As residents learned that 2014 would be the last year of a series of water rate increases to pay for the Southern Delivery System, they found that electricity rates now are headed up for at least the next five years. Colorado Springs Utilities' $1.15 billion budget for next year revealed that electricity rates will be on an upward swing 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.
"That's big money," said Bruce McCormick, chief energy services officer. "That has to be spread out over a five year period."
The exact increases have not been identified, but utilities officials are projecting that the electricity division needs a 5- to 10-percent increase in revenue between 2015 and 2017 and up to a 5-percent increase in 2018 to pay for the emissions-control projects.
Utilities officials caution that a 5-percent increase in the revenue requirement 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, McCormick said.
"There are no absolutes," he said. "It's speculation."
City Council will host a public hearing Nov. 12 on the proposed 2014 electricity and natural gas rate increases, which if approved would become effective Jan. 1. Council will consider approval for a 3.4 percent increase for electricity and 2.2 percent increase for natural gas -- which adds up to $3.38 a month for a typical customer.
Last year, the Council approved a 11.7-percent increase -- $5.99 a month -- in water rates scheduled to begin Jan. 1. The combined rate increases add up to $9.37 a month or $112 a year for a typical residential customer.
Four years ago Colorado Springs Utilities customers began paying for a $1 billion pipeline project to bring water from Pueblo Reservoir to Colorado Springs. Rates were hiked 12 percent for two years and about 10 percent in 2013 and in 2014.
Original projections had customers paying water rate increases until 2016. But lower interest rates shaved millions off the total cost of the project.
Now, utilities is faced with another big ticket project, said Council member Andy Pico, and electricity rate increases are inevitable.
"Emission controls have to be in place by 2017," he said. "The bottom line is there isn't much choice."
Pico said the best the utilities board and City Council can do is try to keep rates on all four services -- water, wastewater, gas and electric -- from increasing during the same year.
Meanwhile, the Council awaits a consultant's report aimed at providing options for dealing with the Drake Power Plant. Pico expects the consultant to present 12 options that range from closing down the plant to keeping it open with mandatory upgrades.
Shuttering Drake and building a new power plant could cost three times more than the estimated $260 million it will cost to upgrade it.
Council member Jill Gaebler said it's premature to identify the electricity rate hikes for the next five years until the board and Council see the other capital needs.
For example, utilities proposed spending $140 million on capital projects in 2014 and wanted an 8-percent electricity rate increase, but Council members on the utilities finance committee cut $20 million from the list of projects and lowered the combined electric and gas rate increase to 5.6 percent.
In December, utilities will embark on a five-year business plan to identify all capital needs, expenses and revenue streams, McCormick said.
"We will start with electric -- that is the greatest challenge," he said. "We will work on how we meet all of our regulatory requirements and reliability requirements and still manage the rates effectively."