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EDITORIAL: Pueblo's fight with Black Hills heats up

By: The Gazette editorial board
September 6, 2017 Updated: September 6, 2017 at 9:36 am

Pueblo officials have finally had enough. They are plotting to end their franchise agreement with Black Hills Energy, hoping to weaken the utility's monopolistic stronghold over the community.

"We certainly hope the city doesn't go down that path," said Black Hills lawyer Kevin Opp, as quoted by the Pueblo Chieftain.

Of course they don't want the city to break the contract. Black Hills has used Pueblo like a limitless ATM for years, jacking up rates among the highest in Colorado while enjoying protection of the franchise agreement.

Businesses seldom fleece customers, because market forces won't allow them to. If gas station A sets a ridiculous price, Gas station B will win customers by offering a lower price. Gas station C will offer an even lower price, and Gas station D will go one further. Competition will force a price that barely exceeds the seller's wholesale costs and overhead. That's why grocers sell products at profit margins of pennies on the dollar.

Consumers do not enjoy the full benefits of competitive pricing when buying electricity, which is sold by massive utilities that are shielded from competition by government-granted monopoly status.

Monopolistic practices are inevitable in the utility sector. We cannot have dozens of companies setting up giant plants in each town to generate electricity. We don't want a tangle of competing power lines running through neighborhoods.

The "franchise agreement" with a municipal government is one element of a public utility's monopoly standing. It protects a utility from the threat of a competitor coming in with a better offer for providing exclusive power service.

With a franchise agreement, City Hall agrees to grant a utility exclusive rights to serve the community. The utility pays for the contract with an annual franchise fee. The cost of the fee is passed along to ratepayers. In Pueblo, residents collectively pay about $3.4 million a year to cover Black Hills' franchise fee.

Because monopolies are dangerous for customers, who could get bilked by a provider unchecked by competition, states have public utilities commissions. A utility must ask the commission before raising rates. Unfortunately, utility executives are adept at manipulating regulatory boards. They even work to determine who gets appointed to the commission, which critics call stacking the system with "cronies."

"Pueblo has been a cash cow for Black Hills," said Susan Perkins, a utility lawyer who works with the group Pueblo's Energy Future, as quoted by the Chieftain. "Until very recently, the PUC has essentially rubber-stamped Black Hills' rate requests."

Black Hills may have gone too far when it tried to double-cross City Hall. As explained in this space last week, the utility proposed a bait-and-switch regarding LED streetlights it had encouraged Pueblo city officials to buy with a loan from Wells Fargo Bank. Black Hills said the lights would save the city about $1 million bucks a year in electricity. After the lights were installed, Black Hills proposed a new annual fee of nearly the same amount the city will save. With the increase, the city won't have the cash it had counted on to pay off the loan.

City Councilman Chris Nicoll called the move a betrayal "that broke the camel's back."

Nicoll led a majority on council to agree last week the city should end its 20-year franchise contract, leaving Black Hills susceptible to competition from another provider or the formation of a city-owned utility. Nicoll received a loud ovation from the audience when he proposed ending the contract.

Breaking the agreement will be expensive and complicated, and Black Hills won't go down without a fight. By exploiting monopoly status, and betraying the local government, Black Hills has become a cautionary tale. It is a textbook example of what a business can do when liberated, without good regulatory oversight, from the benevolent forces of competition.

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