Utilities could attract new business, instead it appears to be a magnet for controversy 

Power struggle

click to enlarge The struggle over Drake is just the latest Utilities controversy. - COURTESY COLORADO SPRINGS UTILITIES
  • Courtesy Colorado Springs Utilities
  • The struggle over Drake is just the latest Utilities controversy.

Colorado Springs Utilities has grabbed a lot of headlines over the years, and rightfully so.

As one of the region's chief economic drivers with a monopoly on all four services — water, wastewater, electricity and gas — Utilities serves more than 200,000 customers.

Not surprisingly, the $4 billion enterprise has been at the center of many storms over the last decade: Should its electric division be sold and the proceeds funneled to streets and drainage channels? Should Utilities' governing board be changed from City Council to a separately elected or appointed board? Should the city be allowed to tap Utilities' roughly $1 billion annual budget for a larger annual "surplus payment" (money the city takes because a municipally owned utility pays no taxes) for general city operations? And was the $178 million experimental pollution scrubber system, installed at the downtown, coal-fired Martin Drake power plant and accepted by the city in 2016, a wise or a foolhardy move?

While weathering those concerns, Utilities managed to complete the politically charged 50-mile Southern Delivery System water pipeline from Pueblo Reservoir, activated in April 2016, which expands the city's available water supply by a third.

Given all that, is the enterprise still a drawing card for business and industry? Indicators suggest the answer is yes, though one 2016 survey found one in five companies that considered coming here in the preceding decade cited concerns over instability.

But Utilities' rates are competitive enough to place the enterprise in the lowest third in the nation, and its bond rating — among the highest for municipal utilities — suggests that financial gurus rank Utilities as a good investment.

Now, Utilities again is in turmoil as City Council works at setting the course of the city's electric division going forward. This time, the spotlight is trained on Drake power plant.

After deciding in 2015 to keep Drake running until 2035, Council is now mulling a closing as early as 2025. Besides restructuring the power division to catch up to the accelerating green-energy movement, an earlier closing could rejuvenate the lower downtown area near the Olympic Museum, which is under construction at Sierra Madre Street and Vermijo Avenue.

If vacated, the roughly 40 acres occupied by Drake could potentially host a sports stadium, shops, townhomes and other amenities, enhancing the city's core.

"There are companies that don't want to move here with Drake, one of the oldest coal plants in the country, in the middle of downtown," says Council President Richard Skorman.

But some Council members are focused on one overriding issue: keeping rates low. The question Utilities Board Vice Chairman Andy Pico says he's most concerned with is: "Is it to our ratepayers' advantage?"

In 2012, after Steve Bach was elected the city's first strong mayor under a 2010 City Charter change, business leaders urged Bach to maneuver a sale of the power division. Selling, they argued, would yield a windfall to apply to the city's more than $1 billion backlog of infrastructure needs, notably roads and stormwater projects. It also might bring about the demise of Drake, though it provides a quarter of the city's power, to clear a path to a downtown renaissance.

In 2012, the Utilities Board commissioned a value study, due in May 2013, but scrapped it in April. Amid that debate, at least one large company expressed interest — Minneapolis-based Xcel Energy, which serves customers in eight states including Colorado.

(Further complicating a future sale was a ballot measure overwhelmingly approved by voters in April 2017 that requires approval from 60 percent of voters, rather than a simple majority, to sell any part of Utilities.)

The sale question settled for now, Council turned to a push from Colorado Springs Forward, a group of business people active in politics, to change the Utilities Board from Council to members appointed by the mayor, appointed by the mayor and Council, elected by customers, or some combination. That didn't fly either.

"We have not spent five minutes [on that issue] since the Utilities Board elected to stay with the current model a year and a half ago," says CSF board member Phil Lane. "Since that process ended, we have not focused our efforts at all on that."

Throughout this time, Utilities advanced a plan to use a new invention to meet federal sulfur dioxide emissions standards at Drake. The project's price tag climbed from about $113 million in 2011 to $178 million, only to see the inventor, Neumann Systems Group, close its doors after project completion.

In 2015, voters elected former Colorado Attorney General John Suthers as mayor. Besides calming the turbulence of the Bach years, marked by repeated disputes with Council, Suthers pushed through voter-approved higher taxes and fees to fund streets and flood control, erasing the chief reason for selling the electric division. Suthers also made a play for a bigger cut of Utilities' revenue via the surplus payment, which stood at about $32 million this year. That failed, however.

All that upheaval might be why a survey sponsored by SpringsUnigroup, a coalition of business people, found that 20 percent of the 83 companies polled in 2016 said stability and worries over future utility rates was a chief reason they opted not to open a facility in Colorado Springs from 2006 to 2015. (The reason given by most was availability of skilled workers.)

Skorman says the sale question is a settled matter, for now. "I don't think there's an appetite with this Council to sell unless there's a huge benefit," he says.

In fact, city ownership enables Utilities to play a crucial role in economic development. It provides a total of $275,000 to the Colorado Springs Chamber and EDC and other business promotion entities. Utilities also makes deals with commercial customers to defer fees, help pay costs of line relocations and extensions or provide special rates — all with the idea of attracting large power users. It's worth noting that Utilities has fewer "rate options" contracts today with large users, 94, than it did in 2012, with 130.

There could be myriad reasons for the decline, but Utilities spokeswoman Natalie Eckhart notes that all business prospects that come to Utilities' door list rates as a top concern.

Even existing businesses worry. Dan Malinaric, vice president of Fab 5 operations for Microchip Technology Inc., spoke to the Utilities Board on Nov. 21 during a discussion of Drake, saying rates and reliability are industry's top two values.

Noting that Microchip Technology is Utilities' single largest customer with a monthly bill of $1 million, Malinaric said, "Utility costs have been going up every year at some rate, even without the major changes we're looking at. I think we should put all options on the table and figure out what really is best for Colorado Springs and perhaps not look at it as a piecemeal basis of just Drake alone."

click to enlarge Utilities Board Vice Chair, Andy Pico - GRIFFIN SWARTZELL
  • Griffin Swartzell
  • Utilities Board Vice Chair, Andy Pico

Later, in an email to the Independent, Malinaric said, "Increased rates would have a significant impact on us. It would have an impact on the competitiveness of other businesses in Colorado Springs that are large utility users. It will have an impact on the City's ability to attract other large utility users. That is one of the main advantages that they offer their customers. If they fail to deliver those low costs over time, then it is not clear what is the advantage of [Utilities] being publicly owned."

Two site-selection consultants contacted by the Indy agree that big users look chiefly at rates and reliability. Dennis Cuneo, based on the West Coast, also notes that exploitation of a utility is a turnoff. "If it becomes political, where decisions are made for reasons other than providing electricity at the best rates — it could be a cash cow for government to suck money out — that would be a concern," Cuneo says.

Consultant Dennis Donovan of Bridgeport, New Jersey, says another worry is the cost of migrating to renewables. "Most companies want green power, like Facebook, Google," he says. "It's a major selling point. But you can only transition to the price the market will bear."

So far, the city hasn't released exactly how its 200,000-plus customers' bills would be impacted by an overhaul of the city's transmission and generation assets over time.

Balancing a Drake shutdown against keeping rates low is familiar territory for Chamber CEO Dirk Draper, and because Chamber members are split, the Chamber will remain neutral, he says. "The debate we're seeing in the community right now reflects the spectrum of employers we have," Draper says. "Some view it as a financial decision, and we see some others who've spoken in favor of an acceleration of decommissioning, which they're viewing on a different spectrum." Malinaric, for one, wants cheap power, while others, like developer David Jenkins, want Drake gone to make way for amenities near his planned high-rise complex adjacent to the Olympic Museum.

Those competing values are evident on the Utilities Board as well.

You'll find Pico, a retired naval flight officer and defense contractor, in the "keep Drake" camp, because it produces cheaper power than alternatives and could operate well beyond 2035. But he's also willing to evaluate joining a power pool to help keep replacement energy costs down, something Utilities plans to pursue. The idea is to throw in with other power generators and transmission companies to share power.

While the board hasn't decided what date to close Drake, it recently decided to replace Drake power with a combination of distributed (think tiny natural gas generators) and imported (like the pools just described) energy.

You'll find Skorman in the "close Drake" sooner camp. He's a green guy who installed 117 solar panels on his downtown shops that supply up to half his power needs. He also ran the Project Smart Light project in 2009 that distributed 60,000 energy-saving light bulbs to homes in the region.

"The fact that Drake is downtown has stopped development there," he says, noting a Whole Foods store scrapped its plans after learning of Drake.

Skorman cites a Tufts University study, which found Drake is the most inefficient coal plant in Colorado, to argue the plant should go.

"If Drake goes away by 2025, there's going to be a huge amount of opportunities in downtown," he says.

If it remains a fixture until 2035, those opportunities vanish, Skorman says.

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