[bouldercouncilhotline] Hotline: Questions re Municipalization Feasibility Study

[kohls at bouldercolorado.gov]

Sender: Cowles, Macon

MEMORANDUM



To:     David Driskell, Jonathan Koehn, Yael Guichon
From:   Macon Cowles
Date:   Thursday, July 14, 2011
Re:     Questions re Municipalization Feasibility Study



Yesterday afternoon, I met with Craig Eicher of Xcel and his boss, as well as with the consultant that Xcel hired to review the City’s Feasibility Study (FS). The consultant is Bob Bellemare of Utilipoint International, Inc. The purpose of the meeting was to hear Xcel’s critique of the FS with respect to the formation of a municipal utility. Here are the points that landed with me, and on which I would appreciate receiving a staff response.

1.      The valuation of the Distribution System failed to include the value of the meters. Is this true? If so, why did we not include that cost, and how much is it?

2.      The FS failed to account for the benefit that Boulder receives from Xcel’s tax payments, specifically:

Property Taxes paid to BVSD     $2,778,644
Sales Tax paid to City  $4,180,397
Use Tax paid to City    $96,736

What would be the plan of the Muni to compensate for these amounts that would be lost to the City and to BVSD?

3.      He argued that the method used to calculate the cost of acquiring the Distribution System (DS) by a court in condemnation would include a value for it as a going concern. The DS is not a going concern by itself. However, he argues that discounting the cash flow to present value rather than assessing the cost and accumulated depreciation would be the more likely way for a court in condemnation to value the DS. If discounted cash flow method were used, would it not substantially increase the cost to purchase the DS? Is there precedent for predicting which method a court would use in coming up with a final value?

4.      He argued that separation costs would be substantially more than $15MM because of county enclaves within the City’s boundaries. How would the enclaves be treated? Clearly, it makes no sense for Xcel to set up parallel infrastructure to serve the enclaves. But could they insist that the serve the enclaves, and thus force us to pay for parallel infrastructure to serve them?

5.      Xcel’s consultant argues that the FS fails to include $38.5MM in solar rebates and $5.5MM in DSM rebates in 2010 in calculating the cost of the DS. Is that true? How would the repayment of these rebates be handled by a Boulder Muni?

a.      Have we priced into the costs of operating a Muni the annual cost of DSM rebates in the future that would provide incentives similar to existing incentives for people to install energy conservation measures?

6.      A concern that I would like to have addressed has to do with energy supply, hedging energy costs and stranded assets. Currently, there is excess generating capacity in our region. That means that it is a good time to be, like the City of Boulder, a purchaser of power. 

a.      Does that excess current capacity in the system strengthen Xcel’s argument that they are entitled to stranded costs?

b.      Would a Muni, purchasing power on the open market, be at more disadvantage than Xcel in hedging against the price volatility of energy? Another way of phrasing the question would be this: to what extent would a Muni be more subject to purchases on the spot markets and less able to hedge against short term price hikes than Xcel?