Thursday, October 4, 2012

Sell Utilities? Not a good idea, city panel said

Posted By on Thu, Oct 4, 2012 at 5:04 PM

All the talk about selling Colorado Springs Utilities got us to wondering exactly how much it might be worth.


Developer and former gubernatorial candidate Steve Schuck has intimated that the city could clear $1 billion from a sale that could be used for other city needs, such as a backlog of storm water needs. He was so interested in finding out how much it might be worth that he had a private meeting of local bigwigs and some utility experts on Sept. 20 to discuss how to value the utility.

Some weeks ago, we asked Utilities to provide the most recent valuation of the enterprise. Today, we got a response.

Turns out, the most recent valuation was done by the city's Sustainable Funding Committee, which went to that trouble in 2009, and even hired a consultant, accounting firm Virchow Krause, to look into it.

The committee, if you recall, was the one that called for exploring changes to the ownership and governance of city-owned Memorial Health System. A 40-year lease that paid the city $259 million up front and $5.6 million annually for 30 years was just finalized Oct. 1.

Anyway, here's what that committee said about selling Utilities:

The sale of Colorado Springs Utilities to an IOU would not be practical in that the total estimated market value of Colorado Springs Utilities would not be adequate to provide a reasonable cash inflow to the City once all outstanding debt obligations are satisfied. Bond covenants require all bonds be paid off, or defeased, in the event of the sale of any or all Colorado Springs Utilities assets.

The report, finished in August 2009, goes on to say the city would find itself upside-down by $100 million after using a sale's proceeds to retire Utilities debt of $1.8 billion at that time.

Today, the debt is $2.2 billion.

The committee also concluded:

Regardless of the net amount realized through sale of Colorado Springs Utilities to an IOU, it is not considered adequate compensation for the loss of control of the asset by the City and the potential 30 — 40% rate increase following the sale.

In addition to that, the committee also noted:

In the event of a sale of Colorado Springs Utilities to an IOU, there would be no cross-provision of services between the Utilities and the City. This would cause an additional estimated $13Million revenue shortfall to the City.

The chief recommendation involving Utilities made by the committee was to change its form of governance from elected officials by replacing City Council as the Utilities Board with "appointment of independent individuals with management expertise in the several services fields (electric, natural gas, water and wastewater) ..."

Colorado Springs Utilities Steve Schuck
  • Dougan: Likes to study things.

All that said, Mayor Steve Bach isn't satisfied and wants Utilities to spend another half million or so to study it all over again through the Utilities Policy Advisory Committee. And Council approved the study a month or so ago, even though one of its members was also a member of that same Sustainable Funding Committee that already visited the issue.

That person was Angela Dougan, who was elected to Council and took office in 2011.

In case you're wondering who the other apparent "know-nothings" were who came up with those recommendations in 2009, they include the likes of Tom Zwerlein, a professor of finance at UCCS who helps author the Southern Colorado Economic Forum annual report, and Joe Woodford and Andy McElhaney, two of the most conservative local leaders you'll ever find.

Here's a complete list of Sustainable Funding Committee members:

Dan Stuart, Chair
Randy Case, II, Vice-Chair
Tom Anderson
T.A. Arnold
Jan Doran
Angela Dougan
Stephen Engel
Jay Fawcett
Stephannie Finley
Glenn Gustafson
Christopher Juniper
Burnie Legette
Andy McElhany
Dave Mersman
Lynn Peterson
Steve Saint
Terry Storm
Kevin Walker
Joe Woodford
Tom Zwirlein

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