Council OKs water rate hikes, advances pipeline project

The construction of the Southern Delivery System, a 62-mile water pipeline that has been under discussion for 15 years, edged closer to becoming a reality after the City Council Tuesday approved on a 8-1 vote the first two of six planned 12 percent water rate hikes.

Jerry Forte, the chief executive officer of Colorado Springs Utilities, hailed the decision as an “historic vote” while acknowledging the burden that the rate increases will place on ratepayers.

“We recognize the sacrifice that our citizen-owners are making, but we also recognize that SDS is the very best cost alternative for our future,” he said in a brief interview after the vote.

Councilor Tom Gallagher and several witnesses who spoke during the hearing urged councilmembers to postpone a vote until further information could be obtained.

But William Cherrier, the utility’s chief planning and finance officer, told council members that up to $49 million — or $1 million a year — could be saved over the life of the project if the utility was able to take advantage now of historically low interest rates and special bonds available through the American Reinvestment and Recovery Act.

Cherrier said in a brief interview afterward that the utility needed council approval for the rate hikes in order to show the bond market that it will have the revenue to repay its debts.

The bonds to be issued will range from $100 million to $300 million and could occur as early as August or as late as October, he said. “This is the first large Southern Delivery System bond issue to fund actual construction of the project,” Cherrier said.

The two 12 percent water rate hikes approved by the council will go into effect in 2011 and 2012. Four other rate hikes of equal size are planned through 2016, utility officials have said. These increases will come on top of two hikes in the last two years that have raised water rates by 50 percent.

The rate-hike hearing was at times acrimonious and tension-filled, with Gallagher at one point ordering a utility executive to return to his seat.

Thomas A. Arnold, an economist, warned that the project will take money from consumers and make local companies less competitive. “Why don’t we find out what the people think? We’ve acted like father knows best,” he said.

Walter Lawson, a retired landscape architect, pointed out that millions of ratepayer dollars — through the interest paid on the debt — will be flowing into out-of-town pockets. “We need to take a time out and answer all the questions about the burgeoning costs of SDS,” he said.

Utility officials have recently disclosed that the cost for Phase 1 of the pipeline will be $2.3 billion over the life of the project, a figure that represents both construction and finance costs. Phase 2, which will include two reservoirs, could cost almost as much, utility officials have acknowledged.

Gallagher alleged the pipeline’s staggering costs could “bankrupt” the community. But his fellow councilmembers did not share his sentiments and frequently looked off into space while he talked.

 “Passing these rate hikes is not going to bankrupt the community. In fact, it’s in the best interest of the community to keep this system reliable,” said Mayor Lionel Rivera. “It’s the right choice for the city and the region, and it may ultimately benefit the general fund.”

Forte said that he’s hopeful that the utility will be able to “mitigate” some of the costs associated with SDS through partnerships with other regional water entities. Colorado Springs, unlike Denver, is not located near a major river and needs pipelines, he explained.

“Water is the key. Without water there is no economic viability. This project is absolutely key to the future of Colorado Springs,” he said.

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