BIG PIVOTS: A Colorado City Riled Up About Black Hills Energy

This story by Allen Best appeared on BigPivots.com on July 29, 2024.

In 2020, Black Hills Energy beat back a determined effort by a dedicated group of locals called Pueblo’s Energy Future. The proposal before voters in Pueblo was to push out Black Hills and instead form a municipal utility. The few thousand dollars proponents scraped up together for advertising before the vote in May, just a few months after COVID had shut down Colorado and much of the world, was dwarfed by the $1.5 million to $2 million that they estimated was spent in advertising and other work focused on defeating the measure.

“We lost three to one,” said Steve Andrews, a resident of nearby Florence and an active member of Pueblo’s Energy Future. “It was a slaughter.”

Now comes a proposal by Black Hills Energy, to boost base rates 18% on top of what is already quite likely the most expensive electricity in Colorado. By all accounts, opposition is broad and deep.

Might this trigger a new effort to municipalize?

Black Hills has 100,000 customers in Pueblo and also other municipalities in southern Colorado: Cañon City, Florence, and Rocky Ford plus Westcliffe, Cripple Creek and Penrose along with large amounts of unincorporated areas. The proposal, if approved by the Colorado Public Utilities Commission, would add $20.14 to the monthly bill of the average residential customer using 600 kilowatt-hours, according to the Pueblo Chieftain.

In 2020, three of the seven Pueblo City Council members opposed municipalization. Two council members participated in advertisements in support of Black Hills.

This time, the Pueblo City Council is united. Members on July 22 unanimously adopted a resolution in opposition to the rate hike. Pueblo Mayor Heather Graham and all three Pueblo County commissioners had earlier spoken out against the increases.

The City Council resolution cited data from the Colorado Association of Municipal Utilities survey of residential rates for 700 kilowatt-hours: Black Hills Energy customers spent $145, Xcel Energy customers about $100, Colorado Springs $98, and Fort Collins about $84.

The Pueblo Economic Development Corporation, which sat on the sidelines of the municipalization vote in 2022, has joined the local governments in seeking to intervene in the rate increase proposal filed June 14 with the Colorado Public Utilities Commission.

That filing points out that Pueblo County is one of the poorest counties in the state, with a per-capita personal income of $47,208, approximately 62.3% of the state average.

“Pueblo has survived the labor strife leading up to the Ludlow massacre of 1914, the great steel strike of 1919, the great flood of 1921 and the steel strike of 1959,” the joint motion from the Pueblo organizations says. “The citizens and businesses of the Pueblo community cannot survive the outrageous rate increases sought by Black Hills in this proceeding.”

The PUC docket has been filling with comments protesting the proposed rate increases. “We in this area are already paying some of the highest utility bills in the state, and this isn’t Douglas County or some other nice and desirable area of Colorado; this is Pueblo County,” wrote Danny Hales of Pueblo West, a higher-end subdivision west of Pueblo.

Black Hills, in its PUC filings and press releases, points out that it has had no rate increase in 8 years. (The filing was made 8 years ago; the rate increase went into effect 6 years ago).

The increase, if approved, would give Black Hills an additional annual revenue of $36.7 million. Michael J. Harrington, who heads regulatory affairs for the South Dakota-based utility, said in a June 14 filing with the PUC that Black Hills has invested over $370 million in strategic capital projects from 2016 through 2023 and plans to invest an additional $98.5 million in 2024.

“They are, for the most part, non-revenue generating investments and are not reflected in current base rates,” Harrington said.

Black Hills believes it should get a 10.5% return on equity, a measure of profitability for shareholders closely related to return on investment.

An element of Black Hills’ argument for a rate increase involves net-metering, mostly customers who have rooftop or other types of solar. Under state law governing net-metering, they can pay less to Black Hills based on the electricity they contribute.

Black Hills had 605 residential net-metered customers in 2016. That had grown to 7,739 by the end of 2023. It asks to fully recover its fixed cost of providing service to net-metered customers. That net-metering is responsible for 10% of the revenue that Black Hills says needs to recover.

A task force overseen by Center for the New Energy Economy has been meeting over the last year to see if some compromise can be reached that would give utilities the revenue that they believe they need. The law governing net-metering was adopted at a time when far fewer roofs had solar panels.

Municipal leaders in both Pueblo and Cañon City interviewed by Big Pivots strenuously objected to the rate hike.

“People are really unhappy here,” said Emily Tracy, a Cañon City Council member. “We already have the most expensive electricity in Colorado, and they want an 18% hike on top of that.”

She charges that Black Hills has discouraged economic development in its service territory with its high rates. Pueblo and other nearby towns already have a high poverty rate and have had difficulty attracting businesses, especially those who use large volumes of electricity.

“If you want to strangle this part of the state, that’s what you do, just keep increasing the cost of electricity,” she said.

The city government pays Black Hills $500,000 a year for electricity.

In Pueblo, Mark Aliff, the president of the city council, said Black Hills could take a drastic cut in revenue and still be making plenty of money.

“They made $700 million this year, and so if they only make $600 million, is that a bad thing?” he said. “We’re at the end of our rope. We can’t take it anymore.”

He told Big Pivots that in a meeting with Pueblo County commissioners, a Black Hills representative freely acknowledged that the 18% rate hike is only the beginning for negotiations for the hike the company expects to get. It should actually cut rates, Aliff said, not increase them.

Aliff would like to see legislation in Colorado that would allow community choice aggregation. Already in place in California, this would give communities currently served by Colorado’s two monopoly electrical utilities, Xcel Energy and Black Hills Energy, the authority to secure energy from independent suppliers.

A 2021 state law required a study. An expert told Colorado PUC commissioners in 2022 that the concept has been effective at times in delivering lower cost electricity, but not always.

A report later issued by the state described an ambivalence about whether the concept deserves a push given how well Colorado utilities were decarbonizing.

In this case, the issue is cost, not decarbonization.

“Simple legislation like that would free up our ability to buy energy on the free market and stop this monopoly,” said Aliff. “It’s incomprehensible that in 2024 we are having this conversation.”

In this, Pueblo’s legislative representatives in Denver have fallen short, he charges. That includes Leroy Garcia, the former Senate president.

Daneya Esgar, a county commissioner, was a state legislator in 2020. Her time included a stint at House Majority Leader.

“She could have easily ensured that community choice got into committee, but did nothing,” he said.

Esgar did not respond to a request for an interview.

Cañon City had a franchise agreement with Black Hills that expired in 2017. It has continued to get power from Black Hills without an agreement. In 2020, after Pueblo voters rejected the proposal to refuse renewal of their franchise agreement with Black Hills, a group in Cañon City quietly organized a vote to formally reject renewing the franchise. They had only $5,000 and were outspent 10 to 1, she said, but still won by a two-to-one margin.

Why hasn’t Cañon City tried to create its own municipal utility? There’s a reason Colorado has had no new municipal utilities since 1970, Tracy said: It’s costly and time consuming. “We haven’t figured out what direction we want to go in,” she said.

Pueblo’s franchise agreement expires in 2030 but provides an opportunity for an off-ramp in 2025. Might this rate increase produce a new effort to municipalize?

“The people who participated in that (2020) effort haven’t lost interest, but they have moved it to the back burner,” says Andrews of Pueblo’s Energy Future.

“This huge rate increase has the community up in arms, and the back burner people are ramping up the gas. They’re coming back into the game. I don’t know what will happen. I don’t know if there will be an actual effort to municipalize. I won’t predict it, but I wouldn’t be surprised.”

One argument against municipalization in 2020 was the cost. The value of the assets Black Hills owns are calculated at possibly $1 billion.

Might the vote this time turn out differently?

“That’s the billion dollar question, “ Aliff replied. “I have no idea. I think the community at this point is very, very fed up with Black Hills Energy. But are they willing to invest a billion dollars to get rid of them? I don’t know.”