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Can (should) a city build a smart grid?

Over the weekend, the Boulder Daily Camera carried essays by five of its 11-member editorial board on "Boulder's Energy Future."

Why does this matter to you?

Because the discussion in Boulder—and that city's choices—reflect the choices faced by many municipalities that seek to move more aggressively toward a smarter grid than their large, regional, investor-owned utility (IOU) can allow. At least that is how many cities see it.

This possible destiny is called "municipalization" and you'll recall that the citizens of dozens upon dozens of towns and cities in Pacific Gas & Electric's service territory in California insisted last year at the ballot box that this option remain open to them.

So, if you're a large investor-owned utility serving multiple towns and cities, the discussion in Boulder is relevant to the very survival of your business model. (Otherwise, PG&E would not have spent $46 million last year on a campaign to prevent defections and, thus, lost customers.) If you're a municipality that doesn't own and run its own utilities, this discussion is relevant because municipalization in general and a smarter grid in particular isn't simple, easy or cheap.

Boulder, of course, is a particularly interesting case. Xcel Energy attempted to establish the benefits of a smart grid in a multi-year experiment there (SmartGridCity) that ran up huge cost overruns. Data collection from the system continues and the jury is still out on whether the "smart" technologies employed there will yield substantial value. (In time I think they will, but the hype led to heightened expectations and many Boulder residents expected quicker results. And, unfortunately, Xcel overreached on cost recovery for its mistakes.)

(See "SmartGridCity Cost Cap Revisited" for our latest, with links to past articles.)

The Boulder City Council last year voted to not renew Xcel's municipal franchise, deciding instead to explore greater autonomy (that is, municipalization) as a possibly more direct path to fulfilling the community's desire to integrate more renewable energy, increase energy efficiency and control its own destiny.

Forthwith, here are excerpts from the essays by the Boulder Daily Camera's editorial board, plus my own quick take on their collective stance. 

"Recent polling showing citizen 'uncertainty' concerning whether to establish a municipal energy utility and toss Xcel should surprise no one," wrote board member Ed Byrne. "It's complicated. Buying Xcel's wires, pipes and infrastructure will be no mean feat. I don't expect Xcel to roll over and play dead. They've invested a lot in Boulder over the years ... A great day for lawyers is not necessarily good news for taxpayers.

"What if we spent city dollars [on city-wide energy efficiency] instead of paying off Xcel? Buying [energy] efficiency seems to be the wiser long-term investment."

Editorial board member Anne Butterfield disagreed.

"Boulder should pursue municipalization because delivery of electricity is by nature a monopoly and, to this American's thinking, the only ethical way to allow a monopoly is to make it as low cost and publicly accountable as possible," she wrote. "It must belong to the people so they can exert influence on the rates and energy mix ... by electing local decision makers ... None of that can be done with an investor-owned utility, which by definition is obligated first to its shareholders. [Creating] a 'muni' ... can allow Boulder to reach its goals of stable rates, reliable service, increasingly clean energy and local economic benefits through energy generation."

Where Butterfield focused on self-destiny, fellow board member Spense Havlick suggested that municipalization presents a more palatable business model, though questions remain.

"Boulder's franchise with Xcel expired Aug. 30, 2010," Havlick wrote. "It was a good decision [to ratify by ballot] because voters will now have an opportunity to choose among several options for electricity ... Boulder's water utility is managed well, it uses fair pricing to conserve water and it managers are not overpaid. 

"My trust in Xcel has evaporated," Havlick continued. "In 2009 their CEO received compensation of $11.3 million. [However], city officials need to show voters how a local electric utility will reduce costs by increasing our renewable energy supplies. How much potential do we have to replace coal with more hydro, solar, methane and energy efficiency?" 

Editorial board member Judy Amabile favored further exploration of the implications of municipalization, a notion she first resisted.

"When Boulder first decided to forego renewing the franchise agreement with Xcel Energy and explore the option of forming a municipal utility I was skeptical," Amabile wrote. "Running a utility is complicated, delivering power for a reasonable price is difficult, the legal and regulatory issues are vast and the cost of getting it wrong is huge.

"Other cities like Longmont [Colo.] and Fort Collins [Colo.] have successful municipal utilities. The municipal utility option deserves to be explored further. Xcel needs to know that we will have clean energy options in Boulder. If they can't provide them, we won't grant them the franchise."

Editorial board member Marc Raizman brought perspective to the issue, while acknowledging the city's constraints.

"Boulder is not alone in wishing to control its source of electrical power," Raizman wrote. "Berkeley, Calif., Madison, Wis., Portland, Ore., Massena and Schenectady, N.Y. have retained consultants to examine the same question. Of this country's 3,600 electric power systems, 2,000 are municipally owned. However, these produce but a small share of the nation's needs. Half of the municipal systems buy their power from larger utilities.

"Municipal utilities, [however], favor a diversified power mix as they buy power in the wholesale market. [And] they must meet public accountability standards, hold open meetings and budget hearings and have competitive bidding ... Their operations must be transparent."

My quick take: Boulder's municipalization studies will reveal high costs and complexities to achieving energy autonomy. Achieving that autonomy will force some difficult decisions, which include a substantial role for fossil fuel generation in "the mix." Much of the reasoning of the essayists here reflects intense mistrust of their incumbent provider, but whether that stems from Xcel's long-term handling of its franchise, SmartGridCity's missteps or both is hard to say.

The lessons for cities exploring municipalization and for large IOUs striving to prevent balkanization of their service territories may have a lot to learn from both of my observations. Both want to achieve efficiencies with smart technology and practices.

For me, three questions loom: Who wins? At what cost? And, what happens to grid modernization in the process?

Phil Carson
Intelligent Utility Daily





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