How should Colorado Springs Utilities be governed? That’s a good question, especially since there’s no definitive answer.
Until the mid-1990s, CSU was just another city department, albeit a large, resentful and unwieldy one. The CEO reported to the city manager, who oversaw all city departments.
Although tight-lipped and clannish, CSU managers weren’t happy with the arrangement. Then, as now, the municipal utility didn’t depend upon tax revenue, could borrow money without voter approval and enjoyed budgetary flexibility that is the dream of all city bureaucrats.
Where there’s a money spigot, you can trust elected and appointed officials to turn it on — and they did. In the name of overall city efficiency, CSU helped fund other city functions, including fleet management, real estate services and the city attorney’s office. City officials also instituted an annual “Payment in Lieu of Taxes” (PILT), a fee paid to the city to compensate it for lost tax revenue that an investor-owned utility would have paid into city coffers.
Despite efforts by Douglas Bruce to end such transfer payments, PILT endures to this day, disguised as a “Utility Surplus Revenue” payment.
That payment now amounts to more than $33 million annually. City officials regard it as a vital and irreplaceable revenue source, while CSU managers likely see it as protection money, an unavoidable cost of doing business.
Thanks in part to the tax and revenue limitations imposed by the 1992 Taxpayer’s Bill of Rights amendment to the state constitution, City Council loosened the reins in 1995. Three referred amendments to the city charter created and defined today’s Utilities — a city-owned enterprise whose director is directly appointed by City Council, which also acts as CSU’s board.
Twenty or 30 years ago, careers in public utility management were comfortable, predictable and somewhat boring. Engineering was everything — you built, maintained and operated power plants, electric and gas transmission systems, reservoirs, water treatment plants and sewer systems.
It was rewarding, essential work. The regulatory climate wasn’t particularly heavy-handed, and CSU managers ran their well-regarded, four-service utility with little oversight and few complaints.
But times changed. Building a simple pipeline from Pueblo Reservoir to Colorado Springs turned into a highly politicized, 20-year, $800-million-plus project. An efficient and reliable downtown coal-fired power plant begat angry controversy as environmentalists and downtown business interests joined forces to demand its closure. A divided board seemed incapable of leading the company, often ignoring or misinterpreting advice from senior managers.
The question: Should the present governance structure be changed? And if so, how?
It’s reasonable to contend a municipally owned enterprise ought to be directed by elected officials, not by appointed “experts.” Look, for example, at the well-documented mess that was created by Memorial Health Systems’ appointed board before the city leased it to University of Colorado Health.
The opposite argument also has merit. You can argue that not a single Councilor is qualified to sit on the board of a billion-dollar corporation, and the mistakes of the past several years might have been prevented by a more professional board — problems like $200 million for Drake pollution controls or more than $100 million lost in a well-intentioned gas hedging program.
But maybe the problem goes deeper than governance. Maybe we should be asking different questions.
To begin with: Is the four-service municipal utility model still valid? It has worked well for nearly 100 years, but it shouldn’t be immune from scrutiny. Most cities own and control their water and sewage systems, but many (such as Denver) rely upon investor-owned utilities for gas and electricity.
And what about rate-setting? Local pols don’t set Denver utility rates — that’s the function of the Colorado Public Utilities Commission. The argument against PUC rate-setting is visceral and perhaps illogical; we don’t want to give up local control. Still, it might make sense to fund an independent investigation of the cost and benefits of such a change.
One of the 1995 charter amendments prohibited the sale of all or part of Utilities without voter approval. That passed 74-26, yet didn’t forbid City Council from gathering information about a potential sale.
But in 2014 Council did exactly that by refusing to respond to an overture from Xcel Energy. By any measure, that was just plain stupid.
Is your house for sale? Maybe not, but does that mean you won’t sell it any price? Does that mean you won’t even look at an offer?
Don’t know about you, but my sentimentality stops with my dogs. And it sure doesn’t include my undivided share in our municipal gas and electric systems …