A tough legal showdown between the city of Boulder and utility Xcel Energy is brewing as the city prepares to force Xcel to sell its distribution network. Boulder voters approved measures last November that would allow the city to look into forming its own electric utility, which city officials said will enable them to buy more clean energy than what Xcel can provide.
Boulder announced this week that it’s hired Denver-based law firm Duncan, Ostrander & Dingess, which specializes in a legal process that allows a government to seize private property for projects that will benefit the public. The city would have to pay “just compensation” for the property, and that definition includes fair market value. This process is typically called “eminent domain” and is used more commonly for building roads.
The move to seize the distribution network should send chills down the spine of utilities and serves as one of the most extreme examples of customers pushing back against their utilities and demanding more clean energy. Ratepayers and cities have known to complain about utility programs, such as installing smart meters, but they don’t usually take the steps and money to leave their service providers.
The city would use the eminent domain process only if it isn’t able to successfully negotiate a price with Xcel. So far Xcel hasn’t shown an interest in selling its distribution network, so the city is gearing up for a legal fight, said Sarah Huntley, a spokeswoman for the city.
The cost of sovereignty
Boulder also plans to hire legal counsel for what could be another contentious process: asking the Federal Energy Regulatory Commission (FERC) to decide whether and how much Boulder would have to compensate Xcel for the investments Xcel said it’s put up in anticipation of having to serve Boulder for many years to come. This fee is called “stranded cost,” and Xcel told Boulder last year the stranded cost was estimated to be $335.7 million.
Boulder, however, questions whether it should pay the stranded at all, Huntley said. In a memo the city staff prepared last year, it noted that Boulder began looking into forming its own utility in early 2000’s, so Xcel shouldn’t have made investments assuming that it would continue to serve the city for a long time.
Xcel estimated the stranded cost based on its belief that it would get a 20-year renewal of a franchise agreement to serve the city. The previous agreement expired in 2010, but the city and Xcel couldn’t agree on the terms of the new agreement, which was to include the construction of a new wind farm.
FERC hasn’t had to issue many rulings on stranded costs, so its decision on the Boulder/Xcel case could set a precedent, Huntley said.
Although Boulder thought about forming its own utility for a while, it began that process in earnest when Xcel sought to renew its franchise agreement. The city asked voters last November whether it should investigate the process and costs of running its own utility. Voters narrowly approved a measure to give the city a go-ahead and another measure to allow the city to collect $1.9 million in taxes per year until the end of 2017 and use the money for hiring legal counsel and consultants to figure out various costs. There have been some early estimates of how much it will take for Boulder to form its own utility – the city said last November the cost would be $227 million while Xcel said it would be over $1 billion.
Promise to ratepayers
The city has said that it would form the utility if it’s able to charge the same rates as Xcel at the time it buys the distribution network from Xcel. So, if the final cost estimate for forming its own utility is too high, then the city will have to abandon the plan or it could ask voters if they still want to proceed.
Xcel has argued that, as a municipal utility, Boulder wouldn’t have the resources to get away from buying power generated from coal or natural gas. Wind or solar electricity isn’t available around the clock, for one thing. Renewable electricity also is more expensive, so it’s not likely to be cost effective for Boulder to run its own power service.
“The question is do they really care about renewable energy or do they just want to municipalize?” said Xcel spokesman Gabriel Romero when I spoke with him last year. “It’s disingenuous for them to say we want to do it because we want to be green. That’s not a valid agreement in the eyes of Xcel Energy.”
Photos from Boulder and Xcel Energy