Colorado Springs Utilities’ $954.4 million budget for 2020 was recently approved by the Colorado Springs City Council, which also serves as the Utilities board of directors.

That budget puts it in the same size category as Colorado companies such as Otter Products ($923.6 million, according to Inc.’s 2018 rankings), a Fort Collins-based firm that makes consumer electronics accessories; Zayo Group, a Boulder-based telecom company ($1 billion); and Smashburger, the hamburger restaurant chain founded in Denver ($1.09 billion).

In some ways, Colorado Springs Utilities is run like any of these other business.

“We are making a product, like any other manufacturer would make a product, and we’re distributing it and selling it to customers,” said Scott Shewey, CSU’s acting CFO. “Our focus is making sure we do that in the most efficient and cost-effective way.”

But in critical ways, the utility is different. It has no competitors in its service territory, is not driven by profit-making and is owned by ratepayers. And other businesses generally don’t urge customers to use less of their product.

“As a public utility, we have obligations above and beyond” what a normal business has, CEO Aram Benyamin said.

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The Business Journal asked the utility company’s key leaders how it does business, determines rates and plans for the community’s future.

LONG-TERM PLANNING

Shewey joined CSU as acting chief planning and financial officer in September after working for traditional companies including Ford Financial and Miller Brewing Co.

CSU has “the same focus on making sure you’re managing your costs and doing the right things to be a low-cost provider,” he said. “The difference really comes in when you realize we don’t have competitors. With that comes the feeling of responsibility on our shoulders to benefit this community and the ratepayers … to make sure we’re meeting customers’ needs at the lowest price.”

At traditional companies, short-term decisions may be made “to move stock prices or share prices, and those decisions aren’t always good. Here we have the luxury of trying to stand back and make better long-term decisions that benefit our customers, not only today but for the next 10-plus years,” he said.

The 2020 budget was approved Nov. 12, with an overall 1.9 percent increase over this year’s budget.

Rates for residential customers typically will rise by about 2.5 percent, or $5.71 per month on a sample four-service bill. Commercial and industrial customers will also see increases to base rates for wastewater and water services. The utility recommends that customers use the bill calculator at csu.org, to see how the proposed changes will affect them.

A great deal of research, planning and modeling goes into determining costs and revenue needed to meet them.

“The starting point for rate increases is always zero,” Shewey said. “We have a five-year forecast of where we think our costs are going and what could be driving costs. What really drives the decisions are the investments we need to make on the capital side.”

CSU has more than $4 billion worth of assets that must be maintained and run efficiently, and a five-year plan that looks at future capital needs.

“We have one big team that prioritizes all of the capital needs,” Shewey said.

Another major consideration for a company with 1,800 employees is labor. Labor costs are projected to increase 2.1 percent in 2020, driven primarily by benefit costs that are going up by about 4.5 percent.

The costs of CSU’s raw materials, such as natural gas and coal, cannot, of course, be predicted because they fluctuate frequently during the year.

“That fuel piece is called an energy cost adjustment,” Shewey said. “We charge the customer for what we think fuel is going to cost, and then we adjust that ECA to reflect the actual cost of fuel. We file rate adjustments quarterly based on those fuel fluctuations.”

Shewey said CSU’s energy and gas resource plans look 30 years into the future, whereas the integrated water resource plan has a 70-year horizon.

“Water is so difficult to obtain and deliver,” he said. “So we have a group of people who develop our plans well into the future.”

Part of meeting future demands is getting people to use energy and water more efficiently.

“We  have programs where we go out into the public to help people save money on their bills,” Shewey said. “So we spend money to make sure people are using our products wisely. That provides a net benefit in terms of not having to build additional infrastructure.”

SAFETY AND SERVICE

The increases in next year’s budget are driven primarily by increased fuel and purchased power costs, rising operations and maintenance expenses, and increasing technology investments, Benyamin said.

What underlies those factors, especially the latter two, is public safety and service.

Some of the wildfires that have ravaged California, including the Camp Fire that killed at least 85 people last year, have been attributed to problems with Pacific Gas & Electric’s equipment.

Benyamin said he was recently asked, “‘Can we have the same thing over here?’ My answer is, not on my watch. Anything that people are pointing fingers at, it goes back to your operating and maintenance program. We don’t want any safety incidents that can be pinpointed to lack of maintenance.”

Much of Colorado Springs’ infrastructure is old, and older infrastructure requires more maintenance.

Some of the utility’s transformers, which have a 30-year life expectancy, are 35-40 years old, Benyamin said.

“They’re still working, and we maintain them and take care of them just like an old car,” he said. “At some point you have to make a decision to replace these, … so you’re not caught with a whole bunch of them fading at the same time. It takes about two years to manufacture them, so you can’t just order that off the shelf. Those are the types of decisions we’re making. The parts that need the most attention get most of the resources.”

GREEN ENERGY

Besides aging infrastructure, CSU must adapt to technological advances.

The utility’s new green energy program and decommissioning of the Martin Drake Power Plant exemplify ratepayer-driven changes.

“Some segments of our population have voiced their desire to move faster to adopt new technology,” Benyamin said. “This is another responsive responsibility that I take very seriously.”

For the first time this year, the utility is offering a separate green power rate that will help support the market for green energy.

Residential and commercial customers can elect to designate part or all of their monthly electric use to be generated by solar energy.

A typical residential customer with 100 percent green power will see an increase of about $8 per month. Commercial customers’ costs will vary; CSU suggests that commercial and industrial customers call 719-448-4800 or their business account manager for an estimate.

The utility has two solar projects in the final stages of construction and one for which it is in contract negotiations. These projects, as well as decommissioning the Drake Power Plant, are major factors in reducing CSU’s carbon emissions by 40 percent or more by 2035, said Amy Trinidad, senior public affairs specialist.

When all of these projects are operating, “our carbon-free energy mix will be more than 20 percent,” Trinidad said. “More than 100,000 homes annually will be powered by utility-scale solar energy, and we will have more than 264 megawatts of solar power in our generation portfolio.”

CSU GOVERNANCE

Unlike traditional corporations, CSU is run by a board elected by the people of Colorado Springs.

“Our relationship with our citizen owners, as we call them, is very important to us,” said City Councilor Jill Gaebler, who chairs the utilities board.  “It’s also very important to us to keep rates low and reliability high. Relationship, rates, reliability — we hold all three equal in making decisions.”

As members of city council, the board keeps in mind that low utility rates are a factor in economic development, both in attracting new companies and in supporting existing businesses.

“Our safety standards are very high because we aren’t looking at just the bottom line,” Gaebler said. “If you look at our metrics, we are in the top 10, usually in the top 5 [utilities] for reliability” based on the frequency of outages and how long they last.

The new green energy rates, rebates for wise energy use and educating customers “are examples of how the Utilities is trying to be a leader,” Gaebler said.

“We are probably not going to be the first utility to go 100 percent green, but we are going to consistently listen to our ratepayers and try to be good stewards of energy production.”