Saying Colorado Springs can't compete with other Front Range cities for new business and industry, city-owned Utilities is calling for a generous price break for big water users.
Some commercial and industrial customers would see charges plummet by more than half, from $204,405 for a three-inch line hookup to $92,920, for example. Price drops for some hookups of other sizes are similarly dramatic.
The proposal would reverse a decade-long effort by the Utilities Board, aka City Council, to make development pay for itself through increased development charges. And it comes just as spending on Utilities' massive Southern Delivery System pipeline project reaches its peak, raising questions about who will bear the brunt of the burden: homeowners or major water users like Wal-Mart, Hewlett-Packard and developers who build commercial projects.
Council President Scott Hente, a developer, supports a reduction in the charges, as he always has.
"Over the course of five years, Council pretty much increased them 20 percent per year to get in line with the Black & Veatch study," Hente says, referring to a 1999 consultant's report calling for increased rates to developers. "I voted against that every time. I thought it was a disincentive to business development."
Hente, who says he hasn't heard opposition from colleagues, says he'll probably recuse himself from voting on the measure next month because he would benefit on a condominium project he's building.
Losing our edge?
In 1999, Black & Veatch Corp., an international company hired by Utilities, concluded that charges for large meters weren't high enough. "Because these users do not pay their share of capital expenses, an increased burden was placed on smaller users to pay more through their monthly water rates," the study found, according to documents in a 2003 rate decision that raised commercial charges by 25 percent.
Subsequent rate cases have further increased development charges, so that big users pay for a portion of the existing system (apportioned based on a formula that includes past capital projects) and the capital costs forecast for the coming five years.
The Colorado Supreme Court has ruled that such charges must be based on need and cost and, as the city noted in the 2003 rate case, "derived in a manner which fairly apportions costs in accordance with the benefits provided."
Now, Utilities argues that the city-owned enterprise should be a partner in economic development, noting that everyone benefits if the biggest players get a break. It asserts the charges are legal, because one size, -inch, won't change, and the others would be based on "American Water Works Association best practices."
"We are losing new development, new businesses, that aren't locating here, because it's too expensive to locate here," says Utilities' Chief Planning and Finance Officer Bill Cherrier.
It's a change in tune from Utilities, at least compared with what staffer Karen Yunker said a year ago. Last Feb. 2, Yunker told the Utilities Policy Advisory Committee that both Hewlett-Packard and FedEx chose Colorado Springs for their data centers based on low rates and reliability. When a committee member asked about development charges, Yunker said, "Customers would like to see lower development charges. However, they weigh the total package, which gives us a competitive edge."
Cherrier doesn't divulge the names of companies that have balked over the charges, speaking only in generalities.
Need to grow
Utilities' survey of other Front Range cities shows that five of the six existing hookup charges rank Utilities either at the median or higher than the survey average. Under the proposed reductions, all the Springs' charges would rank in the cheapest third.
Cherrier contends that while big users won't pay as much to hook into the system, "we get their water revenue," plus revenue from wastewater, gas and electric services. That he says, "will more than offset the lost revenue from the development charges."
You'd hope so, since SDS spending is spiking. Rates increased by 12 percent last year and again this year, with Utilities forecasting four more 12-percent annual hikes to fund the $880 million project, which totals $2.3 billion with financing costs.
David White, a Greater Colorado Springs Chamber of Commerce and EDC executive who serves on the economic development recruitment team, supports lower charges. "It's very important for manufacturing, especially one who uses a lot of water," he says. "I think the main help would be to developers — people who are looking to develop new campuses and new industrial and office complexes in the region."
Former Councilman Randy Purvis says before he left office last April, Utilities suspected residential use had grown disproportionately to commercial use, which might justify lower commercial hookup charges. But a study should be done to substantiate that, he says, especially "because the capital cost of SDS is so huge. It's got to be balanced appropriately, so each rate class pays its fair share."
The water issue is just one way that Utilities keeps a high profile on the economic-development scene. It will pump $340,000 this year into local efforts, including $281,550 for the Chamber and EDC and International Development Office, which have combined their functions under one umbrella. Utilities also advances power-line extensions and other facility costs, interest-free, to big users.
But all that helps build a customer base to tamp down rate hikes for everyone, Cherrier argues. "They're also providing property taxes, sales tax, jobs," he says, "so it becomes a boost to the local economy."