Responding to ratepayer anger at Black Hills Energy, the Pueblo City Council is considering whether to begin the long process of creating a municipally owned power company.
In 2005, Pueblo voters decisively rejected a proposal to create such a company, which would have acquired the local assets of Aquila, then Pueblo’s energy provider. The company that became Black Hills Energy subsequently acquired Aquila.
Voters who opposed a municipal utility may have feared skyrocketing utility rates, big bills for system upgrades and unresponsive management. A dozen years later, many residents believe that Black Hills is guilty on all three counts.
Would it make sense for Pueblo to follow Boulder’s lead, and try once more to create a publicly owned electric utility?
Here are three predictions from a former board member of Colorado’s largest municipally owned utility — your favorite frenemy, Colorado Springs Utilities.
• Your rates will go up, not down.
• You’ll still have big bills for system upgrades.
• Your company’s board and professional managers will seem callous, unresponsive and unconcerned with ratepayer anguish.
And here’s another unpleasant truth: You probably can’t afford it.
If, as Pueblo City Manager Sam Azad estimated earlier this year, buying the system might cost the city around $1 billion, the new utility would be stuck with tens of millions in annual debt service. It’s difficult to predict what interest rates the company would have to pay on the tax-exempt bonds that would be issued to finance the deal, but underwriters might insist that Pueblo and Pueblo County guarantee the securities.
Look at this deal very, very carefully.
It’s also worth noting that council’s non-binding resolution that committed the city to relying upon 100 percent renewable energy by 2035 may further increase power costs.
Compared to large investor-owned utilities such as Xcel, small municipal providers are at a disadvantage. A lot can change in the next 18 years, but presently, scale matters in electric generation and distribution.
Xcel owns plants capable of producing more than 17,000 megawatts of electricity. That’s enough to serve 12.7 million homes.
“We generate reliable, affordable electricity at thermal power plants where coal, natural gas, oil, biomass or nuclear fuels are used to heat water into steam to drive a turbine that produces electricity,” according to Xcel’s website. “We also have wind turbines, solar panels and hydroelectric plants that generate electricity using these clean, renewable energy resources.
“We generate approximately two-thirds of our power and buy the remainder from other electricity suppliers to meet our customers’ energy needs.”
Scale brings flexibility. As renewables become more competitive, Xcel has the ability to move seamlessly from fossil fuels to carbon-free energy sources, especially with customer support.
Even though Colorado Springs Utilities doesn’t have to meet the same state renewable energy standards as Xcel, residential users pay somewhat higher rates than Xcel’s Denver customers. Federal regulations forced CSU to install extremely expensive pollution control devices on two aging coal-fired power plants.
In hindsight, it can be argued that CSU should have closed the downtown Drake plant and invested in a new combined cycle natural gas-fired plant, but that would have been risky. Ten years ago, coal was cheap and abundant, while natural gas prices were volatile and long-term supply contracts pricey.
Xcel could have (and probably would have) closed Drake, and moved forward with or without new capacity in Colorado Springs. For CSU to do either would have been a “bet-the-company” strategy, one that might have impacted ratepayers for years to come.
Pueblo’s experience with Black Hills has been painful, but the pain has been mitigated somewhat by the refusal of the Colorado Public Utilities Commission to go along with recent rate hikes (thanks, Frances Koncilja!).
You wouldn’t have that recourse with a municipally owned provider — you might have to swallow rate increases or default on bond covenants.
Finally, look at Boulder. Voters authorized the city to begin the process of creating a municipal utility several years ago. Negotiations with Xcel are ongoing, the city has already spent $11 million and no resolution is in sight. Note that Boulder County, with about 330,000 residents and 2016 median home sales of $615,000, is far wealthier than Pueblo County (170,000 residents, median home sales of $150,000).
There’s only one conclusion: Look at this deal very, very carefully.