Cover Story: Pueblo and Black Hills Energy square off in an electric war
Author: Mark Jaffe - March 27, 2018 - Updated: April 5, 2018
The “straw that broke the camel’s back” for many on the Pueblo City Council was the unexpected bill from Black Hills Energy for the new, efficient street lighting — especially since the utility had been in on the planning for the $4.2-million project.
“Black Hills leadership has declared a war of economics against Pueblo’s low-income and elderly populations,” Councilman Chris Nicoll, told a council meeting last August. “Pueblo businesses are under siege by rate increases and excessive demand fees that have dramatically increased the cost of doing business . . . Enough is enough.”
Council members spoke of “war” with Black Hills and voted to create an advisory electric utilities commission to explore alternatives to power the city of 107,000 and kick Black Hills out of town.
It wasn’t just the street lights. There were the four rate hikes since 2010 that raised bills as much as 50 percent. There were the added charges on small businesses, which they had to pay every month regardless of how much electricity they used, and proposed hikes on homeowners with solar panels.
“They are draining the community,” said Chris Markuson, executive director of Pueblo County Economic Development. “Part of the frustration is that there is no end in sight.”
Vance Crocker, who was brought in as head of Black Hills Colorado operations last September, has been meeting with community leaders trying to address local concerns and calm the waters. “It doesn’t come all at once, but I am excited about the things we can do to steer the ship, change direction and change the narrative,” he said.
The tale of Black Hills and Pueblo, a worn and weathered industrial city on Southeast Colorado’s high desert, is one that reveals some of the flaws in the way the Colorado Public Utilities Commission (PUC) has regulated utilities, and it speaks to the changing nature of the electricity business.
Pueblo is searching for a new way to power itself. It could be a municipal utility, another electricity provider or buying bulk power on the market. “We will be doing a feasibility study,” said Markuson, who is on the commission. “Everything is on the table.”
• • •
Other Colorado communities have been restive about the old ways electricity has been made and sold. In 2015, the Delta-Montrose Electric Association, a rural electric co-op, went to the Federal Energy Regulatory Commission to assure its right to buy more renewable energy even though its wholesale electricity provider, Tri-State Generation and Transmission Association, was opposed.
For the last eight years, the city of Boulder has been sparring with Xcel Energy as the city tries to replace the state’s largest electric company with its own municipal utility.
Boulder was spurred by the desire for more renewable energy, and while Pueblo has also set the goal of 100 percent renewable energy by 2035, what is driving its search is money.
The city’s median household income is $35,000 (about half of Boulder’s) with 25 percent of the town living below the poverty line, according to U.S. Census figures. Forty-two percent of the residents are Hispanic.
Pueblo has the highest electricity rates of 20 Front Range cities, according to a survey by Pueblo’s Energy Future, a group that includes local officials advocating lower rates and local control. In a national survey of residential and commercial electric rates, Pueblo ranked 82 out of 100 cities on affordability.
“This is a poor community,” said Anne Stattelman, executive director of Posada, a non-profit that helps the city’s homeless, some who have been made so by losing their electricity. “But Black Hills saw we were ripe for the picking.”
The problem began in 2008 when Xcel, which operates three coal-fired power plants in Pueblo but does not serve the city, decided it would not continue selling excess from power from the units to Black Hills. That excess electricity was supplying 75 percent of Pueblo’s power. Xcel said it needed it for its own customers.
Black Hills, an investor-owned utility based in Rapid City, S.D., had just taken over the southeastern Colorado service territory that stretches from Cañon City to Rocky Ford and has about 94,600 customers.
To make up for the lost Xcel power Black Hills spent about $487 million on new gas turbines. It was all approved by the PUC and that set the stage for the coming rate hikes. Xcel’s decision to scotch selling power to Pueblo didn’t end well for its customers, either, as it turned out the utility didn’t need the extra power. Xcel went back to the PUC saying it need to charge $53 million to cover carrying costs for the generation.
Black Hills proposed and the PUC again approved an additional $65-million natural-gas backup unit as part of a plan to shut an aged coal-fired plant in Cañon City.
“We felt the PUC was a rubber stamp,” said the Rev. Kevin Olsen, chairman of Faith Leaders in Action, a network of 20 congregations in Pueblo, which has been campaigning against Black Hills rates as a social-justice issue. “Whatever the utility wanted it got.”
• • •
The PUC has the job of balancing the responsibilities of making sure the lights are on, that the utilities it regulates are financially viable and that rates are reasonable. In Pueblo, the commission managed two out of three, local officials contend.
Starting in 2010, Black Hills went back to the PUC to raise rates to recoup the expense for the new power plants, as well as upgrades to old transmission lines. That year the commission awarded a nearly 13-percent rate increase. That was followed by three more rate increases between 2012 and 2017.
As the higher energy bills worked their way into the community, they had a chilling effect on homes and businesses large and small.
Among the hardest hit were the poor. The number of families who lost their electricity soared, Stattelman said. About 7,000 people a year were getting the yellow disconnect notices. To get the electricity turned back on, Black Hills required a $50 reconnect fee, plus a three-month deposit, plus the back bill paid in full.
“Suddenly, we were seeing bills of $2,000 or more to get the electricity turned on,” Stattelman said.
In eight years of dealing with Aquila, Pueblo’s previous utility, El Centro de Los Pobres, in Avondale, spent $125,000 helping poor families with their electric bills, according to Sister Nancy Crafton, who runs the center. In the nine years with Black Hills, the center has spent $500,000 on electric bills.
“When you don’t have electricity, you can lose your public housing, your children can be taken by social services,” Crafton said. “With no electricity, there is no refrigeration. People are keeping their food in a bathtub full of ice. These are Third World conditions.”
Crafton tells the story of a truck driver who missed driving his route and his payment while he and his wife were with their gravely ill 4-year-old daughter at Children’s Hospital in Aurora. When they returned home after the little girl’s funeral, they found a yellow notice. When the man called Black Hills customer service to explain, the response he got was, “That’s not our problem.”
Such stories — true or more complex than in the telling — make the rounds and contribute to a general dislike of Black Hills.
“The previous utility company would work with us and Black Hills would not,” Stattelman said. “We were told that Black Hills was an investor-owned utility, and their allegiance was to their stockholders.”
Black Hills has recently reduced the reconnection fee to $15, and company officials say new policies on disconnecting and reconnecting customers are coming. “We have a relatively high poverty level here in Pueblo, and we have to address how we can help,” Crocker said.
In the fourth quarter of 2017 there were 1,537 disconnects compared to 844 for Xcel, according to PUC filings. Almost all those homes were reconnected by the end of the year.
The utility does have a low-income assistance program that provides 1,700 customers with a $60-monthly benefit, but that is financed by charging all the other customers 31 cents a month.
• • •
The rate hikes weren’t the only problem. So was the way Black Hills structured its bills, especially for the business community. The utility set “demand charges” on small businesses. These charges are based on the peak-energy demand because even though a customer may only hit that peak occasionally, a utility must have a system to meet it.
Black Hills set its demand charge at a peak of 10 kilowatts three times during a 12-month period, and that swept up many small businesses. Xcel Energy sets its demand charge beginning at 25 kilowatts.
“My demand charges are higher than my bill for the electricity,” said Brian Mater, owner of Southside Fitness, a local gym. “It is a killer for small business.” Mater estimates that his overall bill has risen 40 percent in the last few years, and putting in efficient lighting and even turning off lights hasn’t put a dent in the bill.
“We could add another employee,” Mater said. “I’d like to buy new equipment, the gym business is about keeping up with the Joneses . . . But I’m tapped out. You can never really get back to square one with them.”
It isn’t only small business that has labored under the higher electric bills. There has been a 30-percent reduction in industrial customers in the Black Hills service area to 64 in 2016, Markuson said. Some have closed, others have moved. In surveying those companies, Markuson said electricity costs played a role in some cases.
And the demand charges haven’t been limited to businesses. Churches have been vulnerable to hitting the 10-kilowatt peak on an air-conditioned summer Sunday. Half of one church’s $30,000 annual electric bill was demand charges, Olsen said.
City buildings and services face the demand charges. “When the electricity bills for the Water Department goes up, then water rates go up. It just snowballs,” Markuson said.
Black Hills roiled the waters even more with proposed rate structure revisions submitted to PUC that included increasing its service fee for solar homes 30 percent to $21.60 a month and charging 17 cents a kilowatt-hour for electricity they get from the utility, while all other residential customers pay under 9 cents. Then there was the street-lighting charge city officials put at about $600,000.
“To come back with that bill after working with us on the street-lighting project for a year,” said Nicoll, who is now city council president. “That was a big double-cross.”
Pueblo signed a 20-year franchise agreement with Black Hills in 2010 that included an exit or “off-ramp” after 10 years. Last September, the city council voted to create an electricity utility commission to explore taking that off-ramp.
“We need to stabilize rates,” said Tom Corlett, a commission member. “There is no silver bullet. It won’t be resolved tomorrow, but we have to have a deal by 2020.”
• • •
While Black Hills faces the risk of losing Pueblo, which is more than half of the load in the utility’s Colorado service area, it is also getting increased pushback at the PUC.
In 2016, state legislators from the Pueblo area called for an investigation or some other action on electricity rates. In response, Frances Koncilja, a Denver attorney originally from Pueblo, was appointed to the PUC. Then Gov. John Hickenlooper named Wendy Moser, a former Black Hills attorney, to the three-member panel.
Koncilja went after Black Hills, calling it a “colonial power that can loot the citizens of southern Colorado” and said it spent money “like a drunken sailor.”
When Black Hills sought to have Koncilja recused from their rate case, Moser backed the move. At the same time, Pueblo County wanted Moser recused.
In votes decided by PUC Chairman Jeff Ackermann, both commissioners stayed on the case. Black Hills went to district court to get Koncilja off. The suit is still pending.
Still, the shift in the commission is clear. When Black Hills sought an $8.5-million rate increase for the last of its new gas plants, the PUC granted the utility $1.2 million. Black Hills has filed a district court lawsuit challenging the decision. It is also pending.
Just this month, the PUC rejected the demand charge on small business customers and the kilowatt-hour hike for rooftop solar customers. It asked for more data from Black Hills before setting a final amount for the street lights.
Black Hill’s final rates and who pays what will depend on the PUC. One thing is certain, relieving small businesses of demand charges and solar customers of hikes means someone else will pay more to meet Black Hill’s revenue requirement.
Xcel, with 3.1 million customers and a larger group of industrial customers, can spread cost over a much larger pool, while Black Hills with a customer base that is a fraction of Xcel’s, is forced to pile on the charges, Markuson said. “The trajectory with an investor-owned utility is always upward,” he said.
Crocker said that Black Hills made needed investments in new power plants and transmission lines that now gives it a “young fleet that will provide rate stability for years to come.”
The utility has begun to add renewable resources, bringing online the $109-million Peak View Wind Project in 2017, with plans to add another 60 megawatts of renewables by 2019. “We have the cleanest fleet in the state,” Crocker said.
City officials and community leaders give Crocker credit for opening dialogue, but remain doubtful there is a future with Black Hills. “The business model of a for-profit electric utility won’t allow it to truly cut rates,” said Steve Andrews, a member of Pueblo’s Energy Future.
“Over time, local control is the only way to do that.”