Colorado Springs Utilities Confidentially Cuts Commercial Rates for Customer

Colorado Springs Utilities is giving a secret deal to Chandler, Arizona-based Microchip Technology in order to reduce its payments of higher commercial rates that kicked in on January 1, according to an investigative report posted on January 8 by the Colorado Springs Gazette.

The state’s Public Utilities Commission doesn’t vote on these “economic development special contracts,” which are deemed confidential by the publicly owned utilities and by city economic development officials, the local news outlet said. Instead, contracts are reviewed and approved by the City Auditor’s Office.

However, the newspaper investigation has turned up a city document on the Microchip deal that reveals that the company will get three years to phase in the higher rates for electric, water, and wastewater services because otherwise it “could elect to move plant operations” out of the city.

To date, similar special contracts have been issued for the University of Colorado at Colorado Springs and other customers, and a few of the city’s biggest electric customers pay a reduced rate, City Councilman Don Knight (District 1), chairman of the Utilities Finance Committee told the Gazette.

The three or four largest electric customers all pay about 80 percent of their costs, up from about 75 percent last year, under a long-standing rates arrangement, he said. Knight told the newspaper that the identities of those large customers are “protected information.”

Microchip had objected to the utility’s base rate increases during an October 25 City Council meeting. The company was paying $11.1 million per year for utilities and would have to ante up $1.4 million more under the new base rates, testified Dan Malinaric, VP of Operations for Microchip.

The testimony contained a not-so-subtle threat. Water and electric rates around Phoenix and Portland, Oregon – near Microchip Technology’s plants in Tempe, Arizona, and Gresham, Oregon – are much lower than those in Colorado Springs, Malinaric told the council.

He did not return calls from the Gazette regarding the special contract.

Under the contract, the 900-employee company “agrees to retain operations in Colorado Springs,” the document says.

Utilities rules allow such contracts if the customer “offers significant risk or opportunity to utilities” because it might discontinue the services, provide its own utilities seek alternative utilities or increase its use to benefit Utilities and its ratepayers.

The $1 billion city utility, which is owned by its ratepayers, is a monopoly in Colorado Springs providing electric, gas, water and wastewater services, the local news outlet said. By contrast, when privately owned utilities want to execute special contracts, they must obtain approval from the Colorado Public Utilities Commission

Although the Colorado Springs Utilities board doesn’t vote on the economic development special contracts, it does get a monthly briefing on them, board chairman Andy Pico told the newspaper.

But that’s not enough, according to Councilman Keith King (District 3), who is advocating for more transparency. “If they deserve a special deal, then we should publish it. We should let people know,” King said. “We definitely want them here in town. If that (rate increase) is a deal breaker, we need to see what we can do to keep them. I think they’re the largest user of electricity in the city.

“They should just put it on the agenda and let us know. Be transparent about it. If they’re following policy, then they’re living within the rules.”

Microchip, meanwhile, also is poised to also get a package of tax breaks from the city. The company bought Atmel in April for $3.56 billion, making it the world’s third-largest producer of microcontrollers . At that point, the city agreed to restructure Atmel’s tax breaks for Microchip by the end of 2016.

The Atmel pact was to slash taxes by $339,070 on $25 million in equipment and capital spending planned for 2011 to 2015. The city since has eradicated its tax on business personal property. In return, Atmel was to spend the $25 million and keep the 1,300 local jobs it had then. City tax incentives packages are not confidential, the Gazette said.

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