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Colorado Springs council to vote on electric rate hike stemming from Drake fire

By Monica Mendoza Updated: May 26, 2014 at 7:05 pm 0

When Colorado Springs Utilities residential customers open their bills in July, it could be about $5 more than usual.

The Colorado Springs City Council will vote Tuesday on a proposed 7.4 percent electric rate increase for residential customers; 10.4 percent for commercial customers, and 11.2 percent for industrial customers. If approved, the new rates start June 1.

The money from a 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 to make up for the shutdown of the coal-fired Martin Drake Power Plant since a May 5 fire.

Utilities does not have insurance or a reserve fund to cover the cost of replacement energy, officials said.

The increase could be temporary, said Bill Cherrier, Utilities chief financial officer. Utilities crews and a contracted cleanup crew are working around the clock to get two of Drake's boilers up and running by fall. The third boiler, known as Unit 5, took the brunt of the damage during the fire. Utilities officials do not know the extent of damage or cost to repair that boiler.

This round of electric rate increases will not be used to pay for repair at Drake because of the fire. Utilities had made changes to its insurance policy and increased its asset coverage limit up to $400 million from $100 million.

"It couldn't have come at a better time with the incident we just realized," Cherrier told the City Council, sitting as the Utilities board, at its May 21 meeting.

Utilities does not, however, have replacement power insurance. Cherrier said most utilities don't because it's expensive and does not fully cover losses. And unlike the city, Utilities does not keep a reserve fund for emergencies.

Instead, Utilities uses a mechanism called Electric Cost Adjustment, which allows it to react to market changes and increase or decrease rates. For example, in 2012 and 2013 electric rates went down to reflect the market. However, in February, the council increased electric rates by 3 percent to cover an increase in fuel prices.

The fluctuating rates are of concern to customers, said council member Don Knight. Before the fire, Utilities was looking at making an electric cost adjustment in September to cover rising fuel costs and a possible electric base rate increase in January to cover the cost of capital projects.

"A customer doesn't care if it is an ECA (cost adjustment) or base rate increase," Knight said. "All they know is their electric bill is fluctuating. They want some sort of consistency they can plan on."

Cherrier said if the council approves the electric rate increase Tuesday it would be in lieu of the proposed electric rate adjustment increase in September.

"We will just continue to monitor what is going on there," he said.

But customers likely will see electric base rate increases to cover big ticket capital projects.

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. During last budget season, the council approved a 3.4 percent increase in electricity base rates, which kicked in Jan. 1.

The exact increases for the 2015 budget have not been identified, Cherrier said.

But in budget projections, Utilities officials said the electricity division needs a 5 percent to 10 percent increase in revenue between 2015 and 2017 and up to a 5 percent increase in revenue in 2018 to pay for the emissions-control projects.

Utilities officials caution that a required 5 percent increase in revenue does not translate to a 5 percent rate increase. There are many variables to consider, including bond rates, construction costs and number of new customers to share the burden.

Any electric rate increase stings, said local business leaders whose businesses purchase thousands of dollars of power a month. William Mutch, Housing and Building Association government affairs vice president, said his organization is concerned that the back-to-back rate increases could affect economic development.

Joe Raso, CEO of the Colorado Springs Regional Business Alliance, urged the council at its Utilities board meeting to consider shaving operating costs rather than increasing rates.

Low energy rates are among factors that large businesses, such as data centers, consider when relocating.

"We've had several business speaking about rate increases and we do understand their position and what they are going through," Cherrier said. "What we are looking for is to maintain the integrity and viability of the utility to continue to have attractive and moderate rates."

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MONTHLY ELECTRIC BILL

Colorado Springs City Council will consider electric rate increases at its meeting, which begins at 3 p.m. Tuesday in City Hall, 107 N. Nevada Ave. If approved, this is how it would affect customers:

- Typical residential bill at 600 kilowatt hours: 7.4 percent increase or $5.34

- Typical commercial bill at 6,000 kilowatt hours: 10.4 percent increase or $53.40

- Typical industrial bill at 400,000 kilowatt hours: 11.2 percent increase or $3,560

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