THE BLOG
06/16/2010 10:32 am ET Updated May 25, 2011

Paying the IOU: Boulder and its Expiring Xcel Franchise

Since Boulder is now parsing its options on whether to renew its franchise with Xcel Energy, let's take a minute to review what it really means to pay out so much every month to an investor-owned utility, an IOU.

Amusing and clear it is for me.

Years ago I found some stocks that offered a great "yield" which is the cash dividend expressed in ratio to the current price. I'd found some doozies. They were utilities.

In a line she remembers to this day, my stockbroker snorted, "Only blue haired ladies invest in utilities; they need the cash pay out - you're young, so get something that can grow in value for you!"

Ever since, I've looked at utilities as the slow moving cash cows of the equities field - low on innovation, heavy in capital and regulation, glacially slow on market penetration, but grimly certain in revenues. A boring business model -- but now one increasingly vulnerable to erratic pricing of fossil fuels and climate based lawsuits due to their use of coal. As monopolies, big utilities are steered by cumbersome regulation and in turn steer regulatory staff and lawmakers with compelling force; their revenues fund lavish executive compensation, eye-catching PR and marketing, legal teams that are the envy of small countries, with plenty left over for shareholders.

This is the business model that we in Boulder fund through our monthly utility bills to Xcel which last month announced its eighth straight year of increased dividends to shareholders, with company projections indicating even higher profits for the coming year. The Denver Business Journal just reported that Xcel's CEO Dick Kelly's pay doubled over the previous year, pocketing $11 million and change.

Investor owned utilities are the most expensive way to get electricity, according to the American Public Power Association, with IOU electric residential rates being 17 percent above rates charged by publicly owned municipal utilities, or "muni's" (with commercial rates in an IOU also being 9 points higher than in "muni's").

So, when or if we renew our franchise with Xcel this year, we shall pay higher costs and gain no energy sovereignty, as compared with being our own municipal utility. True, becoming a muni does incur special costs in the first years in buying down the local distribution system, but it's not clear if said costs would be much more than the premium we now pay for Xcel's IOU status.

With Xcel, we pay Cadillac prices to cruise at the clean edge of the fossil fuel pack, but with a muni, we could be in a thrifty Prius zooming towards lots of wind and solar, shielded from coal's various costs.

In Boulder's struggle to find new ways to do business with Xcel, first came the idea to form a Boulder/Xcel partnership to scale up rapid decarbonization, with hopes of using the wisdom of National Renewable Energy Labs and other labs to promote and track methods of integrating large amounts of renewable energy on the grid.

This hope was panned by Xcel as being outside the scope of what a franchise or regulation would allow.

There has been talk of Community Choice Energy Aggregation as a way for Boulder to select its own energy mix through power purchase agreements with wind or solar farms and other resources, and the distribution would be "rented." This option is sometimes called "muni'-lite". Though many communities in Colorado have passed CCEA status for themselves, the Legislature has not authorized it. California has put Community Choice on the map and is showing others how to follow.

Another option proposed by Xcel is for Boulder to aggressively promote the use of Windsource, where the majority in Boulder do not subscribe (even in a city which voted to tax its carbon emissions). The program provides wind power for every kilowatt hour sought in that scheme (actually it's a mix of mostly wind and other clean fuels). But the program has no leverage on the overall carbon-intensity of Xcel's power generation -- and Windsource customers pay for that also in their rates. Some have shunned this option has being too many black electrons in green clothing.

That leaves Boulder with many muddled options that deserve professional analysis. We could pass a CCEA and then work on the Legislature to authorize it; we could work to have more people use Windsource -- and still pay large premiums to Xcel for its IOU status as well as its brand new coal plant in Pueblo that provides excess power for the first few years; we could aim to become a muni which would incur both costs and savings and give us energy sovereignty.

All of the options merit research and community education, and for this fall's election we need to see an item on the ballot that authorizes the city to collect a small tax in case the franchise falls out and lops off the franchise fee which Xcel now reimburses Boulder and reaches about $4 million per year. It's a collect-and-pay-back scheme that Boulder voters should be glad to replace as a way to explore options.

An interesting twist: Boulder's choice is highlighted this month with the defeat of California's Proposition 16, in which the big utility PG&E proposed that in order for a municipality to take charge of sourcing its electricity (or even expand its range) it would have to get two-thirds vote of support by the citizens. Here we see, as if in Aesop's fables, how nakedly IOU's strive to protect their monopoly status. Fortunately, the grassroots opposition defeated PG&E and its $46million effort with a budget of about $100,000, or less than a quarter of a percent as much money.

People can stand up to a big utility and win -- even with a quarter penny in the pocket for every dollar of the big company. And whose $46 million was it that PG&E spent? The rate payers'? The shareholders'? Whichever -- file it under W for Waste. That's life when paying the IOU.

As good as Xcel has been cleaning up its future energy portfolio here in Colorado, staying with this investor-owned utility and failing to leverage our values and technical passions could be Boulder's costliest choice.