Watching the Colorado Springs City Council consider closing the downtown Drake coal-fired power plant last week, I remembered what William Faulkner wrote 66 years ago: “The past is never dead. It’s not even past.”
Here’s the issue. Drake has two working generators, both about 50 years old. The Midwestern industrial giants that manufactured them are essentially out of business. If anything breaks or needs replacement, it must be created from scratch. There aren’t any warehouses full of shiny “new original stock” parts for 1960s steam turbines. The guarantees, if any, have long since expired.
The plant isn’t just functionally obsolete. It’s dangerous and vulnerable, as we learned a few years ago when a fire disabled one of the generators, putting the entire plant out of commission for several months. The generator in question has been permanently retired, leaving Drake to limp along with two units.
Before the fire, Colorado Springs Utilities CEO Jerry Forte would refer to Drake as “this civic treasure,” while other senior managers extolled Drake as CSU’s cheapest and most reliable source of electricity.
A decade ago, CSU and City Council fell under the spell of Dave Neumann, a former professor at the Air Force Academy who had carved out a new career as an inventor/entrepreneur. Neumann pitched CSU and City Council with an intriguing proposition. He wanted to partner with CSU to test a revolutionary new pollution control technology at Drake. If successful, this technology would not only allow CSU to inexpensively mitigate emissions and comply with state and federal mandates, but could also lead to the creation of a vast international enterprise right here in River City!
The Great Recession had taken a toll on the city, and council was happy to embark on this exciting joint venture. Never mind that municipally-owned utilities do not ordinarily invest ratepayer money in venture capital projects; this was all about building a bright new future for Colorado Springs.
CSU eventually shelled out about $220 million on the joint venture. For the price, Neumann Systems built a perfectly serviceable S02 scrubber, after which the company closed its doors. It was an epically bad deal, since CSU paid about twice as much for the Neumann installation as it would have for a conventional S02 scrubber from an established manufacturer.
Why didn’t CSU spend the money to build a brand-new combined cycle gas-fired power plant at a different location? Conservative, parochial and curiously isolated, CSU managers made policy decisions based on an imagined future, one in which natural gas prices would trend steadily upward. Coal had always been cheap, and gas had always been expensive and volatile — so let’s keep on burning grandpa’s fuel. Shale gas? What’s that?
So certain were CSU managers of the upward trajectory of gas prices that they hedged future gas purchases, protecting the company and ratepayers from severe upward price swings. They were wrong, and their mistake cost ratepayers tens of millions.
So here we are in 2017, stuck with an archaic coal-fired power plant in the heart of our suddenly booming downtown. Any sensible city would have long since gotten rid of it, but we’re prisoners of our own device, stuck in the past.
CSU has about $2.5 billion in long-term debt. Building a new gas-fired plant and relocating crucial parts of the power grid would cost as much as $300 million. In addition, CSU would have stranded costs of well over $100 million that would have to be written off. The balance sheet would take a hit, and CSU’s debt servicing cost could rise accordingly.
Not only that, but CSU forecasts that gas prices will — wait for it — rise by 50 percent in the next decade. Well, no one can predict the future with any certainty, but I’d like to draw the attention of CSU managers to the 763-page annual report of the International Energy Agency, released last week.
The IEA projects that U.S. oil and gas production will reach 30 million barrels per day by the 2030s. That’s 50 percent more than any other country has ever produced. I’m not an economist, but such increased domestic supply might augur lower prices for both oil and gas.
No more games, guys — it’s time for CSU to cast off the dead past, raze Drake and join the 21st century.