Published: February 21, 2014
As the City Council wrestles with the Drake Power plant options, our power rates will continue to climb. Our need to borrow money for Colorado Springs Utilities projects, with utility's debt at an all-time high, will continue to rise. Meanwhile, we're staring at an elephant in the room. The elephant, which could cost up to a half-billion dollars over the next decade, is a question council members have failed to ask and answer: Should our city own electric power plants?
We must know the benefits of owning an electric generation business, and we need to know the risks. The liabilities are becoming clear, in light of the Drake study results and the utility's strained borrowing capacity. Federal regulation of coal-fired power is on the rise, potentially costing our community hundreds of millions in extra spending just to pursue compliance. As shown in the Drake study, regulations will only get more intense.
Years ago, owning a coal-fired plant ensured the lowest rates for customers. Today, the equation appears to have changed. Colorado Springs stands about in the middle of the pack for electric rates when compared with other towns across Colorado. Our rates are higher than Denver's, where customers pay a private company regulated by the state. Moreover, Colorado Springs Utilities' 3-year rate trend stands among the highest in the state, meaning we will become less competitive with other communities as time goes by.
It appears the liability of owning our utility is growing and the benefits are shrinking. It's an uncertain, capital intensive business. Much larger private entities create efficiencies by spreading costs and risks over much larger portfolios.
Again, modern facts beg a nagging question: Why own electric plants?
Selling the city's electric business could free future capital. Instead of spending millions to play catch-up with federal regulations, which are designed to price coal out of the market, money could pay for roads, stormwater infrastructure and efforts to bring more jobs to the community. The sale of the electric business could generate immediate capital to help our city succeed.
Skeptics fear selling the electric utility would benefit a private corporation that would pillage ratepayers. "Our rates would go sky-high if a private company owned our electric business," they say. But the numbers don't support the fear. All over the country, communities buy electricity from private companies at competitive market rates.
The role of a board of directors includes evaluating short-term and long-term business strategies. It requires deep knowledge of the industry and of a large industrial entity. City Council's past and present have struggled in this role. It's not because council members don't work and try hard. It's because they understandably lack the experience needed to run a large power company. We urge this council to take bold steps and do the following:
- Hire a qualified M&A consultant to evaluate the feasibility of selling our electric generating enterprise.
- If the outcome of that study says we should sell, than ask voters to do so in an expeditious manner. Time is working against us with possible Drake capital needs into the hundreds of millions.
- If the study says hold the asset, then create a new board of directors composed of three or four industry experts, four representatives from the council and one person from the executive branch of city government.
It's time to stop dragging our feet regarding the city's electric utility dilemma. We need to know, right away and for sure, whether these old coal plants are hopeless money pits. If that is our plight, we need to move on.