The Colorado Springs City Council on Tuesday approved a 7.4 percent increase in electric rates but promised that as soon as two boilers at Martin Drake Power Plant are running again, it would look at dropping rates back down.
The rate hike means a typical resident will pay $5.34 more a month, or $64.08 a year; a typical commercial customer will see a boost of $53.40 a month, or $640.80 a year; and a typical industrial customer will pay $3,560 a month extra, or $42,720 a year. The new rates, approved on a 7-2 vote, begin June 1.
"I fully anticipate that this will be temporary," said council member Merv Bennett. "When Drake 6 comes back online we will address it at that time. I don't anticipate it will go for a year."
Resident Raven Martinez, who spoke on the issue, said if the council was serious about the rate increase being temporary, it should be written into the ordinance.
"There should be something that says it will be addressed every three months," she said.
The council did not include the word "temporary" in its approval, but Colorado Springs Utilities CEO Jerry Forte said crews are working around the clock to open two of the three boilers at Drake by the end of summer.
A fire exploded inside Drake on May 5 and shut down the entire plant, which produces about one-third of the energy for Utilities customers.
Since then, Utilities has produced electricity at its Front Range natural gas-fired plant and has been buying natural gas on the market. At Drake, electricity is produced at 2.5 cents per kilowatt hour. It could cost about 4 cents per kilowatt hour to buy the fuel. Utilities estimates that it will cost $3 million more a month to buy natural gas on the market.
Utilities does not have insurance or a reserve fund to cover the cost of replacement energy, Forte said. Carrying that kind of insurance would be expensive and a cost passed to customers, he said.
Instead, Utilities uses a mechanism called Electric Cost Adjustment, which allows it to react to market changes and increase or decrease rates. The money from this rate increase is expected to add up to $23 million by the end of this fiscal year and would be used to buy natural gas on the market.
Council member Helen Collins was not persuaded by the argument of high fuel costs. She and council president Keith King voted against the rate increase. She said she believes Utilities could cut its operating budget to make up for the higher fuel costs.
"We can cut money so we don't have to penalize the citizens," she said, "especially those in the southeast - they are living paycheck to paycheck."
Forte said that Utilities had cut as much as $50 million from its 2014 operating budget and already is planning to cut $15 million from the 2015 budget.
"One thing I am asking customers to help with is we need help conserving electricity this summer," Forte said. "Every megawatt, every watt that we save is electricity we don't have to buy at high spot market prices."
Carol Sturman, of Sturman Industries, said the council should use the fire at Drake to consider other fuel sources. Her company specializes in the study of combustion and renewable fuels. She noted that just this month, President Obama said he will use his executive power to tighten rules on climate and environmental regulations that will affect coal-fired plants.
"As you look at the rates, you have do what is necessary," she said. "But you have to look long term. Coal will not be cheap long term."
The city council will discuss the future of Drake this summer in a series of meetings. The council has said it would like to make a decision by the end of summer on the best time to decommission Drake. The options range from closing it immediately and building a natural gas plant to closing it in 30 years.
"This is an unfortunate circumstance," council member Joel Miller said about the Drake fire and the electric rate increase. "But this is the cost of producing electricity. This is a window to the future without Drake Power Plant."
Even if the rates are adjusted back down when Drake's boilers are up and running, it likely won't be the end of electric rate increases. In October, during the 2014 budget preparation, Utilities officials said that they were projecting electricity rate increases each year for the next five years.
In recent presentations with the business community, Utilities budget projections showed that electricity rates could go up each year until 2018 to cover $260 million in costs to bring the city's coal-fired Martin Drake and Ray Nixon power plants into compliance with Environmental Protection Agency regulations.
Any electric rate increases for 2015 would be considered in November when the budget is being prepared.