Our water and SDS: Last of a three-part series
Few companies have long-term horizons. Managers and shareholders alike understand that they live in a world of creative destruction, described 72 years ago by Joseph Schumpeter as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
In 1988, just 26 years ago, leading Colorado Springs companies included MCI, Digital Equipment and Brown Disc. Locally owned banks, including First National, Exchange National and Colorado Springs National, dominated the banking business. Silverado, World Savings and a half-dozen other savings and loans made real estate loans.
Gone. All gone.
Yet there’s one company in Colorado Springs with planning horizons of 10, 20 and 50 years. It has 100 percent market penetration for its products and services, and routinely makes billion-dollar bets on future markets. So critically necessary to customers are the company’s products that they willingly fund the bets, trusting company management to make the right call.
The company is Colorado Springs Utilities.
CSU’s ongoing billion-dollar bet is the Southern Delivery System. Scheduled to go online in 2016, SDS will convey water from Pueblo Reservoir via a 66-inch-diameter underground pipeline to Colorado Springs. It will expand the city’s raw water delivery capacity by an eventual 55 million gallons per day (MGD), a nearly 50-percent increase in system capacity.
One of Gen. William Palmer’s first initiatives after founding the city of Colorado Springs in 1871 was to plant trees along the development’s freshly platted streets. Thousands of cottonwood saplings were transplanted from the borders of Fountain and Monument creeks, in the hope that one day they would provide a shady canopy for homes and businesses of future Springs residents. The cottonwoods wouldn’t survive away from the creek beds without additional water, so Palmer created irrigation ditches along city streets.
The New Englanders and Midwesterners whom Palmer wanted to attract to his new city weren’t interested in living in an arid, windswept prairie. They wanted the brilliant sunshine of the West, and the domestic landscapes of the East.
In the 120 years before work on SDS began, the city’s water managers first accommodated growth by building water-delivery systems from the slopes of Pikes Peak. As local sources became inadequate, the city built or participated in three major trans-mountain diversion projects, transporting water hundreds of miles from tributaries of the Colorado River to Colorado Springs.
Today, 143 years later, we still embrace Palmer’s vision of a verdant city with green lawns, flowering shrubs and graceful trees shading the houses of rich and poor alike. Ours is a wholly artificial landscape, with hundreds of thousands of trees and many thousand acres of Kentucky bluegrass sustained by water from distant snows.
SDS is the consequence of our green dreams. During a typical summer day, we use four to five times more water than on an average winter day. For more than a century, that was nothing more than a mildly interesting statistic that scarcely impacted residents.
Water was abundant and inexpensive. We loved our lawns, our trees and gardens — and our healthy urban forest was the visible proof of our affection.
From 1980 to 2000, annual water production rose from 62,807 to 104,218 acre-feet, an increase of more than 60 percent. Water use tracked population, commercial and industrial use and consumption at area military installations. It seemed reasonable to expect that demand would continue to grow, even with modest conservation initiatives.
But although population continued to grow in the next 13 years, 2000-2013, water use plateaued. Negative drivers included severe drought, consequent water rationing and learned conservation. The so-called “drought shadow” introduced a new element into planning, as did the unexpected confluence of local drought and higher water bills.
Compared to the period from 1971-2000, the 2000-2013 period was much hotter and drier. Average temperatures rose by 5 percent while local precipitation dropped by 5 inches annually, more than a 30 percent decline from the city’s historic average of 16.5 inches annually.
Then came 2013 and a water apocalypse. Although potable water consumption in the three years previous was well below the record level of 2000, scanty snowpack and drought in the Colorado River basin had brought the city’s reservoirs to critically low levels. Draconian conservation measures were coupled with steep use-based rate increases, shocking inattentive homeowners with early summer water bills several times higher than previous years.
Consumption dropped radically. Annual use from potable and non-potable sources dropped by 25 percent. City residents used 66,413 acre-feet of potable water, 5,000 acre-feet less than residents used in 1986.
So far, 2014 has been a better water year. Thanks to a record mountain snowpack, there will be no water surcharges, and residents are expected to resume their formerly profligate ways. Yet the long-term consumption trends may be downward, thanks to a changing marketplace.
As CSU’s water buffaloes worked for 20 years to bring SDS to fruition, they worried about supply, not demand. There was no recognition that water, like every other commodity, was subject to the implacable demands of the market. “Price elasticity” didn’t enter the CSU discussion until a 2009 internal analysis, which identified 2016 as the “need date” for SDS.
Decision drivers were identified as “population and demand growth, severe drought, SDS rate impacts, system redundancy and a refined analysis of existing supply/yield.” Managers also expected that the deepening recession would reduce water demand, but instead they got an unexpected bonus.
Construction costs, projected at more than $1 billion, dropped to $841 million. More significantly, historically low interest rates sharply reduced borrowing costs. Aggregate water rate increases, once estimated at 177 percent, dropped to a far more manageable 52 percent.
“What we’re hoping for is a record snowpack,” CSU Chief Financial Officer Bill Cherrier said in late March, “followed by a hot, dry summer.”
Cherrier said it with a smile, but he had neatly summarized CSU’s dilemma. Water in the reservoirs must both be replenished and sold. The sell side of the equation is driven by fixed costs, including system maintenance and replacement, energy costs and continuing capital investment. But buyers don’t care about CSU’s problems; they prefer to water their lawns with free water from the skies.
Per-capita water use has dropped sharply in the past 20 years, leading to corresponding reductions in the city’s long-term consumption estimates.
“The Base (i.e. revenue) forecast is for an estimated service area population (city, suburban, Green Mountain Falls, military) of about 608,552 and about 106,000 AF/yr for demand,” wrote CSU spokesperson Janet Rummel in an email. “The ‘hot and dry’ scenario uses the same service area population and estimates about 120,000 AF/yr demand. This particular ‘hot and dry’ scenario equates to an 80 percent confidence interval and adds about 13 percent to annual demands.”
That’s a precipitous drop from the high-side estimate of the 1996 water resources plan, which forecast a population in 2040 as high as 900,000 and water demand of 168,150 acre-feet. The base forecast, at 106,000 acre-feet annually, is only 1,800 acre-feet more than the community used in 2000, 40 years previously.
Does that mean CSU’s water managers dropped $841 million into a new water delivery system that we may not need until 2016? Does this prove that the project, originally conceived to furnish water for the Banning-Lewis Ranch development, is now entirely unnecessary?
Survivalists are usually caricatured as grumpy old men with houses full of canned food, firearms and supplies sufficient to weather an expected apocalypse.
CSU managers may not hoard canned foods, but water?
“SDS is not a short-term solution,” Rummel said in a 2010 email. “The time to build a major water project is not when you have run short of water … [we need] to better prepare our community for drought, climate change and water supply uncertainty on the Colorado River.”
Many factors entered into the decision to build SDS. In 1996, there was no discussion of system redundancy, of having an additional water pipeline that could serve the city in case one of the existing conduits needed emergency repair. But 18 years later, the pipelines are that much more vulnerable to accident or malfunction.
In 1996, population growth and per capita water use were expected to continue indefinitely at historic levels. But they didn’t. Commercial and industrial use declined, and price-sensitive residents used less water. Indoor use declined as well as outdoor, thanks to restricted-flow shower heads and low-flush toilets.
SDS stayed on track. In the eyes of the water survivalists who conceived and created the project, the city’s rights on the Arkansas River had to be developed. They saw long, hot summers in the city and dry winters in the mountains. Opponents could make any arguments they liked, but these five words trumped them all.
Use it or lose it.
Undeveloped water rights are like $100 bills blowing down the street — someone will grab them and use them for their own benefit.
No matter how effectively we conserve, population growth will eventually bring us the Las Vegas dilemma.
That desert city has cut its per capita water use by 40 percent in the past 25 years. That’s amazing and admirable, but the city’s population has tripled in that period. The city is building an $800 million pipeline to tap Lake Mead even as the reservoir falls below “dead pool,” but that’s just a stopgap.
There is no Plan B for Las Vegas. The only potentially available source of new water may cost more than $14 billion to develop, assuming that bitter opponents of the next proposed diversion can somehow be placated.
There’s no Plan B for Colorado Springs, either.
“This will be our last pipeline,” said CSU water resources manager Gary Bostrom. “We will never be able to develop a new water delivery system. When SDS is finished, that’s it.”
Bostrom’s peers in Las Vegas, Phoenix, San Diego and Los Angeles have reason to envy him. Colorado Springs has won the water wars. We’ve bought ourselves decades of time. Whether we save or squander this liquid bounty is up to us.
In 2040, the city may have 30,000 to 50,000 acre-feet a year of unneeded delivery capacity. That cushion will allow for decades of population growth and for the introduction of sophisticated irrigation techniques that will preserve our green city and minimize water use.
In years to come, members of the Colorado Springs City Council will decide how to preserve the city’s future. Will they heed Bostrom’s warning and encourage radical conservation? Will new developments be required to xeriscape, and preserve trees with drip irrigation devices?
Or will Council “lease” surplus water to other jurisdictions, gradually losing control of the resource? Will water managers in 25 years be searching desperately for new water?
Those are questions that can’t be answered.
In the meantime, we’ll pay our water bills, hope for rain and be grateful to the generations of water buffaloes who brought water to Palmer’s oasis.