Utilities’ local rates: Not bad for electric, but higher for gas

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electric-meterDuring community discussions about Colorado Springs Utilities, all parties to the debate tend to agree that CSU offers some of the lowest electric and gas rates in Colorado. Such low rates not only benefit residents but also serve to attract and retain businesses of all kinds, particularly job-providing manufacturers.

A careful examination of CSU’s gas and electric rate structure yields a more nuanced portrait.

When compared to Xcel, the region’s dominant private utility, CSU appears to have slightly less-expensive residential electric rates, and much cheaper commercial/industrial rates. Gas is another story, however, as both Xcel and Black Hills Energy appear to offer better rates.

Here are figures from the quarter ended on March 31, 2013, comparing CSU with Xcel, Mountain View, and Black Hills. Mountain View provides only electric service.

Commercial electric

(based on 6,000 kWh per month)

Black Hills $889.27

Mountain View Electric $676.82

Xcel $622.48

Colorado Springs Utilities $500.77

Industrial electric

(based on typical peak and off-peak consumption per month)

Black Hills $41,643.61

Mountain View Electric $37,501.22

Xcel $36,049.56

Colorado Springs Utilities $28,820.84

Commercial natural gas

(based on 1,240 CCF per month)

Colorado Springs Utilities $755.09

Black Hills $683.48

Xcel $623.25

Industrial natural gas

(based on 12,400 CCF per month)

Colorado Springs Utilities $7,345.07

Black Hills $6,106.49

Xcel $5,645.19

 

CSU’s rate structure clearly benefits large electric users, especially those with power-gobbling equipment that throws off a lot of heat. Typical of such companies are data centers, which consume massive amounts of electricity to run server banks, and also require summer cooling.

Smaller companies, which use electricity for both heating and cooling, also benefit from CSU’s low base rates, but it’s another story for commercial and industrial natural gas customers.

CSU’s base commercial gas rates are 21 percent higher than Xcel’s and 10 percent higher than what Black Hills charges.

The disparity in industrial rates is even more striking. Xcel’s advantage jumps to 30 percent, while Black Hills has a 20 percent edge.

Why such pronounced differences? Xcel’s gas price advantage may be a consequence of economies of scale. The investor-owned behemoth has 1.7 million natural gas customers, more than 17 times as many as CSU. Moreover, natural gas prices can fluctuate wildly, forcing all providers to fund expensive hedging programs.

Yet, all Front Range utility customers also benefit from the peculiarities of Colorado’s natural gas market. Thanks in part to persistent local oversupply and limited gas transmission capacity, Colorado natural gas prices are the second-lowest in the nation.

At an average price of $6.79 per MMCF, Colorado consumers pay fractionally more than those in North Dakota ($6.48) and less than those in energy-rich Texas ($7.75).

The benefit for CSU

State law requires investor-owned utilities to generate 30 percent of their electricity from renewable sources by 2020, while municipally owned utilities must only generate 10 percent. CSU generates most of its electric base load from coal-fired legacy power plants that, absent more onerous federal regulation, remain cheap and reliable.

Private utilities are regulated not only by the federal government, but also by the Colorado Public Utilities Commission. Xcel’s local rates are determined by the PUC, and are based on the costs the company incurs to provide those services. Those costs include political mandates, such as renewable energy standards required by state government.

While politicians at the state capitol may make important policy determinations for investor-owned utilities, City Council, sitting as the Utilities Board, determines CSU’s rates. That has allowed the city to single out particular industries for preferential rate treatment, a notably effective economic development tool.

“A data center would most likely use the large power and light rate,” said CSU spokesman Dave Grossman. “The ‘all-in’ rate is 6.69 cents per kWh compared to 7.98 cents per kWh for the largest industrial rate.”

While that may seem to be an unreasonable discount from the base residential rate of 11.38 cents per kWh, it makes sense from CSU’s perspective.

“Only customers with a high load factor (steady around-the-clock consumption) qualify for the large power and light rate,” Grossman explained. “Having customers with high load factors benefits Utilities and other customers because they buy large amounts of power throughout the day, including all night long and on weekends when our most efficient generation units are providing the bulk of our community’s power.”

Courting such customers may have long-term risks, however.

The southside Colorado Springs data center complex being developed by Vince Colarelli, Iron Point and Atlanta-based T5 Data Centers hopes to attract as many as 10 corporate data centers to its 65-acre campus. When fully operational, the project will require as much as 100 megawatts daily, estimated at 7 percent of CSU’s base load capacity. Without effective new conservation programs, such an increase might require either constructing a new plant or purchasing additional power from other suppliers.

Either option (or both) could drive rates higher for all users.

“While it’s smart to bring more high-tech businesses to Colorado Springs,” said Sierra Club spokesman Roger Singer, “the (Utilities Board) needs to figure out ways of providing sustainable power sources to (such users). Otherwise, average residential customers may pay the bill for these sweetheart deals.”

Residential electric

(based on 600 kWh per month)

Black Hills $97.60

Mountain View Electric $93.34

Xcel $69.78

Colorado Springs Utilities $68.27

Residential natural gas

(based on 60 CCF per month)

Colorado Springs Utilities $46.63

Black Hills $41.24

Xcel $39.44

 

Seems simple enough, doesn’t it? Alas, as all of us know from experience, Utilities bills are inherently complex.

In the period between Dec. 11, 2012, and Jan. 13, 2013, one Westside homeowner used 831 kilowatt hours of electricity. The “electric supply charge” at $22.33, was a small part of the total bill. Four different “access charges” totaled $66.76, two “capacity charges” added another $1.17, an “electrical cost adjustment (ECA)” debit added $1.51 while an ECA credit reduced the bill by 33 cents, making a grand total of $91.47.

The customer’s energy-inefficient Victorian used 476 CCF of natural gas, heating not only his house but likely raising the ambient temperature of the immediate neighborhood. Gas cost, billed at $.6034 per CCF, came to $311.55. Two gas cost adjustment credits dropped the bill by $59.32, but four access charges added $83.65, for a total bill of $335.88.

Despite the demands of politicians, regulators and tax collectors, Xcel’s residential rates are slightly below those of CSU. As a municipal enterprise, CSU can issue tax-exempt bonds, and is exempt from state and federal taxes. For the time being, that more than compensates for Xcel’s economies of scale.

But as both organizations are well aware, electric utilities are not masters of their fate. Tighter limits on carbon emissions from coal-fired power plants (which are responsible for one-third of all such emissions in the United States) could quickly transform CSU’s advantage into a liability.

Conversely, spiking natural gas prices could make Xcel’s gas-fired plants less profitable to operate, forcing residential and commercial electric rates even higher.

2 Responses to Utilities’ local rates: Not bad for electric, but higher for gas

  1. Thanks for the overview of utility costs.

    Gerald E. Simonson
    May 28, 2013 at 12:34 pm

  2. A few comments:
    1. Natural gas in the long term will go up due to LNG plants being build (20 such projects are in the planning and approval process), which will ship gas to Europe and Asia where rates are 3-4 times higher then here… Good bye cheap gas…
    2. Why gas prices are higher here (in COS) is most probably due to hedging policies and our wide spread urban sprawl which makes infrastructure more expensive per customer
    3. Coal is similar to gas they are looking to build export terminals on the west coast which would ship all this cheap coal to Asia where prices are up to 5 times higher then here in the US
    4. that leaves DSM programs to help people mitigate demand and therefore keep costs low, but then our city government in its wisdom choose to cancel the sustainability office which could have helped to facilitate as such and could have led to local jobs, lower overheads for businesses, etc…

    peter smith
    May 28, 2013 at 1:24 pm