Colorado Springs News, Sports & Business

Gazette Premium Content Colorado Springs Utilities Board hears pros, cons of reopening Drake

By Monica Mendoza Updated: May 21, 2014 at 10:04 pm

It was all Drake, all the time - at least for most of the five hours the Colorado Springs Utilities Board spent Wednesday at its monthly meeting discussing the power plant that was crippled by a May 5 fire.

The board learned that a judge dismissed a federal lawsuit to stop Drake from reopening. It discussed proposed electric rate increases because of the Drake fire and its impact on Utilities' bond rating. And it indicated that it would not try to put a dollar figure on the social and environmental costs for its decision on when to decommission Drake.

Drake already was on the board's summer agenda as it considers a time line on when to decommission the downtown coal-fired plant. The board has been talking about Colorado Springs Utilities' electric energy plan and how Drake - which produces about one-third of the power used by Utilities customers - fits into the long-range plan.

But this month's fire inside the power plant added some urgency to the discussion and will likely force City Council to raise electric rates by about $5 a month for residential customers to cover the cost of buying power on the market. Council is expected to vote on a proposed 7 percent residential electric rate increase at its meeting on Tuesday.

Electric bills poised to surge with shutdown of coal plants

The fire has turned a hypothetical discussion about living without Drake into a real discussion about the cost of buying natural gas to produce electricity - and whether it's environmentally sound to rely on coal.

Environmentalists argued that the board should leave Drake closed, use the electric rate increase to build an alternative power source and save the community from myriad health and safety issues.

But local business leaders argued that the board should work day and night to reopen Drake as soon as possible to keep the cost of energy down.

From the day the fire damaged three of Drake's boilers and shut the plant down, Utilities has relied on its natural gas-fired power plant and is buying natural gas on the market to produce electricity, which is costing about $3 million a month.

Council member Andy Pico said the fire has shown that an early closure of Drake would result in higher Utilities bills for all customers, not just residential.

"We have the bill right in front of us," he said. "I look forward to seeing all those people who have been advocating for closing Drake getting up and advocating for this rate increase."

The proposed electric rate will hit large manufacturing businesses particularly hard, said Dan Malinaric, managing director of Atmel Corp. He and others said the board should deny a rate increase and force Utilities to speed its efforts to get the plant up and running. He estimates that the proposed electric rate increase would cost his company $100,000 a month.

Utilities officials are working around the clock to assess the fire damage and cost to repair the plant, said Dan Higgins, Utilities interim general manager of energy supply. The goal is to get one of the three boilers up and running by July and a second unit running by fall.

"My bosses have said my goal is to have unit 7 up by fall," Higgins said.

When the boilers are back up, Utilities could adjust the electric rates back down, said Bill Cherrier, Utilities CFO. But he cautioned the board against refusing to raise rates now, saying it would affect Utilities' bond rating. In a complex financial scenario, Cherrier told the board that the bond rating is based on factors that include whether Utilities has a way to recover from emergencies. Adjusting rates to keep up with fuel costs is one way to recover, he said.

The bond rating is particularly important, because Utilities expects to add $151 million in bond debt this year to pay for major construction projects including the Southern Delivery System and scrubber technology at Drake to meet federal emissions guidelines. Last year, Utilities issued $130 million in bonds for the major capital projects with a 30-year pay back. That puts Utilities' total debt up to $2.4 billion, compared to $4 billion in assets. About 16 percent of a customer's utility bill goes strictly to paying down the debt.

Council member Joel Miller said he is not willing to risk a lower bond rating.

"If it goes down one notch, our requirement for collateral increases dramatically," he said. "If we take that risk, the increase we would have to bring to rate payers to make up for collateral requirement would far exceed anything we see in this (electric cost adjustment)."

The council also indicated Wednesday that it wants the Drake decommissioning time line to be part of Utilities' electric energy long-range plan. In July, the council will give official direction to the Utilities staff about how much weight it wants to give to social and environmental costs when considering a Drake decommissioning time line.

In a dozen options presented to the council, a consultant outlined the financial costs of closing Drake in three years, on up to 30 years. It also attempted to outline the environmental, social and health costs for each option.

Leslie Weise, a Monument-based attorney and environmental activist, said one of the options the council has dismissed would close Drake by 2019 and would save an estimated $752 million in social and environmental costs.

But some council members have said that it is difficult to monetize the social and environmental costs of running the coal-fired plant, and said those are not costs that would be passed on to rate payers.

Sam Masias, a Colorado Springs resident who filed a lawsuit and restraining order this week in U.S. District Court in Denver to keep Drake from reopening, said he is disappointed that council already has indicated that it wants to keep Drake open for the long haul and is not willing to consider social and environmental costs in its decision.

However, his lawsuit was dismissed Wednesday when a judge told him he needed to complete more paperwork, which Masias said he will do.

"I'm not going to give up," he told the council. "I will go back and file a claim and get it back in front of a federal judge. The decision to keep Martin Drake closed will not come out of this room. It will come out of a court."

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