Residential utility bill expected to increase 23 percent

Colorado Springs Utilities customers, prepare for the winter of your discontent.

Starting February, residential bills are expected to go up 23 percent, the largest rate increase in recent memory, as the city-owned utility compensates for increased natural gas and coal costs, the cost of building pipelines and a downturn in local development that has cut the money Utilities receives in fees. City Council must approve the rate increases.

"I want to now give you the bad news, and I'm not going to sugarcoat it. It is tough," Utilities chief executive Jerry Forte told a gathering of customers at the State of the Utilities Forum at the Doubletree Hotel Colorado Springs - World Arena.

Although some numbers must be finalized before Utilities asks City Council for approval in December, the rate hikes are across the board - 9 percent to 12 percent for electricity, 29 percent to 31 percent for natural gas, 45 percent for water and 17 percent for wastewater.

The average residential monthly bill of $153.97 would increase to $189.37.

Business rates would go up 8 percent to 11 percent for electricity, 35 percent to 37 percent for natural gas, 45 percent for water and 17 percent for wastewater.

For large industrial customers, the increases are 7 percent to 10 percent for electricity, 35 percent to 37 percent for natural gas, 45 percent for water and 17 percent for wastewater.

The largest increase, in water rates, is caused largely by a drop in new water hookups, which long subsidized Colorado Springs' sprawling water system, with pipes spread out across hundreds of miles of mountain terrain.

Permits for new single family homes are down 42 percent over last year, totaling 1,056 for the first nine months of this year. The housing downturn, dating to 2006, has caused a $32.6 million budget shortfall for water and $10 million for the wastewater system.

The rate increases also are due to the $1 billion Southern Delivery System, a planned pipeline from Pueblo Reservoir that would increase the city's water supply by a third.

The costs of energy also are fueling the rate increases.

Although the numbers change daily because of fluctuations in coal and natural gas prices, Forte said Utilities will start paying significantly more for coal and natural gas to generate electricity and for gas to heat homes. The city's long-term coal contracts expire during the next two years, and officials expect to pay more for the coal that provides 70 percent of its power. Natural gas prices are also increasing, particularly in the West, because of the recent completion of a pipeline that makes the region's gas available to Eastern markets.

"There's just so much volatility. We have no options but to pass on the costs of energy," he said.

Fuel costs and purchased power accounted for 41 percent of Utilities' $953.4 million budget this year.

Utilities has also seen prices increase for commodities it uses. Copper has increased from 85 cents a pound in 2003 to $3 this year. Transformer poles and mounts have nearly doubled in cost, as has steel and the price of water pipes.

Utilities has been forecasting drastic rate increases for months, and the agency has been cutting workers, eliminating 82 positions through attrition since 2006, with plans to cut another 60 this year. Utilities employs 1,800.

"We've got a whole bunch of people that are working hard to make sure we pass on the minimal cost to our customers," Forte said.

A public hearing on the rate increase will be in January, and the new rates would take effect Feb. 1.

While painful, particularly in tough economic times, 2009 probably won't be the last time Utilities increases rates. The utility has projected a 72 percent increase in monthly bills during the next decade.

Tuesday, before Forte spoke, Gary Krellenstein, a managing director at JP Morgan Securities, warmed up the audience with a glum assessment of the U.S. utility industry, beset by the credit crunch, rising fuel costs, the likelihood of a cap or taxes on carbon emissions and competition for resources from expanding power sectors in China and India.

"Everything that could go wrong, pretty much at the same time has," he said.

"The age of cheap energy is gone. Under virtually every scenario we can come up with, utility prices, for water and power, are going up significantly," he said.

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