Denver residents are likely to approve a new, 20-year franchise agreement between the city of Denver and Xcel Energy in an election slated for Aug. 8 – not because it’s a great deal but because it’s the only deal.
The city can’t bear the economic risk of starting its own utility company. And the notion of opening utilities markets to competition through deregulation has had disastrous consequences, so far.
Recall the delight of Enron traders, captured on audiotape, as cities were blacked out in California, a state that had deregulated the energy industry. So it’s easy to see why Denver’s renewing Xcel’s franchise is a foregone conclusion.
But why should the city and its taxpayers commit to an Xcel deal for two decades? In 2027, we might all be getting our power from personal cold-fusion reactors the size of coffee makers, like in the 1985 movie “Back to the Future.”
Xcel needs a 20-year deal with Denver as a precedent for deals it must cut with other Colorado cities. These agreements allow Xcel to run its pipes and wires through city-owned thoroughfares. In return, the cities get a fat franchise fee that is ultimately paid by utility ratepayers.
Locking down these deals for 20 years – which is typical – helps Xcel demonstrate a steady stream of income to lenders. And it means Xcel won’t have to deal with cities and persnickety voters very often. The last time Denver’s contract came up for renewal, in 1986, Xcel promised Denverites it would consider a garbage-burning electric generation plant.
What happened to this idea? Well, Xcel eventually did what any profiteering monopoly would do: a study, showing that garbage-burning plants were not feasible.
Twenty years later, Xcel generates only about 3.5 percent of its electricity with alternative energy. Under Amendment 37, passed statewide by voters in 2004, Xcel must produce or buy 10 percent of electricity via renewables by 2015.
For now, Denver is not demanding fancy alternative-energy plans from Xcel. Instead, the city is asking Xcel to contribute just $200,000 toward a proposed solar-power pilot program. Xcel is committing to purchase up to 22 megawatts of hydroelectric power from Denver Water over the next 20 years. To put this in perspective: On Feb. 18, one of the coldest days of the year, 325,000 Xcel customers lost power because Xcel was short 400 megawatts of power due to bad planning.
In announcing the new franchise agreement last week, Mayor John Hickenlooper said the city initially proposed a 10- year agreement, but Xcel pushed for a 20-year deal. To get to 20 years, Xcel agreed to several concessions, including agreements to improve service.
The company, for instance, will try to figure out the causes of power fluctuations on city-owned equipment at Denver International Airport that have stranded travelers in the underground trains. It also will contribute up to $2 million to low-income assistance and energy efficiency programs.
The most expensive concession was Xcel’s agreement to move utility infrastructure for free at the city’s request. This will benefit city projects – including the build-out of FasTracks – and cost about $60 million over 20 years.
So it sounds like the city really stuck it to Xcel – but who is going to pay for all this? Whatever Xcel takes on as a cost of doing business, it will likely pass on to its ratepayers eventually. That includes the costs of studies for garbage-burning power plants and “free” utilities relocations.
Additionally, Xcel bills its customers directly for the 3 percent franchise fee it pays to the city. As a result of some changes in how this fee is collected, Denver ratepayers will pay $9 more a year.
City Councilwoman Jeanne Faatz objects to that provision. But she told me she believes the council will approve the plan. “This is going to get referred to the voters, regardless of what I do,” she said. “But I really hope citizens themselves evaluate it.”
Until this deal came up for renewal, I never noticed the extent to which Denver was in business with Xcel. When utility bills rise, the city’s revenues rise too.
Denver taxpayers own city thoroughfares, but they pay a steep franchise fee so their utility can access it.
This is a good business for the city. But it looks like a sneaky little tax hike to me.
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to him at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.
