- Associated Press - Saturday, May 24, 2014

COLORADO SPRINGS, Colo. (AP) - It was all Drake, all the time - at least for most of the five hours the Colorado Springs Utilities Board spent Wednesday at its monthly meeting discussing the power plant that was crippled by a May 5 fire.

The board learned that a judge dismissed a federal lawsuit to stop Drake from reopening. It discussed proposed electric rate increases because of the Drake fire and its impact on Utilities’ bond rating. And it indicated that it would not try to put a dollar figure on the social and environmental costs for its decision on when to decommission Drake.

Drake already was on the board’s summer agenda as it considers a time line on when to decommission the downtown coal-fired plant. The board has been talking about Colorado Springs Utilities’ electric energy plan and how Drake - which produces about one-third of the power used by Utilities customers - fits into the long-range plan.

But this month’s fire inside the power plant added some urgency to the discussion and will likely force City Council to raise electric rates by about $5 a month for residential customers to cover the cost of buying power on the market. Council is expected to vote on a proposed 7 percent residential electric rate increase at its meeting on Tuesday.

The fire has turned a hypothetical discussion about living without Drake into a real discussion about the cost of buying natural gas to produce electricity - and whether it’s environmentally sound to rely on coal.

Environmentalists argued that the board should leave Drake closed, use the electric rate increase to build an alternative power source and save the community from myriad health and safety issues.

But local business leaders argued that the board should work day and night to reopen Drake as soon as possible to keep the cost of energy down.

From the day the fire damaged three of Drake’s boilers and shut the plant down, Utilities has relied on its natural gas-fired power plant and is buying natural gas on the market to produce electricity, which is costing about $3 million a month.

Council member Andy Pico said the fire has shown that an early closure of Drake would result in higher Utilities bills for all customers, not just residential.

“We have the bill right in front of us,” he said. “I look forward to seeing all those people who have been advocating for closing Drake getting up and advocating for this rate increase.”

The proposed electric rate will hit large manufacturing businesses particularly hard, said Dan Malinaric, managing director of Atmel Corp. He and others said the board should deny a rate increase and force Utilities to speed its efforts to get the plant up and running. He estimates that the proposed electric rate increase would cost his company $100,000 a month.

Utilities officials are working around the clock to assess the fire damage and cost to repair the plant, said Dan Higgins, Utilities interim general manager of energy supply. The goal is to get one of the three boilers up and running by July and a second unit running by fall.

“My bosses have said my goal is to have unit 7 up by fall,” Higgins said.

When the boilers are back up, Utilities could adjust the electric rates back down, said Bill Cherrier, Utilities CFO. But he cautioned the board against refusing to raise rates now, saying it would affect Utilities’ bond rating. In a complex financial scenario, Cherrier told the board that the bond rating is based on factors that include whether Utilities has a way to recover from emergencies. Adjusting rates to keep up with fuel costs is one way to recover, he said.

The bond rating is particularly important, because Utilities expects to add $151 million in bond debt this year to pay for major construction projects including the Southern Delivery System and scrubber technology at Drake to meet federal emissions guidelines. Last year, Utilities issued $130 million in bonds for the major capital projects with a 30-year pay back. That puts Utilities’ total debt up to $2.4 billion, compared to $4 billion in assets. About 16 percent of a customer’s utility bill goes strictly to paying down the debt.

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