Denver 1A (Xcel Franchise): A Bird in the Hand, Or . . . .?

Xcel Energy is a company you can love to hate.  But, it has had a monopoly on providing electricity and natural gas to Denver for the past 130 years or so.  Denver Referendum 1A ,which goes before voters on a primary ballot that has no other contests for most of Denver’s voters, attempts to put a not horrible deal with a few bells and whistles before voters when no one is paying attention.

No one has told voters what happens if they vote no.  What Does It Say?

The key terms of the agreement with Xcel are:

* The agreement covers gas, electricity, steam and allows for further agreements chilled water (steam and chilled water are used to heat and cool respectively large building complexes such as those found downtown).

* Denver gets 3% of the gross as a franchise fee.

* Xcel must cooperate with public works projects and for emergency purposes.

* All new electrical lines shall be underground.  One percent of gross revenue from electricity shall be devoted to putting existing above ground electrical lines underground.

* The City is allowed to generate its own power and sell it to Xcel at a good faith rate.

* Xcel “shall continually monitor its operations to mitigate environmental impacts.”

* Conservation rebate programs shall continue.

* Xcel shall continue renewable energy initiatives (particularly those arising out of Amendment 37).

* Imposes a transfer fee of $1 million on Xcel if it transfers it operations to another entity which may not be recovered with a surcharge on rate payers.

* Limits the ability of Xcel to pull out its infrastructure, or discontinue temporary service, if its loses its franchise in the future.

* Xcel is required to make an extra effort to have a diverse workforce and to subcontract in the same manner.

The City cited the following reasons to favor the agreement, many of which are not expressly required by the ordinance voters are now considering:

Economic Benefits

The City of Denver is expected to receive $22 million in revenue from the existing Xcel franchise agreement in 2006, which goes into the General Fund to help fund public safety, parks and recreation, public works and other City services. In addition to these funds, under the new agreement, the City will receive approximately $2 million in additional revenues each year due to a change in an exclusion, putting Denver on par with the standard Colorado franchise fee. These additional revenues will be targeted to low-income energy assistance programs described below.

The franchise agreement expands the company’s obligation for relocating its facilities and infrastructure to include City projects at least 50% funded by government entities, including RTD. This will help facilitate the build-out of FasTracks.

The franchise agreement also subjects Public Service Co. to all right-of-way permit requirements, including inspection and acceptance by the City of its work.

Public Service Co. has also agreed to performance standards for repairs, new and modified service, relocation, bury lines, traffic signal installation, and street light repairs and to pay if it fails to meet certain standards.

Public Service Co. also agreed to and did conduct a power study for DIA to determine the causes of power fluctuations.

Customer Service Benefits

Denver anticipates funding new low-income assistance and energy efficiency programs for individuals and non-profit agencies with the additional $2 million in revenues from the elimination of the exclusion.

Public Service Co. will contribute an additional $2 million over the 20-year term of the franchise to these programs facilitated by Denver Human Services.

Public Service Co. will partner with the City, Denver Housing Authority and the Governor’s Office of Energy Management and Conservation on a low-income residential demand side management pilot program aimed at reducing energy costs.

Public Service Co. will continue to invest 1% of its gross revenues from electricity sales to bury electric lines in Denver.

Through a proposed agreement reached at the Public Utilities Commission, Public Service Co. has agreed to new reliability performance standards for its customers.

Environmental Benefits

To help meet its Amendment 37 renewable energy requirements, Public Service Co. agrees to partner with Denver on a proposed solar power plant, subject to regulatory approval. The company has also agreed to contribute a $200,000 match for the proposed solar pilot project.

Public Service Co. has agreed to partner with Denver on future environmental programs, such as the Pilot Municipal Demand Side Management Program; green building outreach program; Business for Environmentally Sustainable Tomorrow program and to develop new programs during the 20-year term of the franchise.

The company and the Denver Water Board reached a separate agreement, subject to regulatory approval, by which Xcel has committed to purchase up to 22 megawatts of hydroelectric power from Denver Water over the next 20 years.

In dry years, Public Service Company’s Shoshone Call (right to control water in the river) pulls water past storage reservoirs on the Colorado River for the Shoshone power plant in Glenwood Springs. Under a new agreement, the company will relax the Call during dry conditions, allowing upstream reservoirs to store more water, benefiting Denver Water and West Slope entities.

What If Voters Say No?

There is no plan B for a no vote, at least, available to the public.

Presumably, Xcel and the City go back to the bargaining table, although it isn’t clear whose hand is strengthened if they do, as a vote against 1A would largely be a vote of no confidence in Xcel generally, since almost no one understands the details of the deal to extend its monopoly by another 20 years well enough to be voting on that basis. 

A renegotiation could mean a sweeter deal to bring more political support on board, or could mean a bare bones deal, without environmental perks in the current agreement, since Xcel is no longer interested in playing nice.

The alternative would be to hire someone else to run the system, a disaster to Xcel, and potentially an expensive move for the city, or for the city to embark on the brave new world of starting its own publicly owned utility, something Hickenlooper and company certainly don’t have on the agenda at the moment.

The political problem for Xcel.

Their are plenty of reasons to hate Xcel, and its biggest problem going into this vote is its poor public image.  They did market research on the issue several months ago, and if my answers were typical, they have their work cut out for them.

Their service is so bad that they have been repeatedly fined by the state Public Utilities Commission.  For example, in 2005, Xcel was fined $13.4 million for bad service.  It also failed to meet its obligations in 2002, 2003, and 2004.

This past February, an Xcel screw up left 371,000+ without power on a freezing day.  We had power outs this summer.  Indeed, the company routinely exceeds its PUC set power outage limitations.

Xcel charged every resident of Denver at hugely increased rates allegedly based on increased fuel prices.  Then we learn that (emphasis added):

Xcel Energy said Tuesday [August 1, 2006] that rate increases and hotter-than-normal early-summer weather contributed to an 18 percent increase in second-quarter earnings compared with the same period last year.

Xcel credited a portion of its earnings improvement to higher profit margins from the sale of natural gas in Colorado as well as higher gas and electric margins in some of the other seven Western and Midwestern states it serves. . . .

In the first quarter, Xcel reported a 25 percent increase in net income.

Despite strong profits, Xcel is asking for an increase in electricity rates.  A coalition made up of ProgressNowAction.org, Colorado Public Interest Research Group (CoPIRG), Colorado Progressive Coalition and Clean Energy Action is fighting the rate hike.

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Andrew Oh-Willeke

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