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Earning power



Construction of Wal-Mart's data center, a $107 million project bringing at least 40 well-paid permanent jobs, is nearing completion in north Colorado Springs.

On the city's south side, Vince Colarelli is developing the Vineyard Data Center Park with $750 million from Iron Point Partners of Washington, D.C., one of the largest players in the data center industry. Colarelli, who says he'll announce the first project soon, predicts the campus eventually will create 1,200 jobs.

But a chief reason both projects got off the ground — affordable electric rates — is in jeopardy.

Mayor Steve Bach wants to trash coal-burning Martin Drake Power Plant to spark a downtown renaissance, such as with a sports stadium, and also is proposing to sell the power utility. Either or both of those changes could lead to higher rates: Alternate fuels cost more than coal, and an investor-owned utility has to show a profit and pay dividends, unlike Springs Utilities, which is owned by its customers.

Meanwhile, in the short term, the mere consideration of these ideas could tie the hands of those looking to convince new business and industry to locate here.

"I don't know how it can not affect [business recruitment]," says Gary Markle, market president at Central Bank & Trust in Colorado Springs and founder of the Colorado Springs Technology Incubator. "Anyone with common sense in the world of relocation at the corporate level would be kidding themselves if they said it has no effect."

Such uncertainty is never a good thing, but it's especially unwelcome as the region tries to exit the recession and as Bach insists the Greater Colorado Springs Chamber and EDC try to create 6,000 new jobs annually.

Economic driver

When it comes to economic development, there's no bigger player locally than Utilities. Not only does Utilities "custom design" rate structures to attract business, it's the single largest donor to the Chamber and EDC, having given $260,000 this year alone. It also gave $22,500 to the Downtown Partnership and smaller gifts to other economic development efforts.

That's extra important now, because Bach has told the Chamber and EDC that the city government won't be renewing its $70,000 donation. So it's no surprise that Chamber and EDC board chairman Doug Quimby calls Utilities "a great partner in the economic development business."

The Wal-Mart project, Quimby says, will bring lots of revenue to Utilities in electric sales, which in turn will help keep overall rates down. And, he adds, "It's going to produce a substantial number of jobs and a huge capital investment."

The same could certainly be said of Colarelli's Vineyard Data Center, just across Interstate 25 from the World Arena.

"I would tell you having low-cost, reliable power is very important for data center users. I would further tell you that when we marketed our project for the last several years nationally, Colorado Springs has been well recognized for having both a very reliable power source, as well as low-cost of power," Colarelli says. "Those are significant advantages for the city of Colorado Springs."

Utilities is at the table in nearly every negotiation for industry recruitment, says City Council President Pro Tem Jan Martin, a former EDC board member. It has seven special contracts with major customers, and another 130 contracts contain various "rate options" that help large customers reduce costs through managed consumption and rebates, according to Utilities spokesman Dave Grossman.

Selling the electric utility would wipe out the city's ability to make such deals to attract industry.

"If you turn that over to an outside organization," Martin says, "chances are they won't be willing to work with companies coming to Colorado Springs."

Dan Malinaric, site manager for Atmel Corp., and a member of the Chamber and EDC board, stressed to the Utilities Board recently that low rates are key to creating and keeping manufacturing jobs. Atmel employs roughly 1,400 people here.

According to a rate comparison with other electric providers compiled by Springs Utilities, a typical industrial customer's monthly bill is lower than those of surrounding energy providers — by 12 percent compared to Xcel Energy; 27 percent compared to Mountain View Electric, and 56 percent compared to Black Hills Energy.

Commercial customers fare even better. Their Springs Utilities' bills are 16 percent lower than at Xcel; 51 percent lower than at Mountain View, and 92 percent lower than at Black Hills.

And while a residential bill here is 5 percent higher than Xcel's, or $3 a month more, it's 37 percent lower than at Mountain View and 53 percent lower than at Black Hills.

Rates are lower, Grossman says, because Utilities doesn't build in profits for stockholders. In addition, running four services — electric, gas, water and wastewater — affords efficiencies in administrative costs, such as billing and HR, he says.

If Drake is mothballed and the city must replace that power with more expensive gas, wind or solar power, rates likely would rise, Martin says.

"I've never heard a scenario [for removing Drake] that convinces me that any changes in Drake wouldn't drive rates up," she says. "We all want to get to more renewable energy, but to do that in short order, that's going to cost money."

Martin advocates a 15- to 20-year horizon for Drake — enough time to plan for replacement power and to pay for new pollution control technology being installed at Drake in which the city has a financial interest.

David Neumann, a physicist and former Air Force officer who owns Neumann Systems Group, invented that technology and has a big stake in Drake's future. He hopes the technology attracts other customers after it becomes fully operational on Drake in the next year or so. Several are interested based on successful tests at Drake, he says.

Based on government fuel cost projections, Neumann says Drake will cost ratepayers $1.3 billion in the next 20 years, which includes installation of his invention and $100 million for site remediation when the plant closes.

A natural gas plant, by comparison, would cost $2.3 billion, Neumann says, and there are no guarantees that gas prices will remain at $5 per million BTUs as predicted in a recent government study.

The limbo effect

Markle, who worked on the recruitment and relocation team during his three years with the EDC, says he and his colleagues spoke about Utilities "all the time."

"We were competitively advantaged with our utility rate structure," he says, "and that was a strong selling feature.

"When you tinker with that, or you contemplate tinkering with that, you've got to say potentially it's going to have an impact, although the exact impact is very hard to quantify."

That's why the Chamber and EDC urged Council in a Sept. 10 letter to find answers quickly to the Drake issue, as well as whether to sell the electric division and who should serve on the Utilities Board.

"We want to get that resolved, so we're not distracted by a process or a community argument that goes on for years," Quimby says. "You look at the Memorial [Health System] situation that turned out very well in the end, but that was distracting for a while, and it was three years of limbo, and that was harmful not only to Memorial but to the community at large. Utilities is five times as important as Memorial, so we need to decide what we want to do, make that decision, and go on down the road."

On Wednesday, Sept. 19, the Utilities Board, made up of City Council, will decide whether to hasten a study of Drake that was postponed this summer until 2013. The board also will discuss whether to continue Utilities' contract for Neumann's technology, which would enable Drake to meet Environmental Protection Agency emissions standards for less cost than traditional pollution control equipment.

The study will analyze the cost of decommissioning Drake, how the city would replace the plant's capacity, which accounts for more than a quarter of the city's load, and how all that would impact utility bills.

That information, officials say, will guide decisions about Drake's future.

Developer Steve Schuck, meanwhile, is steering a private group of influence brokers in figuring out how to value the electric utility for a sale. The group, which includes Bach and Councilors Merv Bennett and Tim Leigh but is not sanctioned by the city, plans a meeting Thursday at Penrose Library. The public is not invited.

"We're broke and going broker, and something has to change," Schuck says in an interview, adding that money from the electric utility's sale could pay for other city needs, such as a $300 million backlog of stormwater improvements.

Schuck says he took on the issue because Council didn't seem interested, and he's convinced any study the Council undertakes would have a "predetermined bias" toward the status quo.

But some wonder why the conversation is taking place at all.

According to a Cheyenne Edition report, during a Sept. 4 meeting of the Country Broadmoor Homeowners Association, a Broadmoor Spires resident said, "This is absurd. There are other important issues that need to be addressed but somehow we have focused on this one."

And another: "We need to ask the mayor where this issue came from. If it is people just worried about aesthetics, this is ridiculous. There is nothing wrong with Drake. It will be here longer than most of us in here."

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