At a public meeting on the night of June 28, 2011 at the East Boulder Community Center, Xcel Energy presented a bold proposal to provide customers in the City of Boulder with approximately 73 percent of their projected electricity demand from relatively inexpensive wind generation by the start 2013 and 93 percent by 2020, claiming that it occupied a unique position to supply this form of power quickly and at an unusually low price.
Paula Connelly, managing attorney at Xcel, explained to a capacity crowd, including six Boulder City Council members, that Xcel had recently contracted with NextEra Energy Resources to buy power from a 200 megawatt (“MW”) wind farm in Lincoln and Elbert Counties near Limon at rates that were 40 percent lower than those Xcel had received when it sought wind power bids in 2009. Connelly said that these rates were lower than any Xcel had paid in the past and lower than any rates it expects to see in the future.
Limon, Colorado (Generation X-Ray http://flic.kr/p/3j3c9)
She attributed the unusually low rates to a temporary glut of wind power capacity in the energy market and to the short-term availability of federal tax credits for wind power producers. She said that Xcel had reached another agreement with NextEra that, subject to the approval of the city, it would build another farm adjacent to the one which is currently planned near Limon with a capacity of from 100 to 200MW, depending upon the city’s preference, and supply the electricity produced there to customers in the city at the same rates it charges Xcel for power from the first farm. In order for NextEra to benefit from the federal production tax credits, the wind farms would have to be generating electricity by the beginning of 2013.
Xcel will buy the power from the first wind farm in order to fulfill its mandate from the State of Colorado to supply 30 percent of its electricity from renewable sources by 2020. If the city were to agree to purchase 200 MW of wind power from a second farm, then Xcel estimated that by 2013, 73 percent of Boulder’s electrical consumption would derive from wind power. That percentage is estimated to climb to 93 percent when Xcel reaches the 30 percent level of renewable energy that it is required to provide to all its customers in 2020.
Under Xcel’s proposal, Boulder customers would be charged the same rates as its other customers, plus or minus the difference between the price of the electricity from the Limon wind farm and Xcel’s “avoided cost” of the electricity it would not have to produce at its peakload generators to supply its Boulder customers. Since Xcel’s peakload generators rely on natural gas, the surcharge or credit to Boulder customers would depend on its price. Connelly said that Xcel is aiming for a surcharge of no more than $4 a month for the average residential customer. She also asserted that the price of natural gas will probably rise over time relative to the prices charged by NextEra, so that Boulder customers would likely receive a credit at some point in the future.
The details of a deal between the city and Xcel would be complicated, in large part due to the facts that the wind does not blow steadily and that as yet there is no way to store wind-generated electricity. When the wind farm produces at any particular time more electricity than Xcel’s system could accept, then Boulder customers would have to compensate NextEra for the “curtailment” of the electricity that it could not sell. On the other hand, when the farm fails to produce at any particular time enough electricity to satisfy Boulder customers, then they would have to pay Xcel “integration” costs for the power Xcel would generate from its natural gas turbines to fill the shortage.
Xcel’s proposal also provides that Boulder customers would receive Renewable Energy Credits (RECs) for the wind-generated electricity they purchase. These RECs could be sold. Xcel asserted that “integration” costs would be paid by Boulder customers through the price they pay for the RECs.
City Attorney Tom Carr explained that the city will probably create an electrical utility board regardless of whether it accepts Xcel’s offer or whether it establishes its own municipal electrical utility. Under the former scenario, the board would manage the complicated contractual arrangement with Xcel, including the receipt and sale or other use of the REC’s. Under the latter scenario, the board would govern the operations of the utility. Carr said that such a utility board would be appointed by the City Council and would probably have seven or more members. Xcel’s representatives asserted that under its proposal the city’s utility board would probably possess the authority to implement demand-side management techniques within Boulder, encourage energy conservation, provide incentives to install local solar systems, and take other steps to reduce reliance on fossil fuels.
Carr warned that the city lacks the authority to accept unlimited liability for the difference between Xcel’s avoided cost and the price of NextEra’s wind power. Connelly disclosed that negotiations are underway to cap that liability.
Xcel clarified that its wind energy proposal is dependent upon approval of a twenty year franchise agreement with the city. It also cautioned that the proposal would require a willingness by the Boulder City Council to place it on the ballot for this fall, approval by the Colorado Public Utilities Commission in October, and approval by the Boulder electorate on November 1.
At the meeting Eric Bland, an unpaid, independent renewable energy expert who lives in Boulder, reported that he had examined certain aspects of Xcel’s proposal on a preliminary basis and found them to be acceptable. He confirmed that rates offered by NextEra were 30 percent below any others paid by Xcel and 30 percent below the rates he has seen elsewhere in the industry. He claimed that NextEra has a good reputation for reliable energy production. He also asserted that Xcel’s method of calculating avoided costs is reasonable, that the proposal contains significant incentives to Xcel to avoid curtailing electricity from a wind farm serving only Boulder, and that Xcel’s integration costs appear to be fair.
NextEra representatives John DiDonato and Kevin Gildea said that the wind farm near Limon for which Xcel has contracted will contain 125 turbines located on 35,000 acres and employ about 30 full-time employees. A 200 MW farm for Boulder would have the same characteristics. They recounted that NextEra is a division of the same corporation that owns Florida Power & Light Company. However, unlike Florida Power & Light, NextEra is an independent power producer and the largest producer of both wind-generated and solar-generated electricity in the country.
Connelly said that its general wind energy proposal to Boulder would be available to other cities when their franchises expire, but that the advantageous rates it had offered to Boulder would likely not be. Connelly clamed that Xcel does not expect to solicit further bids for wind energy until 2013 and did not plan on having more wind facilities installed on its behalf until 2016.
At the meeting city representatives also outlined the steps that would be needed to establish a municipal utility. They noted that if Xcel fought to the utmost condemnation of its transmission facilities by the city in state court and vigorously contested “stranded costs” before the Federal Energy Regulatory Commission, a local electrical utility might not be able to start operations for almost five years after the city decided to pursue municipalization.
Jonathan Koehn, the city’s regional sustainability coordinator, claimed that if the voters authorized implementation of a municipal utility this November, there would be various points at which the city could decide to abandon the municipalization project: if completion of the “cost model” showed that the costs of acquiring or operating a local utility system were too high, if the terms of bonds needed to pay for Xcel’s local facilities were too onerous, if negotiations with Xcel to buy its local facilities failed, and if litigation occurred with Xcel and the damages awarded to it by the courts for the appropriation of its facilities were too high. Yael Gichon, the city’s residential sustainability coordinator, asserted that that rates charged by a municipal utility would probably be somewhat lower than Xcel’s rates in the first years and slightly lower as time passed. The city’s representatives readily acknowledged that their predictions depended on various assumptions which might be belied by future events.
After the scheduled speakers made their presentations, members of the audience were given the opportunity to comment. Among his other comments, Boulder energy activist Steve Pomerance complained that Boulder would be unfairly bearing all the risk of “curtailment.” Others questioned the wisdom of a long-term commitment to one particular renewable energy technology and to electricity generated by wind from just one location. One man, who identified himself as a devoted practitioner of ancient Chinese techniques to stimulate bodily energy, proclaimed that correct “internal energy management” will be critical to fulfilling America’s future energy demands.
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