Boulder filed a petition with federal regulators Friday that seeks to answer one of the large outstanding questions about how much it will cost to break away from Xcel Energy should city leaders decide to create a municipal electric utility.

Xcel has maintained that Boulder would owe it $255 million in so-called stranded costs if the city separates from Xcel. Stranded costs are meant to compensate the utility for investments it made in power generation to supply the city of Boulder and that would no longer be needed if Boulder were buying or generating its electricity elsewhere.

The petition filed Friday with the Federal Energy Regulatory Commission in Washington, D.C., does not seek to address the entire stranded cost issue. Instead, it seeks a declaratory ruling on whether Boulder could avoid stranded costs by continuing to purchase a portion of its power from Xcel Energy.

Boulder officials point, as precedent, to a decision by the commission that found South Daytona, Fla., did not owe such stranded costs because it continued to purchase all its power from the utility that supplied its electricity before that city created a municipal utility.

"We believe a ruling in support of the city on this very specific legal question would be a win-win-win," City Attorney Tom Carr said in a prepared statement. "This would chart a way for a Boulder electric utility to address its stranded cost exposure while at the same time protecting Xcel's shareholders and protecting remaining customers of the company."

A decision by Boulder to leave Xcel's system could benefit customers throughout the region, if it is made before the company decides to invest in more generation capacity, Carr said.

"The cheapest energy is the energy you don't have to generate," Carr said. "If Boulder customers are drawing less of their energy from Xcel, the existing supply can be reallocated to others in Colorado without ratepayers having to pay for new and expensive infrastructure. This helps everyone."

Xcel: 'We are disappointed'

Xcel Energy officials said they believed the filing was premature, but that the energy company would take the necessary steps to protect its investment.

"We are disappointed that the city of Boulder has moved forward with action at the Federal Energy Regulatory Commission," Xcel spokesman Mark Stutz said Friday. "With this filing, Boulder has begun a long and expensive process and appears to be moving past any remaining 'off-ramps.' We will read the petition and determine the appropriate response.

"Ultimately, Xcel Energy will do what we need to do to protect our remaining Colorado customers, including those who have not had a say in the municipalization process."

Boulder spokeswoman Sarah Huntley said a ruling by the Federal Energy Regulatory Commission in the city's favor would not bind the Boulder to buying electricity from Xcel, but it would provide the City Council with information about that option before the council makes key decisions.

Among the options studied by Boulder is the possibility of continuing to purchase power from Xcel for five years and then transitioning to greener power from other sources. The main benefit of that option is that city officials believe it would limit the stranded costs Boulder might owe Xcel.

"In its transition to 'the electric utility of the future,' it is unlikely that Boulder will be able to convert to 100 percent renewables on Day 1 of operations of a new municipal electric system," Boulder attorneys wrote in their petition. "Such a conversion would be phased in over time. During that phase-in period, Boulder will probably have to rely upon carbon-based generation for a portion of its power supply.

"To the extent that Boulder can avoid stranding (Xcel's) generation assets during that phase-in period, (Xcel's) remaining customers and shareholders will be protected while Boulder makes progress toward its carbon reduction goals."

Key decision in August

City officials said they hope the Federal Energy Regulatory Commission will issue a ruling early in the municipalization process so Boulder can take those findings into account as it analyzes the costs and risks of creating a municipal utility.

The City Council is currently scheduled to vote in August on whether to begin condemnation proceedings against Xcel to acquire its distribution system within Boulder. Beginning that process would represent a significant step toward creating a municipal electric utility because Boulder cannot begin condemnation unless it is prepared to pay at least its initial offer.

Huntley said city officials expect that they will be arguing before the Federal Energy Regulatory Commission again over the exact amount of stranded costs in a more comprehensive case should Boulder move forward with municipalization -- unless Xcel and the city can come to an agreement first.

A working group with representatives from the city and Xcel, as well as environmental and business groups, is looking at possible compromises that would provide more clean energy to Boulder without the city creating its own electric utility.

A citizens' group also has stated its intent to circulate petitions to put a charter amendment on the November ballot that would require a second vote before the city could issue any bonds to pay for any new utility.

Contact Erica Meltzer at 303-473-1355 or meltzere@dailycamera.com.