Analysis: Adjacent cities’ utility costs worlds apart

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Colorado Springs residents may periodically complain about utility rates, but they’re in pretty good shape compared to their southern neighbor, Pueblo. The two largest cities in the greater Pikes Peak region are only 40 miles apart, but their electric utility costs are very different.

Based on national averages, Colorado Springs rates for commercial, industrial and residential customers are at or slightly below state and national averages. That’s a tribute to Colorado Springs Utilities, which has managed to deal with the complex needs of a fast-growing community while keeping rates relatively low.

Pueblo’s story is very different. Since Black Hills Energy acquired Aquila in 2008, the company has shuttered two aging coal-fired power plants in downtown Pueblo and Cañon City and built a $70 million gas-fired peaking facility. These costs, coupled with the Aquila acquisition and other upgrades, have led to substantial rate increases. Given that Pueblo’s market of slightly less than 100,000 residents is only a fifth of CSU’s, those increases have been particularly burdensome to residential customers.

Pueblo’s average residential rate is 37 percent greater than the national average and 42 percent above the state average. Businesses are also handicapped, with commercial rates 35 percent higher than the state average and industrial rates soaring 70.5 percent above the state average. Such rates hit hard, given the city’s economic demographics.

“There are 10,371 residents in the [Black Hills Energy] service area within Pueblo County whose income fell below the threshold of the federal poverty level and there are 18,027 households in the service area that qualify for disability benefits,” the Pueblo County commissioners noted in a statement of intervention in a Public Utilities Commission hearing earlier this year. “Additionally, the median household income of the 53,806 households in this area is $39,107, which is significantly lower than the average median household income of $54,011 in the state, according to the 2010 Census.”

That has made electricity literally unaffordable for many residents, and has galvanized politicians and activists to find solutions to this apparently intractable problem.

Pueblo County Commissioner Terry Hart has been on the front lines of the struggle to rein in utility rates since he was first elected to the County Commission in 2012.

“Before Aquila was acquired by BHE in 2007, we had some of the lowest electric rates in Colorado,” Hart told the Business Journal last year. “Today, we have some of the highest, and it’s crippling us. It’s very difficult to recruit new companies, and it’s hard to retain the ones we have. At a meeting recently, we heard from the owner of American Metal and Iron. He owns scrapyards in Fountain, Albuquerque and Pueblo, and he told us that his electricity costs here are twice those in Albuquerque and much more than in Fountain.”

Hart and his allies have had some successes — thanks in part to outspoken Denver attorney (and Pueblo native) Frances Koncilja, who was appointed to the three-person Colorado Public Utilities Commission by Gov. John Hickenlooper in 2016, the PUC reduced an $8.5 million BHE rate request to $1 million.

Koncilja hasn’t concealed her disdain for BHE’s policies and practices. She once referred to the company as “a turd in the pocket of Colorado ratepayers,” and accused the company of “acting like a colonial power that can loot the citizens of southern Colorado.”

Interestingly, Hickenlooper subsequently appointed former BHE attorney Wendy Moser to the PUC, making Commission Chairperson Jeff Ackermann the de facto swing vote in BHE-related matters. In the most recent rate hearing, BHE demanded that Koncilja be recused while Pueblo County requested Moser’s recusal. Neither was recused, and Ackermann joined Koncilja in a 2-1 decision that radically reduced the requested rate increase.

The decision has been appealed by BHE, which explained its position in a news release.

“Black Hills Energy submitted a regulatory rate review proposal to the Colorado Public Utilities Commission requesting a net increase of $8.9 million to recover costs related to the new 40-megawatt natural gas-fired power plant, the final infrastructure investment needed to fulfill obligations under the Colorado Clean Air-Clean Jobs Act, which the Colorado Legislature enacted in 2010,” the company stated.

In fact, the Legislature had no choice. To meet anticipated federal requirements for reduced emissions from coal-fired power plants, the bill required all “rate-regulated utilities” that own or operate coal-fired electric generating units to submit to the PUC an emission-reduction plan for coal-fired electric generating units in Colorado.

The plans had to give primary consideration to “replacing or repowering coal-fired electric generators with natural gas and to also consider other low-emitting resources, including energy efficiency.”

Hart disagrees with BHE’s analysis.

“They began to decommission two antiquated coal-fired plants well before that act passed,” he said. “We adamantly disagree that they were forced by state law to replace their coal plants.”

Hart further stated that Black Hills made bad decisions, including paying too much for Aquila’s assets and unnecessarily investing in a $70 million natural gas peaking plant.

“Pueblo ratepayers shouldn’t be forced to pay for Black Hills’ mistakes,” he concluded.

Regardless of the outcome of the rate case, Pueblo seems stuck with high rates for the foreseeable future.

“You can’t go to the PUC and expect that they’ll reduce your rates,” Hart said. “We have to figure out solutions.”

That might include “offramping” the BHE franchise agreement when it expires in 2020, Hart confirmed -— but such a move carries its own risks, since a new provider would have to acquire BHE’s Pueblo assets, at an as-yet-to-be-determined price. Pueblo might seek bids from other providers or form a municipal utility that would use its powers of eminent domain, if necessary, to acquire BHE’s Pueblo-related assets.

“It would make sense if we could open up the Colorado market as other states have done,” Hart said. “Then you could choose among vendors and not be tied to a single long-term contract.”

But for the short term, Pueblo and BHE are stuck with each other. So what’s the short-term plan?

“We’ll be aggressive, we’ll ramp up legal representations before the PUC, we’ll advocate for top-down regulatory reform, such as increasing the number of commissioners and giving southern Colorado specific representation and empowering the Colorado Office of Consumer Counsel to fight for ratepayers,” Hart said. “The PUC is supposed to balance the interests of ratepayers and companies, but you can’t really represent both at once. We’re also trying to help residents with energy efficiency. I’ve been impressed with steps that Colorado Springs Utilities has taken to help people lower their energy consumption.”

In the longer term, Xcel’s recently announced $2.5 billion Colorado Energy Plan may offer a solution to Pueblo’s dilemma, as well as offering the city an economic boost. The plan calls for the decommissioning of two aging coal-fired plants near Pueblo by 2025, and the construction of up to 1,000 megawatts of wind power, up to 700 megawatts of solar power and up to 700 megawatts of natural gas power and/or storage. Vestas’ Pueblo wind turbine plant could benefit from the project, as could Pueblo-based construction companies.

And in a perfect world, Xcel could acquire BHE’s Pueblo assets and give Pueblo residents and businesses the benefit of Xcel’s far lower rate structure. At least, that’s part of the vision of Pueblo’s Energy Future, a citizen’s group that “hopes to secure a clean, affordable, sustainable and just energy future for the city of Pueblo.”

The organization noted in a news release that “Pueblo’s Energy Future looks forward to engaging in this [Colorado Energy Plan] conversation at the PUC and in the community. Pueblo deserves energy justice including clean air, affordable, clean and reliable electricity and [good-paying] jobs.”