Drake damage apparently not as bad as feared

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Here’s a recent email to longtime environmental activist Lee Milner from George Luke, Colorado Springs Utilities’ interim chief energy services officer:

“This is in response to your recent question in regard to the ability to use insurance proceeds from the Drake 5 fire to fund DSM or renewables in lieu of repairing or replacing Drake 5.  If Drake 5 were a total loss it is possible we could negotiate with our insurance provider to use whatever they determine would be the cost to replace Drake 5 to build a renewable generation resource.

“In the case of funding DSM we would likely receive only the depreciated book value of the unit which due to its age is fairly low.  However, the repair costs for Drake 5 is expected to be a fraction of the cost to replace the unit. 

“Although the  damage to the outboard end of the steam turbine and some of the auxiliary equipment and wiring in that immediate area was significant, I estimate that 80% or more of the unit’s major systems were not damaged in the fire.  The generator, coal delivery systems, coal pulverizers, the entire boiler, baghouse, feed water system and the cooling tower were untouched.   

“At this point we feel that it is very unlikely that the level of insurance proceeds that will be necessary to make needed repairs will be sufficient to provide an alternative replacement for the Drake 5 capacity and energy.   We will be keeping renewable and DSM options in mind as we finalize our damage assessment but expect the best solution for our customers will be to repair the unit.”

It sounds as if the old coal-burner will soon be up and running, but we don’t know exactly how much longer it will supply power to our community. Whether this is good news or bad may depend upon your particular stance in the ongoing community debate concerning the downtown power plant.

It would be interesting to know exactly what the depreciated value of the Drake plant is – given that the three generating units date from the 1960s and 1970s, probably only a small fraction of replacement value.

In a sense, it’s unfortunate that Drake is municipally owned, since the paper losses from depreciation can’t be used to offset taxable revenue. Those benefits theoretically flow to Drake’s owners (i.e., Colorado Springs ratepayers) in the form of lower utility costs. Given that residential electric rates in Denver (served by investor-owned Xcel Energy) are equal or slightly less than those in Colorado Springs, such benefits (if any) may flow to commercial, industrial and military customers.

Another consequence of municipal ownership is that it may create a subtle disincentive to invest in new generating facilities. In the private sector, new plants mean new depreciation schedules, effectively sheltering the company’s cash flow. For a vast, multi-state entity such as Xcel, retiring older plants and building new ones are part of its routine – the company doesn’t have any sentimental attachment toward its existing generators.

I tried without success to get an on-the-record assessment of the Drake situation from a senior manager at Xcel. No luck – these guys aren’t in the business of criticizing other utilities.

But the company’s record speaks for itself. In the past few years, Xcel has closed down a couple of older coal-fired plants, built a new 750MW coal-fired plant near Pueblo, and has vastly expanded its renewables portfolio.

It’s hard not to be envious of Xcel and its customers statewide – imagine a world in which the complex work of rate-setting was done by the expert staff of the Public Utilities Commission instead of nine dazed laypersons on City Council. It’d be such a relief to hand over the whole Drake situation to the private sector — and find other things to fight about.