Xcel’s big move to a fancy new building in the hot River North Arts District raised a few eyebrows on The Denver Post’s editorial board – ratepayers will be picking up the tab for rent in the building as it is one of the power company’s operating expenses.

The new 220,000-square-foot building was described by its builder and owner in a quote put out by Xcel as “the next evolution of workplace that combines a creative and hospitality-driven customer experience with state-of-the-art amenities.”

We met the claim that the move will save the company $2.5 million a year in operation costs with a healthy dose of skepticism.

To Xcel’s credit, when we expressed our concern, the company’s president spent an hour with us discussing not only the decision to move the headquarters from its current location in Lower Downtown to RiNo but the company’s $15 billion plan to increase renewable energy, build transmission lines, and update Denver’s transmission infrastructure.

Xcel president Robert Kenney explained the process of selecting a new headquarters as one that prioritized cost while also accounting for the needs and wants of Xcel employees.

“We looked at the opportunity to own and I think we probably started with more than 50 different commercial properties in the metro area (and) there was one property we looked at where we looked to purchase,” Kenney said. “It was ultimately more cost-effective to lease than to purchase. We do have the option to purchase at some point in the future, that’s part of the transaction with Hines the developer, but leasing ultimately is the more financially responsible decision at this point.”

Kenney said the real estate department within Xcel held a competitive process to select a new location and that the RiNo location was a clear winner.

“From a capital accounting perspective it is more financially advantageous for us to lease,” Kenney said, noting that the lease was more advantageous to ratepayers than buying. 

Kenney didn’t address the market conditions or how specifically the new lease will save money, but the commercial real estate market in downtown Denver particularly the Central Business District has cratered. The Denver Business Journal noted that according to CBRE’s third-quarter market report rents in the downtown submarket averaged almost $40 per square foot while rent in RiNo averaged $49 a square foot. A $9 on average difference is huge when you are looking at a 220,172-square-foot building.

This move does not represent any form of austerity or even economy on behalf of the utility.

The evidence is in the market.

The City of Denver is purchasing the former Denver Post building downtown for $89 million. The Denver Post reported that the building sold in 2006 to Kayan LLC (an affiliate of American Properties) for a cool $93.4 million.

BusinessDen reported in October that nearly one out of every three floors of office space in downtown Denver is available, representing the first time the city’s vacancy rate has hit 30% in recent memory.

Kenney said finding a space large enough to house Xcel’s 1,200 regional headquarters employees on contiguous floors was uniquely challenging. The RiNo building offers the added benefit of Xcel being the sole tenant.

Meanwhile, six large commercial buildings downtown are in financial distress several of which have reverted to the lender after no buyer was found at auction: the Denver Energy Center, The 410, 1801 Broadway, Wells Fargo Center, Writer Square, and Columbine Place.

These foreclosures and vacancies leave the editorial board wondering if Xcel’s new lease, which starts in 2025, is the financial equivalent of negotiating a good deal on leasing a brand-new Rolls-Royce when just down the street a dealership is holding a fire sale on a used Lexus or a new Toyota.

Kenney is doing an excellent job pushing Xcel forward during a time of painful transition from fossil fuels to renewable energy. We all expect our energy costs to increase as coal power plants go offline and the utility builds or buys renewable energy.

However, leasing a new building that boasts workspaces “designed to promote employee warmth and well-being, with exposed wood, open layouts, 12-foot ceilings, and floor-to-ceiling windows offering sweeping mountain views and abundant natural light” is a slap in the face to ratepayers.

The Public Utility Commission approved a $97 million increase in revenue for Xcel Energy in August, which brought a $4 increase in utility bills for the average user. That followed a rate increase in 2022 that was also approved by the PUC. Xcel realized a net profit in Colorado of $727 million in 2022.

The PUC is reviewing the company’s clean energy transition and the commission could increase rates again to fund Xcel’s transition to clean energy.

Much of those rate increases to date are justifiable and Kenney is correct to point out that the shareholders of Xcel only profit off of the capital investments they make. However, Xcel needs to take a more moderate financial approach to its spending, as ratepayers are asked to fund this necessary transition to cleaner energy.

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