Colorado Springs Utilities and the developers of a proposed new housing project seeking city annexation, Amara, are sharply at odds over the impact the massive planned neighborhood could have on the city’s ability to fund and operate its utility services.

Developer La Plata Communities is asking City Council to annex 3,200 acres south and east of current city boundaries to build neighborhoods of up to 9,500 new homes and 2 million square feet of commercial and other space. Amara would be built in four phases over 24 years, developers have previously said.

The City Council is preparing to formally vote for the first time July 23 on the proposal to add the property into Colorado Springs’ boundaries. The proposal requires two votes from council; the second will come at a future meeting.

“Utilities has seen annexations in the past, but none of these have required infrastructure at this scale over a similar timeframe,” Chief Planning and Finance Officer Tristan Gearhart said last month. “Additionally, this annexation comes at a time when we are facing large regulatory and reliability needs for our existing system.”

Amara could put Colorado Springs Utilities at financial risk and officials may have to delay or reprioritize already-planned capital projects to pay for infrastructure that will serve the new development — actions that could negatively impact service reliability and community growth in areas already inside city boundaries, Gearhart said.

La Plata representatives, however, contend Amara will benefit the city, the utility and the region.

Over the years it will add thousands of ratepayers who will contribute millions in annual revenues to utilities, they said. Other users will benefit from and use the utilities infrastructure and facilities that will serve Amara; and Amara-related utilities costs won’t significantly impact already planned utilities increases, they said.

Colorado Springs Utilities estimates over the life of the project it will cost between $150 million to $230 million to build the necessary infrastructure like gas service lines, facilities like electric substations, and generate some additional resources to provide electricity, gas, water and wastewater to Amara.

Under a draft annexation agreement, La Plata must pay for any needed utilities extensions; only water line extensions are needed to serve Amara, developers said.

Assuming Amara builds 400 units a year, Utilities forecasts it will recover its costs in 21 years.

Gearhart said utilities capital costs for the development would be the largest in the first year, about $55 million. It will take an additional $2 million to $4.5 million every year to operate and maintain the infrastructure, financial estimates from the utility show.

La Plata’s Chief Operating Officer Mike Ruebenson said the majority of capital costs Colorado Springs Utilities will incur related to Amara will happen as development progresses.

He repeated statements that Utilities has confirmed the cost to develop within Amara “is not materially different” than greenfield development elsewhere in Colorado Springs because La Plata must fund 100% of any utility extension costs.

“It has no negative impact to ratepayers for those extensions to be brought from the current city limits into Amara,” Ruebenson said.

That is a point of contention with Gearhart, who has said ratepayers could see an increased monthly expense under one form of repayment, or that, alternatively, other projects could be curtailed.

More than 50% of the projected cost of utilities infrastructure that will serve Amara will benefit the region, Ruebenson said. That infrastructure is needed to support future growth even if Amara is not annexed into Colorado Springs, he said.

For example, La Plata and future Amara ratepayers will provide significant funding for projects like the expansion of the Bailey water treatment and Las Vegas sewer treatment facilities, city utilities’ 160-acre Advanced Technology Center east of the airport, and others, La Plata said. These contributions will reduce the per unit costs charged to other housing developments while increasing service, they say.

At full buildout, Ruebenson said ratepayers living in Amara will generate an estimated $25 million a year in utilities revenues and will contribute more than $1 million a year in surplus payments to Colorado Springs’ General Fund.

The surplus is essentially an annual payment Colorado Springs Utilities makes to the city in what it would pay in property, sales and use taxes if it were not municipally owned.

“New development is not only paying its way, it’s also contributing to the overall system,” Ruebenson said.

However, a utilities presentation shows city ratepayers’ monthly bills will increase for several years as the agency pays off its portion of construction to serve Amara and other future growth.

Those costs would be on top of base rate increases city utilities expects across its four services over the next five years to pay for other planned capital projects, Gearhart said. The exact base rate projections are not yet available.

La Plata estimated utilities’ capital costs to serve Amara are about 2% of the agency’s five-year capital plan and won’t “have a significant impact” on the already planned utility rate increases “which are largely driven by regulatory requirements.”

Utilities is already paying for about $4 billion worth of assets to provide its four services to Colorado Springs, Gearhart said.

The agency proposes a 2025-2029 financial plan that anticipates another $3 billion worth of capital infrastructure inside existing city boundaries to support growth and system reliability, and help the city meet new state regulations for clean energy, among others.

The timing and estimated cost of Amara’s annexation puts other planned capital projects at risk of exceeding the total amount of debt city utilities can afford to incur to pay for those projects, Gearhart told the agency’s finance and strategic planning committees at a joint meeting May 17.

Exceeding its debt capacity could lower utilities’ credit ratings, which would mean “even higher rates for our customers,” Gearhart told The Gazette.

Utilities’ goal is to be less than 56% debt funded. It’s currently about 51% debt funded, he said.

Gearhart said an additional utility charge not included in standard rates, called a rider, would allow utilities to fund Amara-related costs. Riders don’t require long-term debt, allowing the agency to “preserve (its) debt borrowing capability” for work planned inside existing city boundaries, he said.

The Amara rider would be in place for between five to 10 years, Gearhart estimated.

This mechanism has never been in place for previous annexations and Utilities has typically funded annexation-related work by adjusting utilities base rates, he said.

If the council approved using a rider, a city utilities presentation shows the average residential customer could pay $8.29 a month in Amara-related costs during the first year of the development’s buildout. It is 3.37% more than the current average residential bill of just under $246 a month.

Commercial customers could see their bills rise by about $96 a month for the first year, or 6.66%; and industrial users could pay nearly $4,000 more a month in the first year, an increase of 8.91%.

The anticipated rates drop dramatically in the second year and fluctuate over the following 10 years, varying between 85 cents a month to $9.64 a month for residential customers, the Utilities presentation shows.

If the council did not approve using a rider, Utilities would reprioritize or delay its planned capital projects and/or increase base rates, Gearhart said.

“Delaying or reprioritizing planned projects puts our existing systems at risk of not being as reliable as our customers have come to expect. Additionally, projects to help our system grow inside the already existing city boundaries would have to be delayed or canceled. This could slow growth in some existing areas of the city,” he said.

Ruebenson said Colorado Springs will continue developing, even if not in Amara, and costs and impact on the utility’s debt will be similar.

“It’s a logical extension that this same debt capacity issue is still going to exist … whether Amara is there or not. To imply that Amara is the cause of the debt capacity issues is probably not a fair representation of what’s happening,” he said.

Capital projects that will allow Colorado Springs to meet new Colorado energy requirements couldn’t be delayed and must happen on strict timelines dictated by the state, regardless of whether the Amara annexation was approved, utilities spokesman Steve Berry said.

“Otherwise, we’d be in violation of regulatory standards. … This is stuff we’d have to figure out how to get done,” Berry said.

Margaret Radford, a former Colorado Springs councilwoman who served from 2001 to 2009 and was part of the Utilities board that approved construction of the Southern Delivery System, said she’s worried by Gearhart’s projections related to Amara.

“It’s either our ratepayers subsidize a single development up front, or if the city doesn’t permit (Utilities) to do the rider, then the existing city either loses some projects that it needs to have done, or we go into more debt that threatens our bond rating,” she said.

Former Colorado Springs Mayor John Suthers, who has always opposed the Amara development since it was proposed in his final term from 2019 to 2023, said the distance of the planned Amara development from Colorado Springs necessitates the large utilities costs.

A developer presentation shows the property is about half a mile away from current Colorado Springs boundaries where it is proposed to be annexed along Bradley Road. It is approximately 1.7 miles away from city boundaries at the northern point of where it would be annexed just south of Mesa Ridge Parkway.

“The average ratepayer in the city of Colorado Springs should not have to bear such a huge part of that cost,” Suthers said. “It’s unfair.”

Ratepayers across the city help pay for needed utilities infrastructure and improvements, whether or not they will immediately or directly benefit from it, developers and others said.

The Southern Delivery System that pumps water from Pueblo to Colorado Springs and other Pikes Peak area communities is one example, Councilman Brian Risley said.

“Ratepayers paid for (the pipeline) knowing that not only would it benefit current users, but future users as well,” he said.

Current ratepayers contribute to infrastructure upgrades Colorado Springs Utilities needs to make to meet regulatory requirements and increase service reliability unrelated to annexations, La Plata President and Chief Executive Officer Doug Quimby said.

“Everybody’s paying fairly for the cost of maintaining the system to serve the whole city. To suggest that one area is subsidizing another area is just incorrect,” he said.