(l Xcel Energy
May 18, 2015
By Email
Ms. Heather Bailey City of Boulder Executive Director of Energy
Strategy
& Electric Utility Development 1101 Arapahoe Ave. , 1st
Floor Boulder, CO 80302
William M. Dudley Assistant General Counsel
1800 Larimer Street, Suite 1100
Denver, CO 80202 Phone: 303.294.2842 Fax: 303.294-2852
Email: [email protected]
Re: Public Service Company of Colorado Response to Request for
Proposals
Dear Heather:
Thank you for forwarding me Boulder' s request for proposals
(RFP) requesting bids to provide a partial requirements wholesale
electric power supply contract. Although it is not clear from the
RFP document itself, you indicate that this RFP is exclusive to
Public Service Company of Colorado (Public Service). I have
attached Public Service ' s response. While we are not making a
formal bid at this time, for reasons I will elaborate upon below,
we are indicating our willingness to negotiate a requirements
wholesale supply contract with Boulder, and are proposing a
conceptual framework to go forward.
To provide some brief context to our response, we believe that
there are three primary goals Boulder is trying to achieve through
its RFP: to obtain a transitional power supply arrangement for at
least a five-year term; to provide a framework to allow for the
introduction of new resources (presumably renewable resources) into
Boulder's power supply mix; and to mitigate stranded costs. We
would observe that these objectives taken together are not entirely
consistent, so it will be important for us to have a better
understanding of what Boulder' s primary objective is for any
ongoing power supply arrangement. Furthermore, as a practical
matter, we believe that it will not be possible to have any
meaningful discussions without understanding what our Federal
Energy Regulatory Commission (FERC)-approved stranded costs will
be, since the effect of a requirements arrangement will be to
mitigate Boulder's obligation at least in part.
Reflecting these considerations, our conceptual framework
includes, among other things, the following components:
An expressed willingness to enter into a requirements
arrangement with Boulder. We presently expect that the rates for
this agreement will be at the same cost-
Ms. Heather Bailey City of Boulder
May 18,2015 Page 2
based formula rates that are used to price service to our other
six wholesale requirements customers.
We can provide for flexibility in this arrangement to allow for
Boulder to acquire other resources with the understanding that such
resource acquisition will affect Boulder's stranded cost
responsibility, and that there will need to be a make whole payment
(or another agreed-to mechanism) to account for that effect.
We will file a case to recover stranded costs at the FERC in the
near-term. As required by the FERC, our application will specify
the length of the obligation period (or L), a component of the
FERC' s stranded cost formula. Because stranded cost mitigation is
an important objective of the RFP, we believe that our filing will
provide a basis to have more informed negotiations of any
requirements contract. This filing should help facilitate
discussions regarding the effect of a requirements agreement on
stranded cost mitigation.
I want to make one additional observation. In your email to me,
you indicate that we encouraged Boulder to "propose a request for a
wholesale power arrangement between PSCo and the City of Boulder."
We were not, however, suggesting an RFP approach. We believe that
there will be a great deal of complexity in negotiating an
arrangement with Boulder given Boulder' s desire to acquire
different resources coupled with a desire to mitigate stranded
costs. We believe the better approach is to have a negotiation with
Boulder after it has greater clarity regarding its objectives - in
this regard, we believe our stranded cost filing will be useful as
we note above - and desired terms. Most helpful at this time would
be to have an idea of what resources Boulder wishes to acquire and
when.
Finally, while we question whether the City of Boulder' s
January 1, 2018 date for possession and initiation of the wholesale
electric supply is realistic or achievable, our willingness to
supply transitional power together with the recommended approach
described herein should allow both Boulder and our company to
address these issues well in advance.
We are submitting our response on a non-confidential basis.
Please give me a call if you have any questions about our
response.
