Independent study says rates then would go up significantly

Black Hills Energy paid for and commissioned an electric municipalization study that shows that Pueblo would have to spend more than $400 million to purchase Black Hills and that customer bills would rise significantly if Pueblo decides to municipalize electric operations.

The feasibility study, which Black Hills commissioned Massachusetts-based Concentric Energy Advisors to conduct and the results of which were made available to The Pueblo Chieftain on Tuesday, found that if Pueblo forms a municipal electric utility, it will cost the city $402 million in acquisition costs to purchase the Black Hills energy system.

That figure includes $188.5 million in purchasing physical assets from Black Hills as well as stranded costs in the amount of close to $107 million, startup costs of $63 million, separation and reintegration costs of $28.3 million, and transaction costs of $15.6 million, according to a presentation made Tuesday by senior officials from Concentric Energy Advisors.

Concentric Energy Advisors is based in Marlborough, Mass. For 17 years, it has "provided valuation, advisory, analysis and transaction support services for public and investor-owned utilities, renewable energy and generation companies, pipeline operators and other energy industry and utilities clients throughout the United States and Canada," Black Hills said in a press release. "Concentric's work has included assisting cities and towns with feasibility studies and assessments to help inform decisions about formation of municipal utilities."

The estimates are preliminary and additional details and analysis would be required if municipalization is pursued by the city.

The study also found that residential electricity customers could expect to see average bill increases ranging from an estimated $132 more per year in the first year to $330 more per year in the 20th year.

That's due to the city's estimated cost to operate the system being $38 million more per year on average than Black Hills' operating costs over the same period of time, according to the report.

Additionally, the study also determined that the city would pay $131.4 million in year one operating costs. That figure includes $23 million in debt service that would be a reflection of the acquisition costs financed over 30 years as well as $68 million in generation and transmission expenses; $32 million in operating and maintenance expenses; $5 million in taxes and fees; and $3 million in customer programs.

Vance Crocker, the vice president of Colorado electric operations for Black Hills, said the study was commissioned because Black Hills thought it was critical to get out a study that's neutral and factual.

He said Pueblo officials such as the mayor and City Council haven't seen the study yet, but that he planned on sharing it with them Tuesday afternoon.

"We wanted this to be fully independent," Crocker said of the study. "We didn't shape or change the study or do anything in any shape or form. The intent was to get factual information out there. These are Concentric's finding, not ours."

The city commissioned its own phase 1 feasibility study. Those results were made available at the start of the year, and a phase 2 feasibility study is currently in the works.

The city hired EES Consulting Inc. for the phase 1 study that looked into the feasibility of the city breaking away from Black Hills by August 2020. It determined that Pueblo ratepayers could save 10-12% a year if it creates its own municipal electric utility. The study also found that the cost of buying assets from Black Hills and creating a utility would range between $255 million and $334 million based on different scenarios, but could save ratepayers more than $160 million over the next 20 years.

When asked about the discrepancies between the two studies' findings, Crocker said he believes the city's feasibility study was flawed in that the costs to operate the utility were significantly underestimated and that revenues were overestimated.

"I firmly believe what the city is looking at has significant costs and risks to our community," Crocker said. "We think there is a better path forward with the city working with us. We want to partner with the city and community on things like economic development and a lot of other things our community needs versus something like this."

Since the end of 2017, the city has been studying the fiscal and legal realities of ending its franchise agreement with Black Hills early and creating its own municipal utility.

The Electric Utility Commission, which meets monthly, was formed by City Council at the beginning of 2018 specifically for that purpose.

If the city ultimately decides it wants to pursue municipalization or another path to provide residents with electricity, it must do so by Aug. 11, 2020 — the 10-year anniversary of the city's franchise contract with Black Hills.

And to do that city voters would have to decide on the issue in a special election.

rseverance@chieftain.com

Twitter: RyanSevvy