[bouldercouncilhotline] Hotline: RE: Questions for Study Session on Municipalization

[cmosupport at bouldercolorado.gov]

Sender: Cowles, Macon

These are tough questions, and good questions. Some of them call for answers and information that are out of sequence, though, and cannot be answered at this point in the process.

And there are other questions that implicate the various approaches to litigation or to stranded costs. These are not issues that we should be thinking out loud about with Xcel in the room. Hypotheticals about funding litigation if and when we reach the limit of revenue raised from the Occupation Tax is in this category.

The answers to some of the questions would require staff to forecast what will emerge from a public process—annexation and the eventual shape of a service area, for example. It would not be appropriate to attempt to guess what will emerge from a full and fair public process.

Xcel is following this path: they do not want to spend all of their money; they just want the City to spend all of its money. And they want to spread doubt about the feasibility of forming a municipal utility, and to sow discord.

Finally, Ken's question about who is representing the citizens of Boulder at the Public Utility Commission merely underscores one of the primary drivers of forming a municipal utility: local control. Insofar as the City is intervening in dockets at the PUC, it IS representing the people of Boulder. The positions taken by the City are consistent with the best interests of Boulder residents, such as protecting the right of Boulder ratepayers to take advantage of the rebates offered by Xcel, or challenging the hyper inflated price that Xcel wants to extract from ratepayers for their poorly planned and executed "Smart Grid."

The PUC is like a church where an ancient language is spoken, and only the initiate are taught the language. In theory, any rate payer can attempt to represent himself in PUC dockets. In practice, only the very energetic, knowledgeable and persistent, such as Leslie Glustrom, make bold to represent a portion of Boulder's public before the PUC. And she has brought the attention of the PUC to some issues worthy of deep analysis, such as the future cost of coal production. to take but one example.

Finally, the Smart Grid: One has to have a good imagination to conclude that the IBM group found the Smart Grid to be robust. To the extent that the group stroked the implementation of the Smart Grid, it was being kind and neighborly to Xcel. There has been no advantage to consumers in Xcel's Smart Grid in Boulder--none at all--except when the public is invited to the Chancellor's house to see the instrumentation. But that is no more real than riding GE's Carousel of Progress at the 1964 World's Fair. Engineers actually involved in development of the Smart Grid elsewhere in the country are wondering aloud:

1.  Where is Xcel? They have been absent at the significant conferences around the nation involving the establishment of standards for the Smart Grid.
2.  Why did they choose a Pay to Play model, which guaranteed that only corporations flush with cash would be their "partners" in the Smart Grid? This excluded thinly capitalized companies whose work is at the forefront of the development of the Smart Grid.
3. What became of Xcel's partner GridPoint in the Smart Grid City? They used their position as an Xcel partner in the enterprise to raise private equity capital for their other ventures, but they dropped their "Smart Inverter" after deploying only six units in the City, and then turned their attention to more lucrative ventures.
4. What about the 23,000 Landis+Gyr "smart meters" that have been installed? if there is one signal attribute of the Smart Grid, it is two way communication. And yet these Smart Meters do not lend themselves to two way communication with the customer--downstream of the meter, within a person's home or business. If anyone out there finds their Smart Meter useful in making energy decisions, please raise your hand! And BTW, the Smart Grid meters installed here in Boulder are no longer even produced. The real Smart Grid has made them obsolete.
5. Why did the Xcel officials most knowledgeable about the Smart Grid all leave the company shortly after Boulder's selection as the "SmartGridCity?"

And on and on and on. I sure hope that our lawyers debunk Xcel's Smart Grid so that no ratepayer gets stuck with the bill, and so that it is certainly not added to the purchase price as a cost of buying the distribution system.

I have to get back to work now


Macon Cowles
Boulder City Councilor
________________________________________
From: Wilson, Ken
Sent: Thursday, July 26, 2012 8:43 AM
To: HOTLINE
Subject: Questions for Study Session on Municipalization

Here are my detailed questions for the Study Session on August 28th regarding Municipalization.  I am also attaching a Word file of the questions for convenience.

Ken Wilson

Questions on Municipalization
1.  Reliability for residential and commercial customers - I believe the business case stated that a Boulder Electric Utility (BEU) would have two line crews for the entire city.  Is this still the number in the business plan?  Is this sufficient for power outages during an average wind/rain event associated with a thunderstorm?  How many line crews does Xcel have that are generally in the city proper or close by?  Wouldn't it be a good idea to initially staff distribution operations similar to Xcel's staffing?  Then in the fullness of time the City may find it can do something different.  The City may find that it needs more staff because it would be a distribution island rather than a large, geographically diverse, utility.
2.  Reliability for Industrial.  Industrial customers like IBM have been concerned that BEU would not have spare parts that are as readily available as Xcel.  For example, a substation transformer is a $1M item and is somewhat customized for each substation.  Xcel has spares.  Will BEU?  Will replacements be made as quickly as Xcel could make them?
3.  Economies of scale.  Please address the loss of economies of scale for maintenance, repair, , planning (both long range and short range), software systems development and support, systems engineering, and other operations functions.
4. General Power Purchase issues.  Please address the problems associated with a new utility buying power on the open market, in competition with larger, established utilities and utility coalitions.  The City will need to develop a portfolio of baseload, intermediate peak and peak power providers.  Please discuss the difficulty obtaining this power if we are unwilling to purchase any power tainted by coal.  PRPA's portfolio is a good model, though it is very heavy in coal generation.  Will the City have mutual aid agreements for generation capacity should the City's suppliers suffer a Force Majeure, or will that be part of the contract?  Will we contract with Xcel for power in the short term and if so, can we get them to send us a cleaner mix of power at the same price as the power we receive now?
5.  Specific power purchase concern.  Several of the initial scenarios seemed to be showing low costs based on spot market purchases of natural gas fueled generation.  It appeared to at least one expert that the feasibility study showed power purchase costs that are unattainable, with a cost per kWh that was below the natural gas fuel cost per kWh at the time.  Is a heavy dependence on production from natural gas a risky strategy given historic fluctuations in gas prices, or are we convinced that fracking and other newer techniques will guarantee long term low gas prices?  Most utilities enter into long term or intermediate term contracts to protect against rapid increases in fuel costs.  Would we do the same?
6.  Distribution Grid modernization.  Have we budgeted for distribution grid modernization?  Much of the current Xcel infrastructure is aging and will need to be upgraded.  Will we have sufficient funds to do this?  Are we benchmarking the funds we would need with the most progressive utilities?  Do we plan to do more undergrounding than Xcel has done in the past?  If so, where will the money come from?
7.  Smart Grid.  We will be inheriting the Smart Grid City infrastructure, which in the analysis by IBM was judged to be quite robust.  The Xcel Smart Grid City infrastructure is based on high-speed fiber optics plus broadband over power line and wireless technologies, similar to smart grids being installed by Tacoma, WA and Chattanooga, TN.   Xcel is currently running a large Smart Grid City trial with at least three different pricing plans and they are using Smart Grid City to get better reliability through real time monitoring.  One of the most difficult tasks with smart grids is to integrate the communications network and the data it provides with back end legacy systems, such as billing, maintenance, distribution management systems, etc.  All of this integration will be broken if BEU takes over Smart Grid City because BEU will not be purchasing Xcel's legacy systems (even if they would sell them).  What are the city's smart grid plans to match the current Xcel abilities and potentials?
8.  Loss of Historical Data.  Maintenance, repair and outage data are important for planning and general operations.  How will the city cope with the fact that this data more than likely will not be transferred from Xcel and even if we had the data it is unclear that we would have compatible systems that could use the data?
9.  Separation Costs.  The City estimated separation costs at $15M.  Xcel estimated them at $100M plus.  My knowledge of the Xcel distribution grid in the city and my understanding of what would be required to separate the City of Boulder from Xcel facilities supporting Boulder County would tend to favor Xcel's number.  Unless the City were to annex many areas around the City, including most or all of Gunbarrel, we would probably need to build two new substations and many new feeders.  Facilities cannot be shared and many feeders throughout the city support properties both inside and outside the City limits.  What are our current estimates of separation costs with various levels of annexation?
10.  Litigation Costs.  We will be funding litigation costs on the Boulder side of the fight with Xcel.  The increase in Occupation Tax will only cover about $1.9Million per year.  How will we cover costs if they go beyond this amount?  Will we ever defer costs into a future year?    There are scenarios where the City would be required to pay for Xcel's litigation costs.  What do we estimate those costs to be and where will the money come from?  In a similar vein, the PUC suggested that it may be appropriate to pass some additional costs on to Boulder ratepayers.  If Boulder ratepayers and not non-Boulder ratepayers are held responsible for these costs, shouldn't those payments come from the proceeds of the 2B/2C tax and not from rates?  Could we be stuck with a large bill that can only be paid by the General Fund if some of these scenarios occur?  I have heard speculation, and I would tend to agree, that there will be lots of interveners in the various regulatory/legal proceedings and that all of them will oppose Boulder's plans.  Any thoughts on this?  Will it raise the cost and lengthen the proceedings?
11.  Stranded Costs.  Boulder has estimated stranded costs as zero.  Xcel has estimated them at $600M or more.  When do we expect this issue to be initially decided by FERC, before any appeal by either side?  When does the City plan to send a letter to Xcel stating that Xcel should have no further expectation of serving the City?  From the City's recent testimony and statements it would seem that we have not yet done that, which means that the "clock" for stranded costs has not yet started.  The focus of stranded cost will be on generation capacity costs.  In the worst case, using the LIFO method that seems persuasive to FERC, a significant portion of Comanche 3 might be the basis for stranded cost.  On the other hand, Xcel has recently purchased several natural gas fired combined cycle plants and those plants might be the focus.  Xcel's recent Resource Plan describes a less-than-originally-planned future demand.  this means that the City can expect a larger stranded cost than it may have otherwise experienced.  Will this be considered in the next feasibility study?  Is the belief that there will be no stranded cost realistic?  Wouldn't that mean that the next city that wanted to municipalize would pay more stranded cost?  Or would the last city in the Xcel system be responsible for the total generation fleet?  This doesn't seem reasonable.
12.  Unanticipated costs.  The new Charter language that allows for formation of a municipal utility only if the utility at its formation does not exceed Xcel's customer prices.  The prices of the new utility would be based on a business model that will use estimated costs.  What if the estimated costs are inaccurate?  What if there are unanticipated costs with starting up the utility?  How will the Charter requirement be fulfilled?
13.  What would the economic impacts be to the new utility if CU Boulder and IBM were to produce their own power, purchasing little or no power from the city utility?
14.  Would the city allow customers of the utility to buy power from 3rd party providers, or will the City want a monopoly within the City as Xcel does.
15.  In the PUC proceedings that could potentially raise rates for City of Boulder residents and businesses, Xcel is representing Xcel, the City is representing the potential City utility, and the Office of Consumer Council will be representing the bulk of the state's ratepayers.  Who will be representing the ratepayers in the City?
16.  if the Attorney General's office is correct, there must be another vote prior to moving forward with municipalization.  Is this true, false, or does it depend on facts?  What are the parameters where the City would put municipalization bonding to a vote?  Could a group or groups sue the city if the City decides not to put the issue on a future ballot?  How would this impact the timeline and future sale of bonds?

Ken Wilson