Best

Tri-State and its dissidents

Tri-State’s empire started fragmenting in 2007, too. The utility had asked for its then-44 members to commit to contract extensions to 2050 in order to finance a new coal-fired power plant located in Kansas. The Kansas site was presumably chosen because of perceived easier permitting there instead of Colorado, where the majority of the company’s customers are located.

It ran into unexpected in opposition in Kansas—and at home. too. I detailed the full history in this story posted in May.

Tri-State has lost two members in the last five years. Can it keep United Power, by far its largest member, with 96,000 meters and responsible for something like 17% of total demand for generation from Tri-State? And also La Plata, which has 55,000 meters and is No. 3 in terms of power?

Arriving in April 2019, chief executive Duane Highley had two monumental tasks: shifting the utility’s direction and holding onto its members. He gets paid $1 million  in base salary, several  steps down from Ben Fowke, the chief executive of Xcel Energy, who gets paid $18.9 million. If he can pull this off, he’s definitely worth it.

Part of Highley’s strategy seems to be to stall. By going to the Federal Energy Regulatory Commission, he delays the exit by United and La Plate. I wrote about this extensively in September. See “A shallow win for Tri-State.

Don Coram, a Republican state legislator from Montrose, last week weighed in with an editorial.

But Highley has also sought to buy time using changes in the partial-requirements contract with the members. The old contract had allowed members to generate up to 5% of their own power. A new contract ostensibly sought to allow more flexibility, but United and La Plata saw it as a sham.

Last week, Tri-State held a press conference where Highley was joined by former Colorado Gov. Bill Ritter to announce an even more flexible contract and plans to lower rates. Tri-State plans to reduce wholesale rates 8% by the end of 2023.

Highley also reported a specific process to implement partial requirements contracts that will allow members to propose projects that help deliver up to 300 megawatts. This “open season” occurs early next year. Under the new contract, utility members can self-supply up to 50% of their load requirements, subject to availability in the open season, in addition to the current 5% self-supply provisions and a new community solar provision.

United was officially unimpressed.

“We think this is a great step in the right direction for the future of Tri-State and congratulate their efforts in trying to make this happen,” said Bryant Robbins, the interim chief executive, in a release sent out shortly after Tri-State’s announcement.

“Unfortunately for United Power, we serve an area in which our competitors’ rates are as much as 25% to 35% less than ours. We are going to need much more than the proposed 8% reduction in wholesale power to be competitive.”

La Plata issued no similar press release but this week announced it would hold a series of town halls in various parts of its service territory of southwestern Colorado to discuss power supply options.

“For several years, LPEA has been exploring how to best source affordable, reliable, and sustainable electricity to power its communities,” the announcement said. “The meetings will feature a short presentation on the paths being explored, where LPEA is in the process, and next steps.”

What is also pertinent is that Poudre Valley, the second largest member of Tri-State, had kind words for Tri-State. The “potential of greater contract flexibility will help Poudre Valley REA achieve our 80 by 30 renewable energy goal,” said Jeff Wadsworth, the chief executive of the Windsor-based cooperative. “The clean energy transition has begun,” he added.

What’s next? In the Tri-State story, the essential question is one of strength and stamina. As with Boulder, lots of money is spent on the lawyering. How much pain is there before a compromise is struck? Or somebody drops out? Tri-State is said to be in bad financial shape but I have to think it will be in much worse shape if it loses close to a quarter of its electrical sales.

Tri-State is fast turning, as it must – and, if be truth be known, isn’t that much different than Xcel Energy. But it stood still far too long.

I am most interested in what it submits to the Colorado Public Utilities Commission on Dec. 1. That’s when Tri-State lays out its plans for much deeper reduction of its electrical supplies to customers within Colorado.

Closing the coal plants in Craig will get it a ways, but to meet the state’s 80% reduction command by 2030 it will have to shed some or all of the power from Laramie River Station at Wheatland, Wyo. It’s partners with Basin Electric, the North Dakota-based sibling of Tri-State, which operates in states of the upper Midwest. I suspect—here is my conspiracy mind at work—that it’s no accident that work is underway at the DC tie between the Western and Eastern grids near Stegall, Neb. My suspicion is that it will accommodate more power from Laramie River to Basin Power.

If I was betting, I’d put my money on Xcel and Tri-State holding onto their pieces. But neither can afford to be stodgy. They’re not out of the woods yet.

This story was amended to provide additional clarity about Xcel’s relationship with Fountain. It was the wholesale provider for the municipal utility. Fountain did not become a municipal utility.

 

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Allen Best