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Gassed up 

17 large local institutions get a price break from Utilities, for virtually nothing in return

On Dec. 8, temperatures plunged to 15 below zero and pipes froze all over town. As you might expect, Colorado Springs Utilities customers cranked up their furnaces, sending natural gas usage into orbit.

It was the kind of situation that might worry a small group of Utilities customers who have agreed that when demand runs high, they'll get off the city's system temporarily. It's a deal that's let them lock in rates lower than everybody else's.

But guess what? On Dec. 8, the highest gas usage day in Colorado Springs history, those customers weren't asked to power down. In fact, it's happened only twice in the past decade, Utilities reports.

What's important about this is that 17 institutions, including The Broadmoor and Colorado College, get a generous price break by signing up for interruptible rates. Yet, they're rarely interrupted, so guess who pays for their price break? Everybody else offsets what could amount to millions of dollars annually, although Utilities says the differential is only $406,529 a year.

Unwarranted discounts?

But don't take our word for it. Consider the testimony of P.B. Schechter, an expert with the Colorado Office of Consumer Counsel, in a 2008 case involving Public Service Co. of Colorado. In it, he addresses customers on interruptible rates, as opposed to "firm" customers, which means everybody else.

"While an interruptible program can reduce the cost of peak capacity, it can also — unfairly — result in firm customers subsidizing interruptible customers," Schechter testified.

Bill Levis, an attorney in the Office of Consumer Counsel, says in an e-mail the need for interruptible rates in the Rockies has shriveled due to adequate supplies. Consequently, the number of interruptions also has declined, leading some providers, including Lakewood-based SourceGas, to eliminate interruptible rates altogether.

Levis says he can't comment on the fairness of Utilities' rates without knowing how costs are allocated, but notes, "Many times, interruptible rates also reflect unwarranted discounts to large customers."

Xcel, which owns Public Service Co., has 19 interruptible gas customers out of 100,000 commercial and industrial customers on its system. Nearly all are government agencies and hospitals, says Xcel spokesman Mark Stutz.

"We interrupt once or twice a year, tops," he says, due to rare weather events or local delivery problems, such as a damaged pipeline. He says Xcel's interruptible rates run 9 percent to 10 percent lower than firm rates.

At Springs Utilities, 17 of its 15,340 commercial and industrial gas users are on interruptible rates. Customers can sign up annually by agreeing they'll curtail within two hours of notification or face "significant financial penalties," Utilities spokesman Dave Grossman says in an e-mail. While not required, backup fuel systems are recommended for interruptible customers.

Springs Utilities says it called 11 curtailments during the 1990s, and two last decade. A 14-hour interruption was called on Feb. 24, 2003, when local temperatures sank to a record low for that date of 7 degrees. Utilities didn't provide the date of the other incident, and the customers we interviewed recall only one curtailment in the past 10 years.

Substantial savings

The city refuses to name the interruptible customers, citing disclosure laws and tariffs, but lists them by category: five manufacturers, four in health care, two with the federal government, two in lodging, and one each in education, high tech, office and utilities. The utilities customer is Springs Utilities itself.

The city-owned agency also refuses to say how much money each user saves. When initially asked the price difference, Utilities produced figures showing that interruptible-rates customers get a 9 percent break.

Utilities later modified its statement, saying the break for the "typical" interruptible-rates gas customer using 64,561 CCF (hundred cubic feet) a month is 4 percent, or $1,992 a month. So that customer would pay $48,423 a month, rather than $50,415.

The Doubletree Hotel Colorado Springs-World Arena, with 299 rooms, is in the interruptible class but uses much less than is typical, only 24,333 CCF per month on average, general manager John Ault says.

But some interruptible users go well beyond the "typical." City-owned Memorial Health System reports paying $186,000 less in 2009 due to the special rate. The Penrose-St. Francis hospital system also is on interruptible rates, though it's declined to reveal its savings.

Colorado College has 1.6 million square feet of space subject to interruptible rates, about 80 percent of its campus, says energy manager Jim Cain. The college's annual gas bill is $1 million, so interruptible rates save CC tens of thousands of dollars "and more" a year, he says.

Another big user is The Broadmoor hotel. The five-star resort on 3,000 acres has 700 rooms, suites and cottages, 185,000 square feet of event and meeting space, two swimming pools, a golf course, retail shops and 18 restaurants, cafés and lounges.

Director of facilities management Terry McHale wouldn't say how much natural gas the resort uses, but Broadmoor president and CEO Steve Bartolin Jr. said in an interview that the resort's gas bill is "a big-ticket item" and that the savings are notable.

The 500-room Crowne Plaza Hotel on South Circle Drive doesn't cash in on interruptible rates but would like to, considering it's already equipped with a backup generator.

"It's something we're interested in," general manager David York says.

The savings are made sweeter by the almost nonexistent risk of a pause in service.

"It's never been exercised, in my recollection — maybe once in 10 years," The Broadmoor's McHale says.

CC's Cain says about eight years ago, the college switched to its fuel oil reserve from the city's natural gas for several weeks due to high gas prices, but he couldn't recall an interruption imposed by Utilities other than tests.

"I've been here 10 years, and there hasn't been an occurrence on a need basis," he says. "Sometimes they'll call and say, 'We're going to do a test,' but it's not driven by the shortage of gas."

Good for all

Utilities says everyone benefits from interruptible rates, because they give the city flexibility when supplies run short.

"The value of this program is more about reliability than economics," Grossman says in an e-mail. "Customers on this rate assume the risk of their gas supply being interrupted on short notice. This is a benefit to all other natural gas customers — to our community in general — in that it helps ensure a reliable supply in the event of a natural gas shortage."

While the city's interruptible program is looked at annually and has been renewed year after year, this year is different. An internal panel began a "more formal review of this rate option" in December, Grossman says. A report is due in September.

In addition, after the Independent began asking questions about the program Dec. 10, Utilities orchestrated an extraordinary test on Jan. 26 by curtailing interruptible customers for a full day.

It's the only such test Cain has ever seen in his years at CC.

"I don't know of any time they've done a 24-hour test," he says. The purpose, he says, was "to better determine the actual load that would normally occur in case a real event would have to take place."

zubeck@csindy.com

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