Pueblo Hits Turn Signal for Black Hills Off-Ramp

By a resounding seven to zero vote, the City Council in Pueblo, Colorado recently passed a resolution to explore if and how the city could extricate itself from its franchise agreement with Black Hills Energy (BHE), clearing the way for the city to pursue creation of a municipal utility. The South Dakota-based BHE signed the twenty-year agreement with the City in 2010, when voters approved the deal by a 3-1 margin. Although a few residents and council members expressed an interest in pursuing a municipal utility at the time the deal was inked, the chorus of residents and political leaders advocating for a change has grown significantly over the past few years, clearly signaling a growing desire in the community to exit in the current arrangements with BHE.

There’s no question that ratepayers in Pueblo are facing challenges, especially with regard to increasing energy costs. Pueblo’s utility rates are as much as 30% higher than any other major city in Colorado, with the average customer seeing a 58% increase on their bill since 2008. What’s more, the Pueblo County Commissioners note that 10,371 residents within BHE’s service territory in Pueblo County have incomes that fall below the federal poverty level. The median household income of the approximately 54,000 households within that area is slightly more than $39,000 – about 70% of the state average. Faced with these conditions, it’s easy to see why BHE customers are looking for an alternate route.

BHE has stated that its rate increases, which have been approved by the Colorado Public Utilities Commission (PUC), have been due primarily to decisions that were made outside of its control, citing increased investment in infrastructure forced by changes to state and federal law. For example, in 2010, the Colorado General Assembly, compelled to act by emission-reduction requirements put in place by the passage of the federal Clean Air Act, passed the Clean Air Clean Jobs Act. This Act mandates that utilities submit plans to the PUC to reduce emissions from their coal-fired generating units, often by utilizing natural gas instead of coal. As a result, BHE has been forced to decommission certain assets, including the W.N. Clark coal-fired plant in Cannon City, in favor of other generation systems compliant with the Clean Air Clean Jobs requirements. According to BHE, these required infrastructure investments have contributed significantly to their increasing rates. BHE currently attributes 17% of its rates to infrastructure costs. By comparison, Xcel Energy earmarks only about 11% for the same costs.

Through its vote last month, the City Council has formally notified BHE that it will explore ways to terminate the franchise agreement and pursue creation of a municipal utility. The resolution authorizes staff to hire consultants and study the legal, technical and financial hurdles associated with creating a municipal utility.

Going forward, Black Hills faces two road blocks: first, at the PUC, where BHE is currently appealing the Commission’s decision on its recent case to district court, including BHE’s request for Commissioner Koncilja to recuse herself from further consideration as it seeks a “fair, unbiased regulatory process,” and second, at the City, where the very public fight over municipalization moves forward with increasing speed. At this point, it seems as though the only real question is when Pueblo will follow Boulder’s lead down the off-ramp—and potentially pay millions of dollars over many years—towards establishing a municipal utility.