Fact Sheet for Xcel Franchise Project

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					Issue: Should the city renew its franchise agreement with Xcel Energy?
What is a franchise?
A franchise is a legal agreement that gives a utility, in this case Xcel Energy, an investor-
owned utility, the right to use streets, alleys, rights of way, and other public property for
the purpose of providing utility service to the residents and businesses of Boulder.

Why does Xcel want one?
Xcel wants a franchise because it gives the company some certainty in the conditions of
its use of city streets for its utility facilities.

What’s in it for the city?
In exchange for a franchise, the city receives a yearly payment of approximately $3.9
million that goes to the city’s General Fund. This payment is the result of a “franchise
fee” that Xcel passes on to city ratepayers. The fee appears as a line item on Boulder
customers’ Xcel bills. The revenue is used to fund core city services, such as police, fire
and public works. A franchise agreement also gives the city access to a 1 percent
“undergrounding” fund for infrastructure projects and the right to post signs and
fiberoptics equipment on Xcel poles free of charge.

When does the current franchise expire?
Aug. 3, 2010. Xcel Energy indicated on June 4 that it will agree to a temporary extension
until Dec. 31, 2010, to allow more time for the matter to be placed on the November
ballot, as required by the city’s Charter.

How long would a new franchise agreement last?
The new franchise would be for the agreed-upon 20-year term, unless the city chooses to
municipalize at 10 or 15 years. If that occurs, or if the company breaches the agreement,
the city could terminate the agreement.

Why is there opposition to a new 20-year franchise agreement?
Some people want Xcel to commit to providing more electricity generated from
renewable energy sources and to make other significant changes they believe must be
done to achieve the city’s clean energy goals. They are concerned that too much will
change in the energy business over the next 10 years for it to be good for residents and
businesses to make a 20-year commitment to one company.

What has the City proposed to Xcel?
In April 2010, the City Manager proposed to Xcel that the city and Xcel work together on
a plan for a cleaner energy future for Boulder. The franchise would have been extended
for up to two years to allow the joint hiring of expert consultants to help with the work.
The goal was to come up with a plan that would provide Boulder with as much renewable
energy as possible consistent with the rates being reasonable, and for Boulder to be a
laboratory for Xcel to test out ideas for using their Smart Grid. Once that plan was
completed, and if Xcel and the city committed to the actions required, then a 20-year
franchise would be put on the ballot. So far, Xcel has rejected this approach, preferring to
get the 20-year franchise first, and then partnering for the planning effort, but without
committing to any particular implementation.

What is municipalization and is it an option instead of a franchise?
Under municipalization, the city would purchase the poles, wires and other equipment
currently owned by Xcel Energy and would assume responsibility for its own energy
supplies as well as the obligation to provide electricity to the city. This would be similar
to the way local governments are responsible for providing safe and adequate water
supplies, public safety and other services. Under municipalization, the city would make
energy decisions without the oversight of the Public Utilities Commission and would be
able to open up more options for renewable energy. The development of a plan and
acquisition of assets for municipalization is a process that can take from three to 10 years.
There is disagreement about whether it would lower costs.

Will residents and businesses continue to get energy if no franchise is reached?
Franchise or not, Colorado law requires that Xcel continue to provide energy to the
Boulder community but the utility would be under no obligation to pay the franchise fee
or to continue putting money into the undergrounding fund.

What other factors affect the city’s ability to determine its energy future?
There are legislative and regulatory restrictions on some of these issues. The city has
been working with leaders in these areas to open up options, including community choice
aggregation and what has been called “municipalization lite.” The essence of each of
these alternatives is creating the legal capability for the city to directly purchase
electricity for its residents of electric power from renewable sources that the city chooses.
Both are currently prohibited by Colorado law.

What are retail wheeling and community choice aggregation?
“Retail wheeling” refers to the movement of electricity, owned by a power supplier and
sold to a retail consumer, over transmission and distribution lines owned by neither one.
A fee is charged by the owners of the lines for letting others use them. This transaction is
called retail wheeling and a wheeling charge is levied for both transmission and
distribution line “rental.” Retail wheeling is not legal in Colorado.

Community choice aggregation (CCA) is a program that is enabled by retail wheeling.
Because wheeling is not legal in Colorado, CCAs cannot exist in Colorado. It is a system
adopted in a number of other states which allows cities and counties to aggregate the
buying power of individual customers within a defined jurisdiction in order to secure
alternative energy supply contracts.

A CCA would involve the City of Boulder, on its own or partnering with other cities, to
form a joint powers authority to purchase electricity. CCA enables participating cities to
choose the community’s source of electricity, including bulk purchases of renewable
energy for residents and businesses. CCA involves the city in the purchase, sale, and
possible generation of the energy commodity. Xcel would continue to deliver the
electricity to residents using their transmission and delivery systems (i.e., the utility poles
and wires).

CCA has potential benefits, including the increased use of renewable energy sources for
electricity generation and local control of energy policy and electricity rates. CCA also
has risks, such as costs to the city (particularly during start-up) and potentially higher
electricity rates.

Pursuing a CCA strategy would first require significant work at the state level to allow
for retail wheeling.

What has the city been discussing with Xcel?
The city’s negotiating team has been working with Xcel’s negotiating team on the
specifics of a franchise. On June 4, council directed staff continue to work on the
franchise agreement and to resume negotiations on a side agreement that would spell out
conditions required by the city to help achieve its clean-energy goals.

What are some of the side agreements under discussion?
Council made it clear on June 4 that one of its top priorities is Xcel’s commitment to a
detailed study of specific ways the city could decarbonize rapidly. In addition, the city
has been seeking Xcel’s agreement on issues that fall into three categories: 1) fuel
switching, 2) energy efficiency and local distributed generation and 3) climate action plan
efficiency and cost-effectiveness. Specific issues involve the Valmont Power Plant, the
sharing of customer data that would allow the city to measure changes in customer usage
of energy, and rebate programs related to conservation and energy efficiency

What environmental efforts have the city and Xcel partnered on in the past?
The city and the utility have worked together on implementation of the SmartGrid City
Project and on lobbying the legislature to pass legislation that will allow Colorado
residents to participate in Xcel’s Solar*Rewards programs by investing in community
solar gardens located on property other than their own. The governor signed this initiative
into law on June 5 at a ceremony that was held in Boulder.

What is happening now?
No decision has been made about whether to bring a proposed franchise agreement to
voters. At its regular June 1 meeting, council was asked to consider, for first reading, an
ordinance that would allow a franchise agreement to be included on the Nov. 2 ballot.
This is not an indication that an agreement has been reached or that council has
committed to putting that option on the ballot. It was a procedural step necessary to keep
all possibilities on the table. This was approved. Council has asked staff to continue
negotiations, to explore alternatives and to include the public in the process.

Would those alternatives include other ways to collect revenue that the city would
lose if a franchise is not signed?
Yes. Council has directed staff to research the feasibility of a utility excise tax to
substitute for the 3 percent fee that Xcel currently collects monthly from rate payers.

What might those tax initiatives say?
The two most likely options include (1) a utility excise tax on Xcel that would act much
as the current franchise fee works, with the company collecting the tax from its customers
and paying that money over to the city or (2) a tax that would be paid directly by city
taxpayers in place of the franchise fee.

Who has the ultimate say about these issues?
Voters. Council has to decide by Aug. 17 which, if any, of these issues to include on the
ballot. Possibilities include a franchise agreement, a utility excise tax or both.

What happens if voters provide no clear direction and reject all ballot measures?
The city will have to re-evaluate how to proceed with its energy plan – and absent a
franchise fee or equivalent tax -- make significant cuts to services in order to balance the
budget. The city is required to have a balanced budget every year.

When will council meet on this issue again?
A study session has been scheduled for July 13.