[bouldercouncilhotline] Hotline: Municipal utility

[kohls at bouldercolorado.gov]

Sender: Appelbaum, Matt

Another heads-up, this one the municipal utility issue we'll be discussing on Tuesday; here are some of my questions/concerns/issues, with a particular focus on the charter provisions for such a utility:

-- Payment in lieu of taxes (1): The new language would allow, for example, the utility to pay in-lieu for property taxes to the various jurisdictions.  First, it appears that our estimates of such taxes and Xcel's vary considerably; why might that be?  Second, I think we should decide now, and make it clear, if such in-lieu payments will be made.  (I'd like to know what our neighboring munis do, although they've presumably done it for decades, which puts their decisions in a different context.)

-- Payment in lieu of taxes (2): I'm not clear about how the current occupation tax gets replaced with a muni.  It seems best if that tax simply goes away, which may well be the case.  But the muni charter should be explicit about just how much - maximum -- can be paid to the city (not including payments for services, of course), so that this isn't left open-ended.

-- CAP tax increase vs. occupation tax increase: As I've noted previously, simply doubling the CAP tax (as proposed) keeps the current proportionality among rate classes, which were set up based on the predicted benefits to each class.  Thus, residential customers currently pay proportionally more in CAP tax than C/I customers.  That doesn't make much sense to me for muni costs.  In addition, the CAP tax agreement with Xcel will expire, while the city clearly has the authority to impose/increase an occupation tax (with voter approval, of course).  Unless I'm missing something, I think the occupation tax is clearly the better approach - and it might be useful to be prepared with the increase in that tax that would be recommended.

-- Whether the "preliminary" (and maybe we could find a better word?) funding for a muni comes from the CAP or occupation tax, I think that the increase should sunset if council determines to terminate pursuit of a muni (in the highly unlikely event that some early cost analysis/ruling is so unfavorable), or when the muni actually begins to operate and get revenues (which might be the case automatically).

-- I think we should be explicit about when an electric utilities board is seated, which I'd suggest would occur when a muni is actually created (the bonds are sold and the operational takeover begins).  Before that, I think it might be useful to create a technical advisory committee that would be seated by the CM, made up of "knowledgeable" individuals, who could help provide guidance to staff and council.

-- Sorry to harp on this, but I still think we should not allow for rate preference for low-income people, particularly in an unbounded manner.  We don't reduce water rates for such folks, so far as I know.  If we want the muni to provide assistance, it seems to me the far better way would be to allow some very small portion of the rate (say, a 0.1% increase, if that would make sense) to be allocated to a fund that would assist low-income people.  Again, I would be quite explicit about this in the charter.

-- I think we should also be clear that for some initial period of time (10 years?) the muni will be operated by a third-party that is qualified/experienced, under the supervision of the city and of course the direction of the CM.  We clearly have no intention whatsoever of initially hiring city staff and running the utility internally, and we should say so.

-- Now the first of the two very-hard-to-draft but, I think, essential items for the charter.  We need to be as explicit as possible regarding rates.  We obviously cannot bind ourselves to, say, no greater than a 10% variance with Xcel's rates - since bondholders wouldn't allow that, and also because that could deleteriously limit options for, say, short-term increases for long-term investments, or for catastrophic events, or simply due to timing.  But I think we must include, in the strongest language possible, the concept of rate parity.  Perhaps another way of approaching this tough issue - since it is likely that the concern would be that a muni would purchase excessive "clean" energy even at non-competitive costs - is to just tackle the issue of the energy portfolio, making it clear that the portfolio must be chosen in a manner that provides for reasonable rate parity.

-- Second tough issue is how to determine if the muni will actually be created once all of the key costs are known.  While it is clear that council must be allowed to decide (going to another ballot issue doesn't work for at least a couple of very critical reasons), I think there needs to be some criteria that must be met so that, again, some future council would be effectively precluded from moving ahead even if the final numbers showed that a muni could not be rate-competitive for many years.

-- The memo include some simple but helpful data on some different energy portfolios and the effect on rates.  Two questions here:  first, the CO2 reductions are small because (if one bothers to check out the footnote) the assumption is that Xcel's coal plants will provide most of the rest of the energy supply, not natural gas.  I'd like to see the CO2 reductions (and the cost implications, if any) if natural gas were used.  Second, I wonder where the assumptions for Xcel's CO2 reductions come from, whether that assumes 30% renewables (although it will actually only be 26%), etc.  And as an aside, as I looked at this, it occurred to me that even a 200MW wind facility would reduce CO2 only by perhaps 35% over expected Xcel emissions.

-- While I don't think we need to know every detail about the estimated acquisition costs, I am at least a bit curious about the apparent (purposeful) omission of some substations, stuff we don't have good data on, the CU issue, etc.  Perhaps none of these amounts to much - and I'm not suggesting we need answers right now - but perhaps a brief explanation of their status in the model and their potential impacts would be helpful.

Thanks -- Matt