[bouldercouncilhotline] Hotline: Cost model for municipalization

[kohls at bouldercolorado.gov]

Sender: Appelbaum, Matt

At Tuesday's council meeting, I asked for some additional information on the cost model.  I'd like to restate that here, and ask for a few more items.  Presumably it is quite simple to plug in different values in the model.

First, I had asked for a modification to the scenarios that showed the impacts of increased renewables.  Since it is almost certain that a muni would not acquire non-renewable energy from Xcel's coal plants, I wanted to see these scenarios with the assumptions that the non-renewable energy would come from natural gas plants.  And, of course, this affects the costs insofar as the expectations for the cost of power from natural gas differs from the costs from coal.

I'd like to take this a step further and see what I think is a much more realistic cost model. While it is essential to use "conservative" assumptions, we seem to have taken this to an extreme.  So, this new model would start with the change noted above.  Then it would allocate the "savings" to some actual use, instead of just letting that considerable sum just sit unused.  (It is true that this money is a reserve of sorts for unknown costs, but it seems to me the whole point of a cost model is to indicate a "reasonable" scenario, and not hold huge sums unused, forever.)  For simplicity, the savings could just be used to reduce rates, since the renewables-with-gas scenario would already have reduced CO2 by a very substantial amount.  We would add in the cost of payments-in-lieu of property taxes, and sufficient dollars to effectively match Xcel's various rebate/DSM programs as appropriate.  Any money left over as "Margin" would also be allocated to reduce rates.  Finally, since we've been repeatedly told by experts that interest rates for comparable bonds are actually significantly less than 8%, I would use a smaller, but still quite conservative, value of perhaps 6%.  Run this for 10/20/50 years and see what happens, and provide simple graphs to indicate the results.

And, finally, that leads me to a question that jumps out from our cost model.  The Xcel (status quo) comparison line indicates that over the first ten years, their total charges will increase by a bit less than 50%.  On the other hand, for the muni, just the cost of acquiring power (assuming, in this model, the identical power mix as Xcel) increases by 118%.  Why is that?  Are we really using the same assumptions here for both cases?

Thanks -- Matt