To find out how much the muni will cost, Boulder will need more time — and money

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Wednesday, Dec. 11, 2019 (Updated Dec. 12, 2019)

Boulder’s march toward a municipal-owned electric utility cleared significant hurdles in 2019, but the progress came at the expense of a 2020 final yes/no vote from residents that will now be pushed back one year — and leave the city scrambling to patch funding gaps caused by the delay.

At the same time that the muni, now referred to by Boulder as Local Power, faces its final legal test, council and staff have started to expand the debate around its feasibility, asking not only can Boulder municipalize, but should it, given the advances in state climate requirements and Xcel Energy’s own clean energy goals.

The last year was significant for the muni effort in one big way: The completion of a years-long process to get state regulators at the Public Utilities Commission to sign off on Boulder’s acquisition attempts. The PUC gave its stamp in late October for the transfer of most assets. It’s the last step before filing for condemnation of Xcel’s physical assets in the city — lines, poles, property rights, etc. — in district court.

Condemnation is the only likely course for Boulder to acquire Xcel’s system, since the two sides are unlikely to agree on a purchase price. The city’s last offer of roughly $94 million in late November has not been publicly responded to by Xcel; the deadline for response was Dec. 6. Negotiations are still ongoing, city staff said during a Tuesday night city council study session.

Boulder filed for condemnation in June, but the case was dismissed at Xcel’s request, largely because the PUC process was unfinished. Boulder has appealed that dismissal.

Funding all this preparatory work is the Utility Occupation Tax, extended by voters in 2017 to fund muni efforts through 2022. However, the funds are allocated in such a way to allow for three years of engineering, litigation and staff work: 2018, 2019 and 2020. Delaying the go/no-go vote by a year — which was necessitated in part because of delays with the PUC process — will overtax this budget, leaving the salaries of roughly nine city employees without a source of funding.

“The shortfall we have now is staffing, along with extended legal costs,” said Steve Catanch, director of climate initiatives. “It’s hard to predict exactly what those costs will be if there is an appeal (in the condemnation process). We’re working to refine those right now.”

For the first three-quarters of 2019, Boulder spent nearly $1 million on direct and indirect staffing. Total 2019 spending for the first three quarters was $2.74 million, according to an early December update, slightly less than anticipated because of drawn-out negotiations with Xcel.

The condemnation proceedings are likely to be expensive, given the amount of staff time that will be needed. If the case is dismissed, Boulder could possibly end up paying Xcel’s attorneys as well, though that’s not a guarantee.

Even now, Boulder and Xcel are haggling over attorney’s fees, which Boulder was on the hook for during PUC proceedings. Xcel filed suit in October over $210,000 in legal costs expended by filing to dismissing the city’s condemnation motion. Boulder has countered that the reasonable costs for that action are closer to $49,465.

On Tuesday, Chief Budget Officer Kady Doelling said the city was likely to spend more than $3.6 million in 2020, though the forecasted budget in notes to city council was closer to $2.5 million. Staff will come back to council in the spring with a more specific estimate of the funding gap as well as possible solutions, which could include going back to voters to ask for more money. To date, the muni effort has cost $23.158 million.

The UOT extension was conceived with a 2020 go/no-go vote in mind. Staff has said for much of this year that, given the delays with Xcel, that date was becoming increasingly unlikely. Notes prepared for council was the first time 2020 was officially taken off the table.

Boulder hopes to have final cost estimates, both from Xcel and its own work, by the end of 2020, in time for a 2021 ballot initiative. Even that may be optimistic, some council members pointed out, given that the timeline is dependent on the condemnation case having reached its conclusion to return a final acquisition price.

Councilman Bob Yates, the most vocal critic of the muni effort, questioned City Attorney Tom Carr. You’ve previously said the condemnation case could take nine to 18 months, Yates asked. That’s late 2020, mid-2021. If someone appeals… what then? How does that impact things?

Appeals in condemnation cases differ from other court proceedings, Assistant City Attorney Kathy Haddock explained. The legal questions are decided before the valuation trial begins.

What if Xcel appeals one of the legal decisions? Yates asked. Wouldn’t that stop the whole proceeding and prevent the valuation part from proceeding?

Yes, Haddock replied, there is that possibility. Boulder will have to decide if it wants to move forward with a vote before the appeal process is complete. But, she added, the law is on Boulder’s side in preventing delays because the whole purpose of condemnation is to prevent the landowner from impeding government process.

“There’s a risk it may not be done in time for 2021,” Carr said. “There’s no way to tell for certain. I think there’s a good chance it will be done in time. (Legally) there’s only so many ways you can string that (process) out.”

Council also decided to add a new question to its next muni discussion in the spring: Should Boulder municipalize given the changes in state law — such as requiring utility companies to come up with a clean energy plan — and Xcel’s newly announced targets for reducing emissions and moving to renewables.

It’s not the first time the question has been asked by staff or elected officials. In a July discussion about Boulder’s climate action plan, council looked at the muni in the context of these evolving factors.

The consensus then, and Tuesday night, is that Local Power still makes sense given that Boulder is unlikely to achieve its own goals without the ability to generate 100% of its electricity from renewables; roughly half of the city’s emissions come from the grid.

Plus, as councilman Adam Swetlik noted, Xcel’s goals are nonenforceable. There are “decades and decades and decades of proof” that companies will take the more profitable route despite their stated intentions.

“It’s a lot cheaper for a corporation to cheat likes Volkswagen did, fire a CEO, pay a fine and then never actually accomplish anything,” he said. “That’s why I think we should always continue on this path because you ultimately don’t know what you’re going to get when you trust a shareholder-led company first.”

Xcel’s portfolio today is still powered roughly 70% from fossil fuels. Its target is 50% renewable generation by 2026.

Council’s ultimate responsibility is to the voters, Mayor Sam Weaver said. And they directed council to keep going.

“Our charge as given by the voters in the last election was 2017 was give us the numbers so we can make an informed decision,” Weaver said. It’s “really important” to keep tracking what Xcel and the state are doing as part of that information. “I don’t think we can not do this.”

An April study session is planned to examine the muni and broader city budget in more depth.

What about stranded costs?

As Boulder’s electric provider, Xcel has planned to generate enough power for the city through the years, increasing demand as it grows. If and when Boulder splits from Xcel, the company will have excess power on its hands, along with the value of investments made into equipment and facilities to generate and deliver that power.

Whatever it can’t sell to someone else, Boulder is financially liable for. This is referred to as stranded costs.

Stranded costs have been a major sticking point for critics of the muni, because Boulder hasn’t provided an estimate of what they might be for several years. In the city’s financial forecasting tool, the input for stranded costs is left blank; users can put in any amount they choose.

This is dishonest, critics argue, because stranded costs could be hundreds of millions of dollars and completely tank the feasibility of the muni. City officials contend that there are too many variables to come up with a single estimate.

Stranded costs can be reduced if, for instance, Boulder keeps purchasing power from Xcel after forming a city utility. And the amount of power Xcel allocates for Boulder gets reduced as local renewable generation grow, further reducing the city’s potential stranded cost obligation. Furthermore, stranded costs can be paid all at once in a lump sum or over time.

In a brief discussion Tuesday night, councilman Yates asked that staff return with at least a range when council revisits the issue in April.

“I know there are so many assumptions that go into stranded costs,” he said, “but it would be helpful for you guys to give some ranges. Are we talking the difference between $0 and $10 million? Or $0 and $100 million? I don’t have any concept of what the mid-case and high case (might be). I don’t know how many 0s are behind that number.”

“We can do that,” climate initiatives director Catanach replied.

Staff will also update the financial forecasting tool to reflect models in which Boulder pays stranded costs over time and allow users to input some values for stranded costs.

Author’s note: This story has been updated to clarify that, while Boulder was responsible for Xcel’s attorneys fees during the PUC process, it won’t be in condemnation proceedings unless the case is dismissed, and even then may contest charges. The story also reflects that the stranded costs field in the city’s forecast tool is left blank, not set at $0.

For a Twitter thread of Tuesday’s discussion, click here.

— Shay Castle, boulderbeatnews@gmail.com, @shayshinecastle

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