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Gazette Premium Content Utilities still 'tangling' with feds over SDS water contracts

DANIEL CHACÓN Updated: January 21, 2011 at 12:00 am

After more than a decade of planning and a grueling permitting process, this was supposed to be the year that Colorado Springs Utilities finally moved dirt on the massive Southern Delivery System water pipeline between here and Pueblo.

But a late-in-the-game tangle with the federal government means Utilities still doesn’t have key contracts it needs to start construction at the Pueblo Reservoir, the mouth of the 62-mile pipeline.

SDS is designed to move water from Pueblo to Colorado Springs by 2016 to quench the city’s growth and provide redundancy for Utilities’ decades-old water delivery network.

While negotiations with the federal Bureau of Reclamation are ongoing, Utilities officials insist the unfinished contracts won’t stop or delay construction.

They point to a 4,000-foot section of pipeline that workers recently laid along Marksheffel Road, marking the unofficial start of the project. And, they say, a 4-mile stretch of construction will start in El Paso County in February or March. Utilities has already invested more than $100 million in the project.

“It’s important that we take the time to get these final details resolved in a way that protects our customers’ best interests,” John Fredell, SDS project manager, said Friday.

Although it’s unclear when Utilities and the bureau will reach agreement on the contracts, it’s primarily “lawyerly language” that needs to be ironed out, said David Robbins, outside legal counsel for Utilities.

“I hope we’re pretty close,” he said this week.

According to interviews and e-mails between Utilities officials and bureau representatives, three significant issues remain unresolved:

• A termination, or “subject to appropriation of funds,” provision.

• A desire by Utilities officials to take advantage of lower water storage rates if other entities get such rates in the future.

• A schedule detailing how much water each of the SDS partners needs to store each year and the cost over the life of the contracts.

Utilities and the bureau ended face-to-face negotiations in August and have been trying to come to terms over the specific language in the 38-year contracts since then. Robbins said the holidays delayed talks.

One of the main sticking points is the termination provision.

“It is basically a provision required by any governmental entity for automatic termination of the contract if the money isn’t appropriated,” Utilities spokeswoman Janet Rummel said Friday in an e-mail, adding that the bureau has similar language under federal requirements.

Essentially, it’s an opt-out clause if Utilities can’t pay for SDS. But it’s unclear whether that provision kicks in if the city has insufficient funds to pay for the billion-dollar-plus project or if a future City Council stops payment. The costs of SDS are expected to be paid for largely with increases in water rates through 2016.

When asked for clarification about the provision, Rummel said: “The language proposed is the standard language used by Colorado Springs Utilities to comply with the City Charter provisions. To our knowledge, it hasn’t been interpreted by the courts.”

Said City Attorney Patricia Kelly: “I do believe that all contracts have a ‘subject to appropriation of funds’ clause, but even if they don’t for a reason that I do not know, the City Charter states that there is no liability without appropriation.”

Delays could be detrimental to the pipeline project.

But they’re not new.

In recent years, the project appeared doomed when Pueblo County held up a crucial land-use permit. But by 2009, Colorado Springs and Pueblo officials were posing side-by-side for photographs when the permit was eventually issued.

The permit, however, has a clock. Utilities must take what the permit calls “substantial steps” on the project within a 36-month period that ends in April 2012.

The permit can be revoked or suspended if Utilities falls short of the requirement.

“We’re still 15 or 16 months out from that review, so there’s still plenty of time, and so I can’t prejudge that at this point,” Pueblo County Commission Jeff Chostner said recently.

“The concern I expressed (in the Pueblo Chieftain newspaper) was whether there would be the financial and political will to complete the project,” he said. “I think the Colorado Springs community is still debating that.”

The Colorado Springs City Council, which also serves as the Utilities Board, approves or rejects water rate increases needed to pay for SDS.

While council members approved two separate 12 percent water rate increases for SDS — the first one took effect Jan. 1, and the second will take effect January 2012 — City Hall is facing a changing of the guard in the April election, with seven seats up for grabs.

Utilities is counting on four more 12 percent water rate hikes, but it’s a future council that will make the final decision.

The political uncertainty, as it relates to water rates, was noted by Moody’s Investors Service rating service.

“While the majority of the water system rate increases have already been approved, political risk could rise due to affordability concerns,” Moody’s said in August.

That was the same month Utilities and the bureau ended negotiations, agreeing to the general terms of long-term contracts for SDS.

Before the end of negotiations, Robbins said Utilities informed the bureau that a termination provision was needed. But he said it wasn’t discussed in detail.

By September, the two were going back-and-forth over the specific language.

In an e-mail to Michael Collins, the bureau’s area manager, Robbins wrote: “We can’t give you a (guarantee) that you will have the revenues since the decision to continue to use excess capacity (water storage) will be dependent upon the actions of future Colorado Springs City Councils.”

Later, Robbins told Collins via e-mail that an “appropriation of funds” provision was required by the City Charter.

In an interview this week, Robbins said the two sides have reached partial agreement but are “tangling,” as he said, over whether Utilities should have to pay penalties for backing out of the contracts.

“You have to be in tremendous stress before anything like that kicked in,” Robbins said, referring to a termination provision.

Robbins said the city’s looming election isn’t influencing his decision-making about the specific language in the contracts.

“My job is to represent Colorado Springs to the best of my ability without regard to whom the politicians are or who is on the City Council,” he said.

Utilities has no intention of canceling the contracts, Robbins said.

“You could look at it from the glass-half-empty standpoint and say, ‘Oh, but they could do that whenever they wanted to,’” he said.

“I can’t tell you that that’s wrong,” he said. “But what I can tell you is, this contract has been negotiated for the purpose of providing long-term water supply to the city of Colorado Springs. The likelihood that the city would ever say we’re walking away once this project is in motion is pretty small.”

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