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Pueblo City Council adopts ordinance to allow voters to decide on city's future with Black Hills Energy

Posted at 7:24 AM, Jan 27, 2020

PUEBLO — Pueblo City Council has adopted an ordinance that will allow voters to decide if the city will end its contract with Black Hills Energy and create a municipal utility. The vote by the council was unanimous, at 7-0.

If voters approve the ballot measure in a special election on May 5, the city will be allowed to opt out of its current contract with Black Hills.

This is part of a years-long effort to end a relationship with Black Hills Energy. Many customers have become frustrated with their high electric rates, plus disconnect and reconnect fees.

The city entered a 20-year agreement with Black Hills Energy a decade ago, but state law lets municipalities ask voters if they want to opt out at the 10 and 15 year marks of the contract.

"My constituents that I talk to are sick and tired of paying these high rates, and they're looking for an opportunity to reduce their rates. Black Hills did not offer to reduce their rates. so, city council didn't feel that was a good alternative, explained City Council member Mark Aliff.

Critics at the council meeting Monday night claimed there are too many unknowns and that not enough information has been presented about risk and cost.

Two weeks ago, it was a standing room only event as council members weighed the decision on whether to continue to pursue their own municipal utility. A deal was on the table from Black Hills to avoid the creation of a municipal utility and continuing with the company for the next 10 years.

After hours of discussion and hearing from the public, the council voted 4-2 to table the proposed agreement indefinitely. Councilman Mark Aliff made the motion to table the deal and to continue negotiations.

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The proposed agreement was just one of three important ordinances up for a vote last month before the Pueblo City Council that all related to the debate over whether the city should sever ties with Black Hills Energy and move forward with a plan to create a municipal utility by August of this year. The decisions have the potential for a huge financial commitment by the city or a large investment in the city by Black Hills Energy.

A summary of all three items up for a vote on Monday:

The ordinances were voted on in the order listed above, according to the City Council Agenda.

Background

The debate over whether to sever ties with Black Hills Energy has raged since the fall of 2017 when city council voted to declare the intent of termination of a 20-year-long agreement started in 2010. State law gives cities the ability to vote their way out service agreements at the 10 and 15 year marks. The city plans to start up a municipal utility by August 2020.

Black Hills Energy has repeatedly expressed concerns the city is biting off more than it can chew due to an estimated $400 million dollar initial investment to acquire all the necessary assets. Plus, additional rate increases from $128 per customer, per year for the first year to more than $300 per customer in the 20th year.

However, city staff cites two consultant reports from January and October 2019 that contend the moving to a municipal utility is feasible and "retail rate savings of 12%" are possible.

The proposed agreement between the city and Black Hills:

Black Hills would commit to would not seek a utility increase until at least 2025, will cooperate with the city to transition to 100% renewable energy by 2035, and provide $400,000 every year for the rest of its contract for low-income energy assistance. Here's each item in the agreement, as written here.

  1. Black Hills agrees not to seek an increase in base electric rates before January 1, 2025 unless an event of “Force Majeure” occurs; a “Government Imposition” occurs or a “Material Change” occurs.
  2. Black Hills agrees to cooperate with the City to accomplish the City’s goal of becoming a one hundred percent (100%) renewable energy municipality by 2035.
  3. Black Hills agrees, before December 31, 2022, to issue a request for proposals for renewable electric generation in an aggregate amount of up to 200 megawatts, which Black Hills estimates will result in electric rate savings of between $117-$284 million for ratepayers.
  4. Black Hills agrees, before December 31, 2024, to facilitate the development of six (6) community solar gardens, three (3) of which must include subscription setasides that are reserved for low income customers.
  5. During the remaining term of its franchise, Black Hills agrees to contribute $400,000 for the purpose of providing low-income energy assistance to the City’s residents. This contribution will not be paid by Black Hills’ electric utility customers.
  6. Before the end of its franchise, Black Hills agrees to contribute no less than $7.5 million as follows: a. An average of $400,000 annually consisting of cash and in-kind contributions to community organizations and projects; and b. An average of $350,000 annually consisting of cash and in-kind contributions for economic development, including the recruitment of new employers to the City.
  7. Black Hills agrees to undertake good faith efforts to facilitate the redevelopment of Units 5 and 6 located on the City’s Riverwalk, by selling such property to a developer for redevelopment. Concurrent with the sale of the Units 5 and 6 property, Black Hills will complete necessary environmental remediation as agreed to by Black Hills and the developer.
  8. In its own name or through an affiliate company, Black Hills agrees to make financial and in-kind investments of no less than $4 million before January 1, 2025 and an additional $2 million before August 12, 2030 in real estate or properties located in the City. These investments will not be paid by Black Hills’ electric utility customers.
  9. Black Hills agrees, by December 31, 2020, to submit to the City a feasibility analysis for development of a new customer service center to be located in the City. After development of a new customer service center, Black Hills commits to redevelop its existing customer service center located at 105 S. Victoria Avenue or make that property available for redevelopment.
  10. Black Hills agrees to have a meeting of the Black Hills’ Board of Directors in the City of Pueblo prior to December 31, 2023.
  11. Black Hills agrees, on or before December 30, 2020, to submit to the City (for later approval by the Public Utilities Commission) a new electric rate schedule applicable for businesses who produce alternative agricultural products (e.g. hemp) if the new electric rate schedule is feasible.
  12. During the remaining term of its franchise, Black Hills agrees to invest no less than $200 million in system-wide assets to support Black Hills’ rating in the top quartile of electric utility system reliability.
  13. Black Hills agrees to create and continue in operation for the duration of its franchise, a new advisory stakeholder group consisting of residential and business customers, non-profit organizations and elected officials, which would meet a minimum of twice a year to discuss important electric utility issues.
  14. During the remaining term of its franchise, Black Hills agrees to invest $2.6 million to improve lighting service to the City’s streets and parks, including pedestrian lights, street and parking lot lights and playground lights, using the undergrounding fee as a funding source.

If this ordinance passes, the city will continue with the Black Hills franchise agreement until 2030 and still be able to put the issue of a municipal utility before the voters. If council votes against this ordinance, the deal with Black Hills goes away completely and the city could still move forward with creating its own utility if that's what voters choose.

The proposal for a May 5 election on a municipal utility:

The second ordinance to be voted on relies on the first. If the council does not approve of calling for a special election, then a vote on what to include in the special election is moot. Recent polling suggests as many 70 percent of voters favor ending the agreement with Black Hills.

The proposed ordinance on what to include in the special election would allow a voter decision on whether the Board of Water Works can operate a water and electric works (a municipal utility), and by doing so, the city would terminate an agreement with Black Hills Energy.

In order to make the municipal utility a reality, the city would need to purchase or condemn Black Hills' systems for distribution, transmission and generation of electricity. The Board of Water Works would then seek out an agreement with a third parties to maintain and operate all aspects of the utility.

Changes to the city charter include allowing the selling of energy to areas outside of Pueblo city limits.

If this ordinance passes, the municipal utility question goes to the voters and the proposed deal with Black HIlls is likely off the table, for now. If the ordinance is rejected, the city could pursue the deal with Black Hills.

Read the full text from the background paper for the proposed ordinance

RELATED:

Bring Power Home group meets ahead of vote on Black Hills deal

Pueblo moves forward with plan to unplug from Black Hills