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Will cities defect from IOUs?

Some coverage, including mine, has tended to characterize the nascent efforts of cities and towns across the country to shape their own energy future—and defect from their incumbent, investor-owned utility—as white hats vs. black hats.

If the people in a democracy desire to band together and form instruments or organizations to carry out their shared vision for the future, any effort to thwart that move to self-governance is surely wrong, right? Maybe. 

It would be much clearer and nuanced to observe that cities and towns are exploring municipalization—or other paths to local control over power G + T + D—for a variety of reasons. The drivers for local energy independence range from reliability (cities and towns in Massachusetts and Connecticut that got hammered by storms last fall) to cost (Connecticut's recent efforts towards a state-level energy policy that could restrain price increases) to environmental concerns and local control over one's own energy destiny (Boulder, Colo.). Actually, Connecticut has all three drivers at work.

On the other side, incumbent service providers—the IOUs—understandably have simple business concerns about losing major customers and, thus, significant revenue, and the continued viability of their business model. There's nothing "black hat" about that—it's just business. Unless, of course, the IOU in question uses odious or illegal tactics to enforce its monopoly over its customers—not that that would ever happen.

You can read our coverage of Boulder-related issues in "Boulder Seeks Divorce from Xcel." We discussed Connecticut recently in "Connecticut: In Search of Microgrids" and Massachusetts in "Outages Drive Smart Grid, and Muni Legislation" and "Lexington, Mass.: Another Muni Candidate."  Perhaps more threatening to IOUs' business model is the potential defection of individual customers who pursue alternatives en masse; see "Power Utilities' Morphing Future."

Last time we heard from Boulder, it had hired one law firm to deal with the Federal Energy Regulatory Commission (FERC), which may determine the value of Xcel's stranded assets, should Boulder proceed with a municipal utility. And the city had hired another law firm to deal with condemnation proceedings in state court, in the event it moves forward with energy independence.

The latest development in the saga of whether Boulder gets up close and personal with municipalization was last week's announcement that it had hired an "executive director of energy strategy and electric utility development." That person—Heather Bailey—will begin the job June 7. According to a Boulder press release last week, Bailey has 30 years of experience in both public and private power, having served as a regulator, a utility executive and consultant. She has a master's degree in business administration from the University of Texas at Austin and served as  chair of the American Public Power Association business and finance section in 2001.

From the release:  The new hire will "be charged with establishing an operations and business plan for the successful, potential transition from Xcel Energy operations to city-run operations." The position is a two-year, fixed term position and is not likely to become the person responsible for day-to-day operations of a municipal utility, should the city succeed in forming one.

The battle lines between Boulder and Xcel are being drawn. First, Xcel asked the Colorado Public Utilities Commission to allow it to limit Boulder citizens' access to incentive and rebate programs because all Xcel customers would, it argued, subsidize those incentives and rebates for customers who aren't likely to remain part of the rate base. The Denver Post editorial board agreed, as did consistent critics of Xcel.

Boulder's city manager, Jane Brautigam, and mayor, Matthew Appelbaum, fired back recently in The Denver Post that state law prohibits Xcel's action, which she characterized as discriminatory. The city officials argued that Colorado courts and FERC will determine the value of Xcel investments in Boulder that need to be repaid if Boulder goes its own way.

Condemnation proceedings and determining the value of stranded assets strike me as two issues that could fuel legal battles between the two parties well beyond Bailey's new two-year appointment.

For Boulder, which has declared its interest in reliable, affordable power—as well as ambitious levels of renewable energy and local economic development—independence is about traditional utility values as well as shaping its own energy future. For Xcel, it's about business.

It may not be white hats and black hats, but there's sure to be a slow-motion showdown at high noon that could serve the rest of the country and other local efforts as a cautionary tale.


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