The City of Boulder is lawyering up for its battle with Xcel over municipalization.
City officials are expecting to pay hundreds of thousands of dollars over the next year to two law firms that will represent Boulder as it investigates municipalizing its electric utility.
And that doesn’t include the appraisers, assessors and engineers needed to estimate the cost of acquiring Xcel’s infrastructure, much less the executive director who will be hired to lead the transition.
Boulder citizens voted last fall to authorize an increase to the existing utility occupation tax by up to $1.9 million a year for five years to plan for and acquire an electric distribution system, presumably the one owned by Xcel. The utility fought unsuccessfully to defeat the measure, spending almost $600,000, not including contributions it made to the anti-municipalization Boulder Smart Energy Coalition.
The ironic part is, since Xcel is still the city’s electric utility supplier, it is collecting the new tax, but has to return those revenues to Boulder — so that the city can then turn around and spend that money on attorneys and other professionals to fight Xcel.
The city recently signed a contract with the Denver law firm Duncan, Ostrander & Dingess to spend up to $600,000 — but no more than $400,000 a year — to assess the cost of condemning and acquiring Xcel’s utility infrastructure. The city is finalizing a similarly structured contract with Duncan & Allen, a Washington, D.C., firm that will represent the city before the Federal Energy Regulatory Commission, according to city spokesperson Sarah Huntley. Huntley tells Boulder Weekly that the two Duncans are no relation, and that Duncan & Allen’s primary role will be to defend the city against Xcel’s claim that Boulder will owe the company more than $300 million in “stranded costs.” Stranded costs are infrastructure investments that Xcel has made that would have benefited Boulder customers had the city renewed its 20-year franchise agreement with the utility. The city maintains that it owes Xcel nothing, because the company should not have assumed that the agreement would be renewed.
The case could set a precedent. “Communities across the country are watching this,” Huntley says. “We had attorneys from all over vying to be a part of this.”
She explains that while there are plenty of municipal utilities across the nation, most are many years old and predate the legal concept of stranded costs.
Huntley says the city is expecting to spend the full $1.9 million authorized by taxpayers, at least in the first couple of years. Boulder has to pay engineers, assessors and appraisers to calculate the value of the Xcel infrastructure that the city may condemn and take over. She says the city also intends to pay six figures to an “executive director for energy strategy and utility development,” a two-year position charged with leading the transition. Huntley explains that the person hired for that position must have a blend of entrepreneurial skills associated with a start-up business, as well as knowledge of day-to-day operations and long-term strategies for running utilities. She adds that the executive director is unlikely to continue as the city’s utility manager, if Boulder ends up pursuing municipalization.
When city officials proposed the ballot measure last year, they pledged that there would be several “off-ramps,” or opportunities to abandon municipalization if it proved unsustainable.
According to Huntley, the first of those off-ramps will likely occur after the valuation of the Xcel system is completed.
City council alone is authorized to decide whether to take one of those exits off the municipalization highway, she says, “but we anticipate a very robust public process around each off-ramp.”
Huntley adds that while city officials intend to be as transparent as possible about releasing information related to the process, detailed budget documents may not be forthcoming. She says the city may invoke attorney-client privilege to shield its specific strategy for battling Xcel, so that the company doesn’t gain any insight into it.
“Xcel would love to have a road map for what we’re doing and when we’re doing it,” Huntley explains.
When asked about the city’s retention of the law firms, Xcel Regional Vice President Jerome Davis points out that “none of them are from Boulder, so they’re not local.”
He also cautions Boulder taxpayers to keep an eye on whether city officials end up spending more than they promised before the ballot measure passed.
“We still don’t believe, for the amount of money they stated during the campaign, that they can have lower rates, better reliability, more renewables, no use of coal, all for under $300 million,” Davis tells Boulder Weekly.
He says possible additional costs include city staff time spent on municipalization, which “takes them away from other work they should be doing” and would be “a shell game with the citizens.”
Davis agrees that the case is a big deal.
“I don’t think there’s an example of a taking this large, a condemnation effort this large, in the history of this state,” he says.
But he adds that he’s not worried about the case setting a precedent that would encourage other municipalities to leave Xcel.
“We don’t think other cities are watching this,” Davis says. “Probably other cities are saying, ‘Glad Boulder is spending their money. We’ve got other important things we need to be doing.’” He declined to reveal how much Xcel plans to spend on its legal battle with Boulder.
“We do know it’s going to be an expensive litigation on both sides, unnecessarily,” Davis says.