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Recognizing the Risks of a Government Utility Takeover

Final: April 6, 2020

Risk analysis is one of the most important management disciplines for operating an electric utility. Utility managers have to plan for a wide range of risks, including everything from severe weather to cyberattacks, to economic disruption to major swings in the price of commodities, such as natural gas and the market price of electricity itself.

At Black Hills Energy, we pride ourselves on our ability to analyze and manage risks, ensuring that we’re always ready to deliver the safe, reliable electric service our customers expect. That’s why we were surprised to see so little attention given to identifying and addressing project risks in the plans for a government utility takeover.  In fact, no risk analysis was completed in either of the City’s two feasibility two studies.   

There is certainly risk involved in a hostile government takeover of private assets.  Since the city and the water board have not identified risks to the voters – risks that could make the difference between electric rates going down as promised or going up instead – here are three of the most serious risks, to help voters make an informed decision.

  1. The takeover process could take longer and cost more than predicted. The water board estimates the process will take five to eight years and will cost about $10 million in legal and consulting fees to pursue. In Boulder, the municipalization process has been underway for a decade, and taxpayers have spent $23 million on legal and engineering fees so far, with no end in sight. As the process drags on, costs mount. Financial projections based on an assumed start-date for a government utility are thrown off and any predicted savings evaporate.
     
  2. The assets could cost more than expected, wiping out projected savings. It’s impossible to determine what the water board will pay for Black Hills Energy assets used to serve our Southern Colorado customers, because the water board doesn’t know what assets it will attempt to seize (Distribution only? Distribution plus generation and transmission?) or what territories it will attempt to serve. If generation and transmission are included, a best guess is that the assets themselves will cost well over a billion dollars, not including start-up costs, stranded costs and possibly hundreds of millions of dollars in going concern costs.

    Once the water board makes up its mind, the price tag for seizure of the assets through the condemnation process will depend on decisions made by the Colorado Public Utilities Commission and (if generation or transmission assets are involved) by the Federal Energy Regulatory Commission, which are impossible to predict. The acquisition cost is a key component of the financial model used to justify the effort and to predict rate decreases, and the outcome is a moving target.
     
  3. Projected Power Supply and Operations and Maintenance costs are highly uncertain. Power supply and O&M costs are critical components of the financial model. There’s no verifiable basis for power supply costs projected in the Phase II feasibility study, and the request for information conducted by the city’s consultant to obtain power prices does not guarantee pricing for an unknown future start date.  It’s also not clear whether the projections include transmission costs for getting purchased power to Pueblo. What is clear is that the projected O&M costs presented to Pueblo City Council are based on a single benchmark – Colorado Springs Utilities, which is four to six times larger depending on the metric, and serves many more customers in a more dense, compact area, compared with the Black Hills Energy service territory. A government utility serving Pueblo would need to replicate best-in-class O&M cost performance from Day One to achieve the projected savings.

Another significant project risk is distracting the water board from its core mission of providing safe, high-quality affordable water to its customers. At the end of 2019, the water board’s assets were valued at about $282 million. A government utility takeover would require the water board to seize and add to its balance sheet assets valued at more than $1 billion, maxing out or possibly exceeding its debt capacity – a lot to swallow for any organization.

There’s a lot of risk involved in simply operating an electric utility. Attempting to acquire one through what amounts to a hostile takeover takes risk to a whole new, very uncomfortable level. We encourage voters to consider the risks before making what would be the most important financial decision in Pueblo’s history.

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Three Things You Should Know about Government Utility Takeovers

March 12, 2020

  1. Lower Rates Aren’t Guaranteed
    The high cost of seizing investor-owned utility assets can drive rates higher, rather than delivering savings. “Most public power takeovers are in the vicinity of 140 percent of book value,” Jim Lazar, an expert on utility ratemaking, told the Utility Dive newsletter.

    Investor-owned utilities often have economies of scale to spread costs across a large customer base. Black Hills Energy, for example, serves 1.3 million customers in eight states. The city’s statewide takeover plan would serve only 97,000 customers.

    Water Board Executive Director Seth Clayton acknowledged in a city council work session that there’s no guarantee of lower rates immediately following a government takeover because rates will depend on the acquisition price – and the acquisition price can’t be known until after condemnation court proceedings are completed, years in the future.
     
  2. Most Municipalization Attempts Fail
    Since 2000, more than 60 communities across the U.S. have considered or are currently considering municipalization. Only nine have proceeded with forming municipal utilities and two of these subsequently have returned to receiving electric service from investor-owned utilities. Nearly all of the existing 2,200 government utilities and 900 cooperatives were formed in the early 1900s to electrify new areas. Very rarely were these systems formed by acquiring investor-owned utility assets.

    In testimony before Hawaii utility regulators, John Reed, president of Concentric Energy Advisors, said “The timeline to achieve municipalization of IOU assets could be as long as five years to 10 years and often is not successful. When the financial analysis has been conducted and all the costs have been identified, municipalization efforts are most often abandoned.”
     
  3. Boulder’s Experience Doesn’t Offer a Roadmap for Success
    Government takeover proponents claim Pueblo can avoid making the same procedural mistakes made by the City of Boulder in its failed attempt to form a municipal utility. But the legal and regulatory issues in each government takeover attempt are different and Boulder does not offer a cut-and-paste guide for Pueblo to follow.

    It’s clear the city and the water board already have learned one important lesson from Boulder – getting a blank check by avoiding an upper limit on acquisition costs in the ballot title and not providing an escape hatch for when the takeover inevitably runs into trouble. Boulder voters insisted on a price cap on their takeover efforts, but Pueblo voters aren’t getting that opportunity.

    One lesson Pueblo voters can learn from Boulder is that most government takeover attempts take longer and cost far more than originally anticipated. 

    In 2010, Boulder muni backers said a government utility would be providing power by 2017. Later predictions called for having a city utility in place by 2019, 2021 or 2023. The city staff’s latest projection is by 2025 at the earliest – more than eight years later than the original timetable.

    A second lesson is the potential for cost escalation. For example, Boulder city staff originally estimated the cost of separating a new government utility from Xcel would be $10 million. The city’s latest estimated separation costs are $110 million, or 11 times the original estimate.

    Boulder authorized a $30 million budget to pay for lawyers and engineers for the takeover effort. The city has spent $23 million so far and the staff says the remaining $7 million won’t be enough to finish the required legal work, so the effort may run out of money again this year.

    Exponentially higher costs and a decade’s worth of missed deadlines are among the reasons why many early proponents of municipalization in Boulder say they now regret going down this path.

Visit blackhillsenergy.com for more information.
 

A Billion-Dollar Boondoggle?

March 5, 2020

Proponents of a government utility takeover in Pueblo have relied heavily on the flawed 2019 Phase II Feasibility Study conducted for the city by EES Consulting, which inaccurately claims that lower rates can be achieved by a public utility. But the latest proposal from the city’s Board of Water Works compounds the study’s errors and goes against their recommendations, raising the costs and risks substantially.
 
In its Phase II study, EES projected that the cost of seizing the assets Black Hills Energy uses to deliver electricity to all of its Southern Colorado customers would be $868 million. But that’s for the cost of the distribution system only – the poles, wires, meters and substations needed to supply electric service to homes and businesses.
 
The EES study recommended not acquiring Black Hills Energy generation and transmission assets. These include things like the Busch Ranch I and I and Peak View wind farms, the Pueblo Airport Generating Station and the high-voltage transmission lines that connect Southern Colorado to the regional and national electric grid.
 
EES specifically cautioned the city against trying to seize these assets because:  
 
“… acquiring BHE transmission would entail material separation cost issues, operation complexities and heavy FERC involvement. Given that open access to BHE transmission is already available through Federal requirements, acquisition of the BHE electric transmission in Colorado seems unnecessary. Finally, purchasing BHE generation in the State also seems unnecessary and unwise. Purchase of BHE generation would increase the amount of takeout financing by two to three times. – EES Phase II Feasibility Study, October 10, 2019, page 62
 
How much will this new plan add to the projected $868 million takeover cost? It’s not possible to know, because the ultimate answer will depend on decisions made by the courts in a contested condemnation proceeding, if the government takeover attempt moves forward. The water board has made no public effort to estimate or explain the ultimate cost.
 
Pueblo voters are being asked to swallow a billion-dollar acquisition by the water board, borrowing 100 percent of the money, with principal and interest payments covered by electric rates – rates that no longer will be subject to independent review and approval. Instead, the water board will set electric rates as high as necessary to finance this billion-dollar boondoggle. Pueblo voters should question this costly, risky scheme.
 
Curious about the EES Consulting Phase II Feasibility Study? Click here for a side-by-side comparison with an independent study conducted by Concentric Energy Advisors.

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A Blank Check for the City’s Water Board?

Feb. 26, 2020

In a recent editorial (“Blank Checks and Ballot Titles”), the Pueblo Chieftain raised important questions for voters as they face the biggest financial decision in the city’s history.

The risks of a government utility takeover are clear: a long, costly legal battle; higher takeover costs than the estimates provided by the city’s Board of Water Works; lower reliability; and the possibility of higher water rates, higher electric rates,  and higher taxes, to pay for the takeover scheme and to make up for lost city revenue when Black Hills Energy no longer collects and remits a franchise fee to the city.

What’s not clear is which Black Hills Energy assets the water board will try to seize through condemnation; how long the process will take and how much it will cost (including the cost of the assets to be acquired); where the money will come from to pay for it all; and whether Pueblo is willing to give the water board a blank check, with no say-so over water or electric rates or debt.

We applaud the Chieftain for encouraging voters to be skeptical and to do their due diligence before the May 5th special election.

A Better Path for Pueblo

January 27, 2020

Pueblo City Council will decide on Jan. 27th whether to accept a Black Hills Energy offer to deliver $300 to $500 million in value while preserving the city’s right to give citizens a choice. Our proposed agreement has changed – a new provision makes it clear that the city may hold a vote, without impacting our offer. One thing that hasn’t changed is the fact that our Southern Colorado assets are not for sale. Here’s the latest.

On January 13, Council voted 6 – 1 in favor of moving the proposed agreement with Black Hills Energy forward for further discussion and a council vote on January 27th. The agreement requires Black Hills Energy to:

Help Customers Save Money

  • Seek $117 million to $284 million in customer savings by adding up to 200 megawatts of renewable energy
  • Freeze base rates – which account for 70 percent of the average customer bill – through January 1, 2025

Empower the Community

  • Make $4 million in cash and in-kind contributions to community groups
  • Provide $2.6 million in lighting improvements for parks, playgrounds and public spaces, to extend usage and improve safety
  • Deliver $400,000 in additional assistance for low-income customers

Drive Economic Development and Job Creation

  • Make $6 million in financial and in-kind contributions for commercial property improvements designed to attract jobs
  • Contribute $3.5 million in cash and in-kind contributions for economic development
  • Help Pueblo Units 5&6 become a significant driver of tourism through sale to a developer and remediation, while exploring relocation of the nearby Black Hills Energy customer service center to clear more land for riverfront development
  • Pursue a new electric rate for alternative agriculture, including hemp
  • Make $200 million in system improvements to support continued reliability, currently in the top 25 percent in the nation

Meet Renewable Energy Goals

  • Help the city become a 100 percent renewable energy municipality by 2035
  • Facilitate development of six more community solar gardens, with subscription set-asides for low-income customers

Enable Local Engagement

  • Establish a new stakeholder advisory group comprised of local residential and business customers, non-profit leaders and elected officials
  • Host a meeting of the Black Hills Energy board of directors in Pueblo

A summary of the Black Hills Energy offer is posted and available for review, or you can read the full text. At its January 27th meeting, City Council has the option of accepting the agreement and moving a ballot measure forward for a vote by citizens later this year.

The alternative to the Black Hills Energy offer is moving forward with a costly, risky government utility takeover. Bob Yates, mayor pro tem of Boulder, recently authored a Pueblo Chieftain op-ed tracing Boulder’s ten-year attempt to form a municipal utility, at a cost of $23 million to taxpayers so far, with no end in sight.

Pueblo residents who are concerned about the costs and risks of a government utility takeover, when there is a no-risk offer from Black Hills Energy on the table, are invited to contact members of City Council and the mayor, and to attend the January 27 council meeting to show support. Can’t attend? Contact City Council members by selecting their name on the city’s website at this link.

Renewable Advantage Plan Aims for Cost Savings, Clean Energy Future for Southern Colorado

Black Hills Energy recently proposed a ground-breaking plan designed to save money for customers, make Southern Colorado a clean energy leader and help Pueblo, and Southern Colorado, meet renewable energy goals. The plan, called Renewable Advantage, would add up to 200 megawatts of new renewable energy sources and is expected to result in significant savings for customers. It’s the latest sign of our commitment to customers.

Under the Renewable Advantage plan, up to 60 percent of the power supplied by Black Hills Energy could come from renewable sources, making our service territory one of the cleanest in the nation. Most municipal utilities, electric cooperatives and Colorado’s other investor-owned utilities will continue to rely on coal for years to come. Black Hills Energy has been coal-free since 2012, and we plan to add even more low-cost clean energy.

Learn more about the Renewable Advantage plan.


High Costs, High Risks and Unanswered Questions

Proponents of a government utility takeover in Pueblo are pointing to the EES Consulting Phase II feasibility study’s claim that electric customers will save money if a city utility is formed, but a closer look shows the opposite is true.  

In a side by side comparison. Concentric Energy Advisors, a respected independent management consulting and financial advisory services firm focused on the North American energy and utilities industries, identified many flaws in the EES study. The chart at left shows some of the many questions. Pueblo electric customers and taxpayers deserve answers.

Unrealistic Power Supply Cost Projections

EES projects power supply costs of $44 per megawatt hour (MWh) for a new Pueblo utility (far left bar in the chart), compared with Concentric’s estimate of $67 per MWh. As the chart shows, at $44 per MWh, the EES projections are lower than Fort Collins, San Isabel and Tri-State, among others. If power supply costs for a Pueblo utility add up to $60 per MWh (less than many other municipal utilities and electric cooperatives), the promised savings are eliminated.

on projected power supply costs of $44 per megawatt hour (MWh)

Unrealistic Operations and Maintenance Cost Projections

Actual cost data for municipal and cooperative utilities in Colorado suggest the operations and maintenance (O&M) cost estimate in the EES study is unrealistic. EES projects O&M costs for a new Pueblo utility ($290 per customer) that are lower than San Isabel, Fort Collins, the American Public Power Association West Region average and other Colorado municipal utilities and cooperatives. If a new Pueblo utility’s O&M costs add up to $484 per customer rather than the $290 projected by EES, the promised savings are eliminated. Concentric estimates O&M costs for a new Pueblo utility at $500 per year.

Likelihood of being “Best in Class”

A City Utility That Excludes City Neighborhoods, Facilities and Customers

EES concluded it’s not feasible to create a city-only utility that serves city customers without leaving some customers behind by excluding certain neighborhoods and city-owned facilities, as shown in this image from the Phase II study. The blue areas represent City of Pueblo neighborhoods that would not be served in the study’s city-only option because separating these parts of a new utility from the Black Hills Energy system would be too difficult and too costly. Excluded areas include city-owned facilities such as Pueblo Airport and Pueblo Motorsports Park.

A City Utility That Excludes City Neighborhoods, Facilities and Customers

The study’s unrealistic, probably impossible alternative is creating a county-wide or seven-county government utility with multiple cities and towns over which Pueblo has no control, with no plan for how this could happen and no transparent assessment of the legal risks.

* * *

If Pueblo moves ahead with a costly, risky government takeover, it will be the biggest financial decision in the city’s history. Concentric’s side-by-side comparison makes clear that the EES study is an unreliable analysis that shouldn’t be used as the basis for such an important decision. A government takeover will cost electric customers more, while putting reliability at risk.

Following discussions with Pueblo’s mayor and city council president, Black Hills Energy has offered a better, safer alternative: a framework for agreement that includes customer savings through low-cost clean energy, a $200 million investment in the Southern Colorado electric system, multi-million-dollar investments in job creation and community contributions, and a plan for deeper community engagement with Pueblo.

View the complete Concentric side-by-side comparison here.

View the Black Hills Energy proposed agreement framework here.


Customer Savings, Low-Cost Clean Energy, Job Creation and Community Engagement:  Framework for Agreement Between the City of Pueblo and Black Hills Energy

A five-year base rate freeze, more low-cost clean energy to save customers money, multi-million-dollar investments in economic development and an investment of $200 million in electric infrastructure in the next ten years are among the elements of a framework for agreement shared with Pueblo City Council by Black Hills Energy on Nov. 11.

Black Hills Energy Vice President Vance Crocker and former U.S. Interior Sec. Ken Salazar, who has been advising Black Hills Energy, presented the framework at a council working session and answered questions from Mayor Gradisar and council members. The proposals are the result of recent discussions involving the mayor, council President Flores and Black Hills Energy.

Key elements include:

No increases in base rates before 2024. Base rates amount to about 70 percent of customer bills. Because Black Hills Energy customer bills have been stable since 2012, a five-year freeze means 12 years of stable bills for customers.

More than $200 million in Black Hills Energy investment over 10 years, for improvements to the Southern Colorado electric system to better serve customers; $7.5 million in community contributions and economic development funding; and $6 million in economic development investment to help create jobs.

Making the Pueblo energy portfolio one of the cleanest in the nation by adding more low-cost renewable energy sources, to reduce carbon emissions and save customers money; Black Hills Energy is prepared to go outside the traditional process to deliver additional clean energy, while helping Pueblo achieve its 100 percent renewable goal.

Empowering local engagement by creating a citizen advisory group to ensure Black Hills Energy stays connected with the community; and by hosting a meeting of the Black Hills Energy board of directors in Pueblo, to foster connections with elected officials and community leaders.

“We’ve been listening to the community and the priorities are clear,” said Vance Crocker, vice president of Black Hills Energy Colorado Electric. “The community wants customer savings, job creation, more clean energy and a seat at the table, and our proposed framework addresses all of those things. We look forward to working with city staff on the details of an agreement.”

“Pueblo is at a crossroads,” Sec. Salazar told council members. “One path leads to a cooperative agreement that will help Pueblo achieve the vision we all share – a great city, thriving and prosperous, powered by clean energy, with a bright future. The other path leads to a costly, risky government takeover attempt like the one our neighbors to the north in Boulder have been pursuing for nearly 10 years at a cost of $20 million so far, with no end in sight.”

View the Black Hills Energy presentation to Pueblo City Council here.

 

 


 

Can Pueblo Afford to Bet on Best-Case Scenarios?

Whether creating a government-run electric utility will save customers money or cost more depends on the new utility’s annual operating costs. Two expenses, power supply and operations and maintenance (O&M) costs together make up about 75 percent of the budget.

 

Power Supply
 

Power Supply

Source: Concentric Energy Advisors

The EES Phase II feasibility study assumes Pueblo can obtain power for a new city utility at a cost of $44 per megawatt-hour (MWh). An independent study by Concentric Energy Advisors looked at estimates of future power costs from a respected third-party source and at recent power supply costs for Colorado municipal utilities and electric cooperatives. These ranged from just under $60 per MWh to nearly $90 per MWh, making an estimate of $44 per MWh seem like an unrealistic best-case scenario.

The study’s $44 per MWh assumption is based on confidential responses to a request for information on power supply costs that hasn’t been disclosed. It’s unclear whether this includes transmission costs necessary to deliver this power to Pueblo, which could add substantially to power supply costs; or whether power supplied by an unknown source can be transported to Pueblo cost-effectively and without interruption over the transmission system, which is a critical reliability issue.

 

Operations and Maintenance
 

Operations and maintenance

Source: Concentric Energy Advisors

The EES study projects annual operations and maintenance (O&M) costs for a new Pueblo electric utility at $290 per customer, substantially less than nearby electric cooperatives and municipal utilities in Fort Collins and Lyons. Concentric estimates annual O&M costs of $500 for a government-run utility in Pueblo.

The bottom line is that the EES claim that Pueblo electricity customers will save money with a government-run utility is based on projections of power supply and O&M costs that are substantially less than the recent operating experience of many Colorado electric cooperatives and municipal utilities. A city-run utility in Pueblo would need to beat the market consistently on power supply and O&M costs to deliver the results projected by EES.

Pueblo electric customers should ask why these estimates are so far below the recent cost experience of Colorado cooperatives and municipal utilities, and whether the savings claims hold up if power supply and O&M costs are adjusted to realistic levels. Can a city-run Pueblo utility beat the market every year for at least the next 20 years? It’s a big, risky bet.

Learn more about the city’s Phase II feasibility study and the high costs and risks of a government utility takeover at https://www.blackhillsenergy.com/servingpueblo.

Media

For journalists seeking answers to questions call 888-242-3969


 

Shedding Light on a Government Utility Takeover

Shedding Light on a Government Utility Takeover

As an electric utility professional with nearly 30 years of experience, I’m concerned about the city’s Phase II feasibility study, performed by EES Consulting. The study does more to downplay the risks of a government utility takeover than to explain them. It shouldn’t be used as the basis for making what could be the most important financial decision in Pueblo’s history – spending hundreds of millions of dollars to create a government utility while endangering the safe, reliable service that Black Hills Energy customers expect. Here are 10 reasons to be skeptical.

  1. The study clearly states that it’s not feasible to create a city-run utility operating within city limits, unless it excludes certain neighborhoods. The study says some areas, including Pueblo Airport, Pueblo Motorsports Park and some residential neighborhoods, will not be served by a city utility because serving them will be too difficult and expensive. The city shouldn’t pursue a Pueblo utility that gets to pick and choose which customers it serves and that excludes some city residents and even city-owned facilities.
     
  2. The study says the preferred scenario is a Pueblo electric utility that also serves customers outside Pueblo, including in Cañon City, Rocky Ford, Cripple Creek and in unincorporated communities across seven counties. The City of Pueblo has no control over what other municipalities do, so this proposal is unrealistic and probably impossible. While the study claims “municipalization is well-precedented,” most government utility takeover attempts fail, and nothing like a coordinated seven-county takeover driven by one city has been attempted in recent history.
     
  3. Despite the complex legal issues surrounding an attempt to take over any or all of Black Hills Energy’s Southern Colorado distribution assets, the study estimates legal costs of only $10 million. For comparison, the City of Boulder originally estimated $3 million in legal costs for its city-only municipalization effort; however, after 10 years of courtroom battles, legal and engineering costs have ballooned to $20 million so far, with the most contentious issues yet to be addressed.
     
  4. The study assumes a government-run utility could begin serving customers in 2020, just a few months away, with no explanation for how this will happen and no allowance for the lengthy legal and regulatory battles that will occur. If a city utility doesn’t begin operating in 2020, then the study’s estimates of power supply costs, financing costs and operating and maintenance costs will not be correct, as these costs are tied to market conditions at the time a city utility begins operations.
     
  5. The EES study fails to share critical details of projected power supply costs, one of the most important pieces of the economic puzzle. Projected power costs reflected in a recent independent study by Concentric Energy Advisors were based on actual costs reported by Colorado municipal utilities and forecasts for future power costs from a respected independent third party. Concentric’s study also factors in Black Hills Energy’s actual transmission costs, which should be added to the EES study. The EES study’s power supply costs are based on undisclosed responses to an undisclosed request for information, so there’s no way to know whether the estimates are credible and complete or whether power supplied by an unknown source can be transported to Pueblo cost-effectively and without interruption over the transmission system.
     
  6. The study estimates operation and maintenance (O&M) costs for a city utility that are much lower than recent actual costs reported by Colorado municipal utilities. The study estimates 2020 O&M costs of $290 per customer per year for a Pueblo electric utility. The Concentric study found a range of O&M costs for Colorado municipal utilities, the lowest of which was $400 per customer per year as of 2017. If the study is adjusted to reflect realistic O&M costs, then the purported customer savings will disappear.
     
  7. Black Hills Energy has made it clear that the assets we use to serve customers in Pueblo and throughout Southern Colorado are not for sale. The most difficult obstacle to overcome if Pueblo pursues a government takeover is the legal and regulatory challenge the city will face in attempting to condemn these assets. The risks are huge and taxpayers paid for a legal analysis as part of this study, but its analysis of these risks has not been made public.
     
  8. The study estimates the city will be liable for $446 million in stranded generation costs if it takes over the entire Black Hills Energy Southern Colorado system, as recommended, but it fails to provide enough information to determine if this calculation is correct. The lack of transparency on the basis for estimating a half-billion dollar component of the takeover cost should cause concern.
     
  9. The study acknowledges physically separating a new Pueblo electric utility from the existing Black Hills Energy system “will be complicated,” and estimates $4.3 million in separation costs for a city utility serving customers within city limits. The study estimates separation costs of $0 for its recommended alternative, seizing all Black Hills Energy distribution assets in Southern Colorado. The estimated $4.3 million in separation costs that the city avoids by pursuing the seven-county takeover scheme likely would be spent many times over in pursuit of this unrealistic scenario. For comparison, Boulder is estimating $107 million to physically separate from Xcel.
  10. The study dismisses the possibility that Pueblo will be required to compensate Black Hills Energy for the value of the going concern -- the value the assets have as part of a complete business, beyond the cost of physical assets. Going concern value will be determined in a courtroom as part of condemnation proceedings. In Boulder, Xcel says the going concern value would add at least $300 million to the acquisition cost if the city forms a municipal utility.

The EES study paints a picture of a city utility that won’t serve everyone in the city under one scenario but that would serve customers in other towns miles away in another; that somehow will start operations in just a few months, avoiding inevitable legal battles; and that will be able to purchase power and operate and maintain the system far more cost-effectively than other Colorado municipal utilities. These assumptions simply aren’t supported by the facts. Faced with such an important decision, the people of Pueblo deserve an accurate, transparent assessment of the costs and risks of forming a government-run utility.

Vance Crocker
Vice President
Black Hills Energy Colorado Electric

 


 

We're working for you, Pueblo

A recent study detailing the costs and risks of forming a municipal utility in Pueblo found that customer bills will increase by an estimated 15 percent (or $138) per year in the first year to 24 percent (or $330 more) per year in the 20th year. That’s because the City’s estimated cost to operate the electric system will be $38 million more per year on average than Black Hills Energy’s operating costs over the same period. Rather than saving money with a municipal utility, Pueblo customers will pay more.

Key findings from Concentric Energy Advisors' preliminary feasibility study

  • Under a government-run utility, customer bills will go up 15 percent or $138 per year ($11.50 per month) in the first year and will go up 25 percent or $330 per year ($27.50 per month) by the 20th year.
  • This is because the annual operating costs of a city-run utility will be higher than the costs for Black Hills Energy to continue to provide service - $16.9 million higher in the first year alone.
  • The study projects it will cost at least $402 million to acquire parts of the Black Hills Energy distribution system – poles, wires, substations, other infrastructure needed to serve customers in the City of Pueblo. This price tag doesn’t include generation or transmission costs.

Source: Concentric Energy Advisors Study on Municipalization in Pueblo 

Options Estimated cost to buy the system Year 1 (2024) Operating Cost
City-run option $402 million $131.4 million
Black Hills Energy Option $0 $114.5 million
Higher Costs of City-run option $402 million more cost to Pueblo customers $16.9 million higher cost in Year 1

 

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