[bouldercouncilhotline] Hotline: Two questions for the public hearing on municipalization

[cmosupport at bouldercolorado.gov]

Sender: Wilson, Ken




I thought that I would give a heads up on two questions for the public hearing this evening.  I discovered these issues as I was reviewing the study session packet last night.
 
1.  It appears that the total acquisition cost does not matter when the test is made for rates comperable to Xcel's in year one.  Whether the acquisiton costs are zero or $1Billion, the first year rates appear to be the same.  This effectivley makes the
 charter test of comperable rates meaningless.  Am I correct in this?
 
See Study Session Packet page 261 or any of the pages following that.  The Rate $/kWh is the same in Year 1 whether the acquisition costs (including stranded costs) are $150M, $277.5M or $405M.  There is a note at the bottom of each page that says * 2017
 rates do not vary by cost scenarios due to the capitalized debt in the first 18 months.
 
Does this not make the charter test on comperable rates ineffectual?
 
This could be fixed in the model by making a "test rate" that adds into the calculation of year one rates the full cost of debt service for a typical year once those costs are being paid.  For example, if the acquisition cose was $200M then at 6 % interest
 this would add something north of $12M for just the interest.  A bit more for principle.
 
2.  In the "Tornado Diagrams" of average rates on pages 259 and 260. the wind costs are show as follows:
 
XCEL:                 15.8 - 17 c/kWh
Low Cost Option:  13.25 - 16.5 c/kWh
Lowest GHG:       15.75 - 18.75 c/kWH
 
How is the city able to buy new wind cheaper than Xcel's existing wind?  Expecially if the Production Tax Credit goes away, it would seem that the wind the city buys would be more expensive.
 
3.  In the same Tornado Diagrams, I also have a question on the gas generation rates:
 
XCEL:            15.2 - 16.8 c/kWh
Low Cost Opt. 12.5 - 14.3
Lowest GHG    15.3 - 18
 
In the low cost option, how is the city able to significantly beat Xcel's cost of generation with gas?
 
4.  As was discussed in the paper, the city's assumptions present something of a worst case for Xcel by assuming that they would not change the generation mix if a carbon tax is initiated (or if coal prices jump much higher).  Xcel currently runs more coal
 plants because coal as a fuel is about half the price of gas.  If that changed, why wouldn't Xcel change the mix of units it dispatches, putting more gas fired plants on line more of the time?
 
It seems to me that we need some modeling that is less optimistic for the City and less pessimistic for Xcel.  I would like to see a set of assumptions put together that would look at these issues.
 
Ken