[bouldercouncilhotline] Hotline: Muni/CU Agreement for Services

[cmosupport at bouldercolorado.gov]

Sender: Yates, Bob

Council Colleagues:


Under our no-surprises rule, I am advising you that tomorrow night I will be voting against the draft Agreement for Services between the city and the University of Colorado.  My reasons are as follows:


1. While I understand why the city staff would like to earn the university's support in the city's municipalization application before the Colorado Public Utilities Commission, the price that the city is paying for that non-opposition is too great and may significantly burden the Boulder taxpayers.


2. The proposed agreement would require the city to sell the university power for 20 years at the lower of either (a) the city's large-customer rate; or (b) Xcel's large-customer rate.  Although I appreciate that one of the muni charter provisions requires that the city's rates be comparable to Xcel's on the day the muni launches, there is no such requirement during the following 20 years.  Indeed, it is not beyond the realm of possibility that, given its debt load and its much smaller scale, the city's power rates could, under many circumstances, actually be significantly higher that Xcel's.


3. Although the city has done some projections and has made some assumption that it can sell power more cheaply than Xcel, the farther out in time the financial modeling goes, the more fuzzy and less certain it becomes. In fact, even Xcel probably doesn't know what its costs of generating power will be 10, 15, or 20 years from now.


4. It is not unusual for a business to reward its largest customers with the most favorable pricing.  If Boulder is successful in creating a utility and retaining CU as a customer, the university will certainly be one of the city's largest customers and should be entitled to pricing commensurate with its purchase volume.  However, the agreement before us goes much farther than favored pricing among the city's customers.  Rather, the agreement guaranties CU the lower of the city's pricing or the pricing of the city's competitor, Xcel Energy. No rational business would ever agree to match its competitor's pricing for 20 years.


5. The risk that the city is taking on with this agreement is nearly limitless.  If Xcel's prices in the future are significantly lower than the city's cost of generating or buying power, the city will have bound itself to sell power to the university at a loss.  Depending on the size of the differential, that loss could run into the millions of dollars each year.  Who will bear that shortfall? The other muni ratepayers? The Boulder taxpayers?


6. The city's energy staff has attempted to assure us that this will never come to pass; that the Boulder muni will always manage its affairs to be the lowest cost provider. But, that assumes that the muni will have the flexibility to avoid or defer critical costs, like capital improvements, maintenance, or wages. Shortchanging the muni enterprise simply to honor an ill-advised 2017 agreement will undoubtedly affect reliability and ultimately will cost us all far more.  Many a business has failed under the misguided belief that it could cost-cut its way to profitability.


7.  Once again, City Council is faced with approving an arrangement that it would never consider, absent the muni.  Just as we impinged on the rights of businesses at 55th and Arapahoe by annexing them against their will for the sake of the muni, we are entering into an agreement with the university that no rational actor would ever consider.  We are once again performing unnatural acts in the singular pursuit of the muni, rather than asking whether it is in the best interests of our constituents.


8.  Finally, I do not fault the University of Colorado for this ill-advised arrangement. The city has forced the university to declare its allegiance to one provider or another, to Xcel or to the muni.  To its credit, the university values its relationship with the city and is trying to be accommodating.  But it is not surprising that the university is also protecting its economic interests by insisting that, if its 2017 choice of suitors turns out to be bad, it will not be  financially harmed.


Our sworn fiduciary duty is to the people of Boulder. While city staff may assure us that they think that the risks are probably small, the proposed agreement still represents a blank check that, if cashed, will have to be paid by our taxpayers. I urge you to join me in voting against it.

Best regards,

Bob