BOULDER — The high-stakes search for new ways to power this city could end up changing the way electricity is provided to communities across Colorado and the country.

The city’s decision to consider replacing Xcel Energy’s exclusive electricity franchise with a municipal utility has already drawn concessions.

Xcel’s offer to build 200 megawatts of wind energy for Boulder comes after company officials said they couldn’t make a special deal with one community.

“Boulder brought the 800-pound gorilla to the table,” said Susan Perkins, an attorney who has represented Colorado towns in franchise talks with Xcel, the state’s largest utility.

A decision to move ahead with its own utility — focusing on renewable power and energy efficiency — may have an even bigger impact.

“If Boulder can achieve stable rates and a new energy mix, other communities will start asking questions as their franchises come up,” said Perkins, who is not involved in the Boulder initiative.

The prospect of Boulder turning out a major, investor-owned utility and creating a municipal operation is being watched across the country.

“If a large community like Boulder can do it, it sets an example for everyone,” said Ursula Schryver, a vice president at the American Public Power Association, which represents the country’s 2,000 municipal electric utilities.

There have been 16 municipal utilities set up in the past 10 years — mostly small communities, Schryver said.

The Boulder City Council begins final deliberations July 19 on what path to ask voters to go in November.

A change to a municipal utility would not be easy financially or politically.

The cost to get a municipal utility up and running would be $220 million by a Boulder estimate, while Xcel puts the cost at more than $500 million.

Xcel would also likely challenge the move. In 2001, Pacific Gas & Electric spent $2 million successfully defeating a ballot initiative for a San Francisco municipal utility.

“It will get ugly if we decide to go ahead,” said Matt Appelbaum, a Boulder city councilor. “Xcel will fight, and they have deep pockets.”

BOULDER’S MUNICIPAL utility movement was born of frustration.

The city has a goal of cutting its emissions of greenhouse gases — linked to climate change — to 1990 levels by 2012.

Boulder even passed a carbon tax, about $21 per household, to finance energy-efficiency programs to meet the goal.

The city’s electricity consumption, however, makes up 57 percent of its greenhouse-gas emissions, because Xcel gets more than half its power from burning coal.

“Boulder pays $114 million a year for electricity and about 60 percent goes to buy Wyoming coal,” said Macon Cowles, a member of the City Council.

Xcel is retiring six aging, coal-fired units, and coal will account for 45 percent of its generation by 2018, according to the company.

Still, Xcel spent $1 billion to build its new Comanche 3 coal-fired unit in Pueblo and is spending $260 million to retrofit two other large coal plants.

Those units are expected to be online for decades, and Boulder officials are reluctant to sign a 20-year franchise tying the city to coal and natural gas.

“The fuels of the future aren’t going to be the fuels we are using now,” said David Driskell, the city’s executive director of community development and sustainability. “So the question is, do we start changing now or wait 20 years?”

There has also been the frustration of dealing with a big corporate utility and a highly bureaucratic state Public Utilities Commission.

“There is a desire to get more local control over energy choices so they reflect community goals,” Cowles said. Municipal utilities — such as those in Colorado Springs and Fort Collins — are independent of the PUC, answering to local officials.

And so the City Council voted 6-2 not to give Xcel a new franchise, and in November, 69 percent of Boulder voters approved a $4 million stopgap tax to cover the $4 million in lost franchise fees while the city explores other options.

Since then, the city has honed its goals to decarbonize, democratize and decentralize its energy.

BOULDER HAS ALSO been a challenge for Xcel, which has more wind power than any other utility in the country and is in the top five in solar energy.

Last summer, Xcel officials said the franchise was non-negotiable because any accommodation for Boulder would have to be offered to other communities.

In June, the company did just that, offering to have a dedicated 200 megawatts of wind power added at a Limon wind farm built by NextEra Energy.

The wind power would go onto Xcel’s grid and Boulder would get the renewable-energy credits to apply against its emissions — so renewable energy would, by Xcel estimates, cover 93 percent of the city’s use by 2018.

Boulder would, however, be liable for costs associated with wind power — adding, by Xcel estimates, up to $4 a month, or 7 percent, to residential bills.

“We don’t want the rest of our customers paying for Boulder,” Xcel spokeswoman Michelle Aguayo said.

If natural-gas prices rise sharply, Boulder might get money back because the wind power helps Xcel avoid the higher fossil-fuel costs.

“I hope this answers Boulder’s concerns,” said David Eves, chief executive of Xcel’s subsidiary Public Service Company of Colorado. “We don’t want to lose their business.”

Boulder makes up about 3.5 percent of Xcel sales, but the impact of the loss could be more significant.

“It can open the way for other communities,” said Perkins, the energy attorney.

Xcel wants the franchise and the wind offer placed on the November ballot.

Some City Council members say they want to decide between Xcel and municipalization and put one option on the ballot. Others suggest putting both options on the ballot.

“We’d like to see the people of Boulder have a choice,” Aguayo said. “What kind of campaign we run depends upon what the council decides.”

BOULDER IS SPENDING about $830,000 on consultants to figure out what it would take to set up a municipal utility and to answer the key question: Can the city assure a reliable electric supply at reasonable rates?

Boulder’s base load varies from a wintertime low of about 100 megawatt- hours to a summer peak of about 235 megawatt-hours, according to the city.

Under the proposed municipalization plan, Boulder might have up to 103 megawatts of generation — solar panels, hydro and natural gas — and the rest, until more local generation was built, would have to be bought on the wholesale market.

That concerns the business community, said Gary Horton, chairman of Boulder Tomorrow, a local business group.

“Businesses use about 75 percent of the electricity in Boulder, and so we’re going to be very sensitive to rates and reliability,” Horton said.

Xcel is a member of Boulder Tomorrow.

Many community activists are supporting the move to a municipal utility as a way of developing local renewable-power generation, not just renewable-energy credits.

“We could get to 50-percent renewables with some creative thinking,” said Ken Regelson, a member of the steering committee for the local group RenewablesYes.org.

Others remain wary, such as the Boulder Smart Energy Coalition.

“Is spending $500 million to create a municipal utility the best way to meet the city’s climate-action goals?” asked Dave Miller, the coalition chairman. “This is a major decision with a lot of risk.”

IF BOULDER CREATED a municipal utility, its rates would be comparable or a little below Xcel’s between now and 2020, according to Boulder’s consultant Robertson-Bryan.

That, however, is based upon the city paying zero for “stranded costs” — investments Xcel made outside Boulder — such as a new power plant — that it expected city customers would help pay for. Xcel puts those costs at $355 million. The actual price would have to be negotiated or litigated.

“I am concerned about years and years of litigation if the city tries to municipalize,” said Ken Wilson, deputy mayor and a council member.

Worried that the analysis might be too rosy, the council asked for mid-case and worst-case scenarios that indicated there could be rate hikes of 10 percent to 21 percent on the average $700 yearly residential bill.

“The worst-case scenario isn’t an expensive municipal utility,” Appelbaum said. “The worst-case scenario is we spend $6 million and decide to scrap it.”

Mark Jaffe: 303-954-1912 or mjaffe@denverpost.com

Crunching the numbers

The cost of creating and running a municipal electric utility in Boulder:

GETTING GOING

$60.5 million Startup costs

$121 million Acquiring Xcel lines and facilities

$355 million What Xcel says are its “stranded costs” — investments made in part to serve Boulder that it will not be able to make a return on

$0 What Boulder says the “stranded costs” will be

ANNUAL COSTS

$59.1 million Power purchases

$13 million Operating costs

$24.7 million Debt service on bond issues to cover the cost of setting up the utility

$114 million Xcel’s revenue in 2010 from electricity sold to Boulder

Source: City of Boulder