DALLAS - A four-alarm fire that shut down the coal-fired Martin Drake Power Plant in downtown Colorado Springs should not hurt the city-owned utility's Aa2 credit rating, according to Moody's Investors Service.
"Although the fire resulted in the shutdown of the Drake plant, we expect Utilities' automatic cost adjustment mechanism and ample liquidity to mitigate the effects of the outage," analysts Federico Beckmann and John Medina wrote in a May 12 report.
The May 5 fire will force Colorado Springs Utilities to buy replacement power from other providers until the Drake plant can be restored. Officials said they do not know how long that will take.
Built in 1962, the Drake Plant provides about a third of the city's power.
Fire investigators attributed the blaze to lubricating oil that leaked onto hot steam pipes.
"The investigation will be ongoing and may take several weeks to determine all the factors surrounding the cause of the fire," the Colorado Springs Fire Department said in a statement.
The Moody's report noted that the "severity of the credit effect is small now, but could grow depending on the magnitude of the damage, the repair costs and time and the public's perception of the plant and Utilities response to the incident.
"Increased public scrutiny and outcry may negatively affect Utilities' willingness to pass through higher short-term costs to customers and environmental activists may view this as an opportunity to build support against the coal-fired plant," the analysts said.
"In an event like this, we are insured up to $500 million per incident," the utility said in a prepared statement. "This does not cover the cost of replacement power. Those type of coverage plans typically do not kick-in until much after an incident and are not cost effective in the long run."
The utility also said that it is analyzing its rates to see if they need to be raised to cover the costs of buying the replacement power or restoring the plant.
"Utilities also has strong internal liquidity (200 days of cash on hand as of December 2013) that it can use to absorb the higher replacement power costs while Drake undergoes repairs and a change in the electric cost adjustment is made," according to Moody's. "However, if Utilities waits to use the electric cost adjustment or decides to absorb some of the higher replacement power costs, liquidity levels and debt service coverage would decline."
The utility is rated AA by Standard & Poor's and Fitch Ratings.
