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The power of letting go

City Sage

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Quick: Name a Colorado Springs company founded in the 1870s that is still in business today. It sells the same product it sold to our great-great grandparents, and its ownership structure hasn't changed. Its managers have been careful and conservative, its market penetration is nearly 100 percent, and it's the only locally controlled company with a AA bond rating.

It is, of course, Colorado Springs Utilities.

Initially organized as a city-owned water company, Utilities today has grown into a regional behemoth, a full-service municipal utility with $3.9 billion in assets, $2.6 billion in debt, and $797 million in operating revenues (all figures from its 2010 annual report, the most recent available).

Utilities provides residents with water, wastewater treatment, natural gas and electricity. If you voted in last April's election, you didn't just elect most of the nine part-time politicians on City Council — you also elected the same folks to CSU's board of directors. They appoint and oversee the company's CEO, approve rate increases and borrowings, and set policy.

That's the theory, but the reality is different. I sat on that board for six years during the 1990s, and I didn't know what the hell was going on. Neither, I suspect, do the present members. Absent any relevant experience or expertise, you can't do much but sit there at the front of the room, nod, smile, and pretend to understand.

Utilities runs itself, operating under policy directives that haven't changed in the past century. One: Keep rates low. Two: Provide good service. Three: Plan for growth, growth and more growth. Four: Retain ownership of everything, so interfering bureaucrats can't tell us what to do.

By any measure, Utilities has succeeded. We expect a degree of inefficiency, incompetence and venality from elected officials, but Utilities is held to a different standard. If all nine City Council members showed up drunk for an afternoon meeting, and did body shots on the dais, we'd be dismayed by the ensuing national publicity, but it wouldn't affect our daily lives.

Then again, suppose the municipal water supply failed for a week?

We want Utilities to be run by tough, steely men and women who know what they're doing, and how to keep the politicians from screwing things up. That's what we have — and if you've ever spent time with CSU executives Bill Cherrier, Bruce McCormick or Gary Bostrom, you know what I mean.

But suppose Utilities' business model doesn't work anymore? Think of Polaroid, Pan Am, Saab, American Motors and Freedom Communications — all brought down by the pitiless, unanticipated future.

As of Dec. 31, 2010, CSU had $2.26 billion in long-term debt, with more still to be incurred building the Southern Delivery System. Such debt levels, even at today's interest rates, may drive CSU's interest in making "temporary" deals with out-of-city buyers for SDS water.

It also encourages CSU to stick with the ancient downtown coal-fired Martin Drake Power Plant, for the same reason I'm sticking with my 2002 Nissan Xterra — it's paid for! And in Utilities' case, electrical generation accounts for almost 50 percent of revenues, while water only brings in 14 percent.

But clinging to Drake has other implications. Recent analysis by the Union of Concerned Scientists shows Colorado's reliance on coal-generated electricity means that a 100-percent-electric Nissan Leaf in the Springs accounts for more global warming gases than a comparable gas-powered vehicle getting 33 mpg. We're last in the nation — in Los Angeles, a Leaf's emissions are equivalent to 79 mpg.

No doubt, controlling our own water supply is crucial to our future, as it is for every city in the West. But do we need to own power plants and transmission lines? Many cities, including Pueblo and Denver, get along just fine by relying on private providers. So here's a suggestion for City Council: Hire an independent consultant (McKinsey? Bain? Mitt Romney, if he's still looking for a job after the November election?) to determine whether selling electrical generation and transmission would make sense.

Investor-owned utilities such as Xcel benefit from large rate bases and economies of scale, which suggests that such a sale wouldn't drive up local rates. It also suggests that Xcel might be perfectly happy to get rid of Drake, and free up the site for new development — perhaps, as Mayor Steve Bach once suggested, as ambitious as a new downtown ballpark.

Even a mayor can dream, I guess...

hazlehurst@csindy.com

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