Would you lend anybody $23 million — interest-free? Colorado Springs Utilities customers are doing exactly that when they pay their bills to the billion-dollar, city-owned enterprise. That's because Utilities often overcharges for natural gas based on fuel cost estimates that end up exceeding actual costs.
Then, when the overcollection is refunded months later through a Gas Cost Adjustment (GCA), Utilities doesn't pay you a dime in interest on that money.
And it's not chump change. In 2006, for example, it came to $19.8 million. Through July of this year, the overcollection stood at $22.95 million. All of which is held in Utilities' general operating fund, used to pay for capital projects and daily operations.
Utilities reports net assets of $1.15 billion and plans to collect $819 million in revenue this year from rates for its four services: gas, electric, water and wastewater. Yet, it borrows money interest-free from its customers.
This is wrong, City Councilor Tom Gallagher thinks.
Especially because one of Utilities' biggest customers, and by extension one of its biggest "lenders" in this game, is the cash-strapped city of Colorado Springs. Consider: At the very time the city is turning off streetlights and pulling trash cans from parks to save money, it's floating a loan to the monopolistic Utilities.
How much isn't clear. The city asked Utilities to compute the overcharges, but Utilities spokesman Dave Grossman says it's not possible.
"We have no way of totaling up an individual line item (the GCA line item in this case) over the course of multiple bills," Grossman says in an e-mail. "Thus, there are no records that contain the sum/difference of the GCA." The only way to know how much the city paid in a year's time, he says, is to look at the GCA on each bill.
That would be tricky, considering the city receives thousands of utility bills annually; all its facilities and sites are billed separately. Based on city records, we do know the city pays between $9.2 million and $9.4 million annually for utilities, so its loan and eventual refund likely are considerable. Gallagher thinks it could be in the millions over several years.
Grossman says gas costs are "extremely difficult" to predict due to weather, volatile market prices of fuel, consumption practices and economic conditions, all of which can fluctuate month to month. He says Utilities re-forecasts the GCA balance monthly with updated costs and sales projections, and adjusts rates quarterly. Utilities tries to keep changes to customer billings at 5 percent or less to enable customers "to budget their utilities bill."
The same overcollection occurs with electric service, and Utilities sets an Electric Cost Adjustment to repay it. As of Aug. 30, that balance was $16.8 million.
Gallagher sees a problem in rebating over a period of 12 months or even longer — the 2009 overcollection won't be completely rebated until March 2011 — because some of those who paid too much might have moved away before getting their refund.
Gallagher thinks customers should be paid the overcollection in one swoop, not dribbled over a period of time.
"If we were owned by an investor-owned utility — Public Service of Colorado, Xcel [Energy] or Peoples [Gas] — they're required to do lump sum refunds with interest, because the lump-sum refund is the surest way to be sure those who paid receive the refund," Gallagher says. "It's an equity thing."
No state oversight
As for paying interest, Grossman at first contended that Federal Energy Regulatory Commission regulations don't allow the city to pay interest on overcollections or charge interest on undercollections. He later said FERC rules don't apply, though, because Utilities is municipally run by a home-rule city that sets tariffs and rates.
Other gas utilities in Colorado are subject to an order from the Public Utilities Commission to pay customers interest if they charge too much, according to P.B. Schechter, with the Colorado Office of Consumer Counsel.
"The utility has the knowledge and ability to forecast (customers do not)," Schechter says in an e-mail, "and if there is no interest paid, then the utility has substantial incentive to forecast in such as way as to decrease the likelihood that it will under-collect — which is, generally, to increase the likelihood that it will over-collect."
Gallagher acknowledges that some incidents that influence fuel costs can't be predicted, such as a fire at a compression station in Cheyenne, Wyo., several years ago that trapped gas in Colorado, driving the price down to ridiculously low levels. But usually such incidents are short-lived, he says.
Gallagher also objects to the over-collected amounts being commingled with operating revenues.
"That's just wrong," he says. "If a private-sector company were allowed to do that, it would be called fraud or cooking the books, because it creates a false impression of a stronger financial position than actually exists. Instead of reporting a liability, you're reporting it as operating revenues."
Gallagher's protests have gotten little traction all year. But at least one fellow Councilor is warming to them.
"At this point, I'm willing to relook the issue and relook the tariff and regulations on it," says Randy Purvis. "The process is designed to smooth the cost of natural gas and electricity to the customer for budgeting purposes, but it should not be used by the utility as a source of cash in short time."