Keeping Drake could be essential to data center plans

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Later this month the Colorado Springs Urban Renewal Authority will vote on a complex incentives package for a proposed data center in southeast Colorado Springs. If built, the project will include up to 10 buildings totaling 800,000 square feet.

Aggregate private investment: nearly $1 billion. Projected power requirements: 100 megawatts.

Political impact: The project depends upon low industrial power rates, so approval might bring an early end to the discussion about shutting down the Martin Drake power plant and opening the way for a renaissance of downtown-area development.

The 105-acre site, a largely vacant tract (formerly the Vineyard golf course, east of Interstate 25) that was designated two years ago as “blighted” by the Colorado Springs City Council, has no apparent advantage over industrial sites elsewhere in the region.

That will change as soon as CSURA approves the incentives package, says developer Vince Colarelli, who has been working on the project for five years.

Colarelli has a commitment from an investor who will provide $75 million in initial project funding. That money will fund much of the massive infrastructure required by the project, including roads, drainage, power and telecom lines. Of the $75 million, Colarelli and his unnamed investor will be repaid $54.22 million by revenue from three sources.

A “public improvement fee” based on the assessment of personal property. According to Ray Real Estate Services, a Denver company retained by CSURA to evaluate the project and structure the incentive deal: “The total investment in land, infrastructure, buildings and tenant finish could approach $1,000 per square foot of building, with the personal property share at 80 percent or more.” PIF revenue will be used to secure a $32.65 million bond issue by CSURA.

Tax increment financing, based on the projected increase in property tax receipts from real property, including buildings and other infrastructure. The TIF is estimated at $8 million.

A special mill levy from a yet-to-be formed metropolitan district, raising $8 million.

No public money

According to Arnold Ray of Ray Real Estate Services, there’s no public risk involved.

No bonds will be issued until the project achieves a 70 percent build-out and generates enough revenue to cover bond payments, based on debt service coverage of 1.35 to one.

“CSURA is financially secure,” Ray wrote, “whether the project builds out as planned, does not get built, or falls somewhere in between.”

As planned, the project is not merely impressive — it’s mind-boggling.

When complete, Colarelli claims that the 64-acre campus will attract users that are Fortune 500 companies requiring both primary and mirrored sites.

The data center business has exploded in recent years, as devices such as the IPhone and IPad have dramatically increased data transmission flows. According to a recent survey by Digital Realty, the largest operator of data center facilities, 92 percent of IT decision makers at 300 large companies said they will “definitely or probably” expand their data center use in 2012.

The projected benefits to the city and region are considerable. During the seven-year build-out, the project will directly produce 225 construction jobs annually. When fully operational, 300-400 telecom professionals will be employed at the Vineyard site, making an average annual wage of $60,400 in 2012 dollars.

Those projections seem optimistic — but Colarelli doesn’t lack confidence.

“We began the project five years ago,” he said. “We talked to the senior IT guys at the 25 top corporate users of data centers. We traveled to several different data centers, and got a sense of what users want. We’re satisfied that our pro forma is a model that’s able to attract national-level users.”

Salient features of the model include:

  • A stable political and geological environment (no floods, tornadoes, earthquakes, hurricanes, revolutions or terrorist attacks).
  • A temperate, dry environment, allowing low-cost cooling for much of the year.
  • Advanced and protected site infrastructure.
  • And, most importantly, some of the lowest utility rates in the nation.

Need for electricity

Data centers consume vast amounts of electricity. Colarelli estimates that the Vineyard Data Center will, when fully built out, require up to 100 megawatts of power daily from Colorado Springs Utilities.

That’s equal to more than 15 percent of CSU’s installed base of 611 megawatts. But providing for increased additional demand may have significant policy implications.

This is where the data center project could affect closing and/or tearing down the coal-fired Drake power plant.

“One of the factors that advantage this project is our existing industrial-power rate structure,” said Colarelli. “Any increase will not advantage us. (Low utility rates) are a major asset for this city.”

Those low rates may have factored in Wal-Mart’s decision last year to build a data center in northeast Colorado Springs. City, county and school district 20 officials agreed to an incentive package that included $4.5 million in sales and business personal property tax rebates, which only go into effect after the facility is completed. Both Wal-Mart and Federal Express, which also operates a data center in Colorado Springs, spurned large incentive packages from other locations.

“We’re not going to compete on incentives (alone),” said Colarelli.

Unpleasant options

Bruce McCormick, who heads electrical generation at Utilities, confirmed that industrial rates would likely increase if Drake is retired and/or replaced with a new gas-powered facility.

“We do expect coal generation to be very competitive,” he said. “It’s not unreasonable to suppose that any alternative might be more costly from a utilities development perspective.”

At Council’s direction, CSU is also preparing an in-depth cost/benefit analysis of Drake. The study will presumably balance the intangible benefits of such closure against the tangible cost of increased utilities rates.

Will closing Drake spark a downtown economic revival, or forfeit hundreds of jobs and a billion-dollar development? If the Bach-appointed CSURA board approves Colarelli’s incentive package during its June 21 meeting, that might tip the scales in favor of keeping Drake.

City Councilor Tim Leigh thinks the scales are already tipped.

“We’re not getting rid of Drake,” he said. “All this talk is just tomfoolery.”

Yet in the end, Colarelli’s project might drive rates upward. An additional 100 megawatts for the Vineyard in addition to other predicted demand growth will require CSU to find new sources of power.

“We’ll be in that game,” McCormick said, “no matter what happens.”