HomeMy WebLinkAbout2018CV149 - SUTHERLAND V. CITY OF FORT COLLINS, STEVE MILLER & IRENE JOSEY - 030B - EXHIBIT 2DISTRICT COURT, LARIMER COUNTY, COLORADO
Court Address: 2Ol Lzr Porte Avenure
Fort Collins, CO 80521
Phone Number: (910) 494-3500
COURT USE ONLYA
Y
Plaintiff: ERIC SUTHERLAND, prl se
Defendants: THE CITY OF FORT COLLINS, a home rule
municipality in the State of Colorado; STEVE MILLER, in his
capacity as the Larimer County Assessor and all successors in
this office; IRENE JOSEY, in her capacity as the Larimer
County Treasurer and all sLlccessors to this office; and
Indispensable Parties: THE TIMNATH DEVELOPMENT
AUTHORITY, an Urban Renewal Authority; and COMPASS
MORTGAGE CORPORATION, an Alabama company doing
business in Colorado.
Attorneys for Defendant City of Fort Collins
John W. I|i4ill (#22348)
Amanda Levin Milgrom (#47811)
Sherman & Howard L.L.C.
633 l7tlt Street, Suite 3000
Denver, CO 80202
Phone Number: (303) 297-2900
Email: jnrill @sherrnanhoward.com
ami I grom @ shermanhoward.com
Case No.: 20I8CYI49
Courtroom./Division: 3C
AFFIDAVIT OF MICHAEL BECKSTEAD IN SUPPORT OF THE MOTION TO
DISMISS OF THE CITY OF FORT COLLINS
I, Michael Beckstead, declare the following:
l. My name is Michael Beckstead and I am over the age of eighteen years and have
personal knowledge of the facts set forth in this affidavit.
2. I am competent to give testimony on the following subject matters.
3. I am the Chief Financial Officer of the City of Fort Collins. I have held this position
since August 2011.
4. In my role as Chief Financial Officer, I have been deeply involved in the Electric Utility
48702363.3
DATE FILED: July 18, 2018 8:12 PM
FILING ID: BF0E70FBC34B1
CASE NUMBER: 2018CV149
Enterprise Revenue Bond Series 2018 and the roll-out of the City's broadband services
since 2015. I have been both the executive sponsor and leader ofthe core team assessing
feasibility of offering broadband service and business planning for broadband services.
Since November 2Ol8,I led recruitment of key positions to support the broadband
launch, oversaw the bond issuance, and developed vendor agreements and contracts with
which to build out the broadband network.
5. I certify that the Broadband Business Plan, dated August 31,2017 , is a true and accurate
copy of the City of Fort Collins' high-level business plan for initiating and operating the
City's Retail fiber-to-the-premise broadband network. Attached hereto as Exhibit A is a
true and accurate copy ofihe Broadband Business Plan. The City, througtr pensons witt
personal knowledge, prepared the Broadband Business Plan in the normal course of its
regular business activities and kept it as a business record of regularly conducted business
activity.
6. In my opinion as the Chief Financial Officer, the Broadband Business Plan was prepared
based on conservative economic and financial assumptions.
I . I led the team that put together the Broadband Business plan, including oversight of the
assumptions and data used in putting it together. As part of the business plan, the City of
Fort Collins contracted with Uptown Services to conduct a statistically-valid phone
survey. The results showed tbat 28.27o of the community will buy the broadband service
at $7Olmonth for one gigabite service. There is no reason to think that the survey results
would be any different at this time. Based on a 28.2Vo take rate and a $70 per one
gigabite service, there is no risk that electric utility rates will go up.
8. There have been two material changes to the Broadband Business Plan. First, the
timeline for construction has been shortened from four years to three years. Second, the
Business Plan assumed that the debt term would be 15 years. That has since been
changed to 25 years, as reflected in the S&P Power Point Presentation detailed below.
The purpose in lengthening the amount of time the Electric Utility Enterprise has to pay
back the debt was to mitigate risk by lowering debt service payments.
9. I certify that the "Follow-up with S&P Electric Utility Enterprise Revenue Bonds Series
2018," ("S&P PPP") dated April 18, 2018, is a true and accurate copy of the power point
presentation that I gave to Doug Snider and Paul Dyson of Standard & Poors Global
Ratings ("S&P") on or about April 18, 2018, and that the information contained therein is
accllrate. Attached hereto as BXhibit B is a true and accurate copy of the "Follow-up
with S&P Electric Utility Enterprise REvenue Bonds Series 2Ol8'; power point
presentation. The City, through persons with personal knowledge, prepared the S&P PPP
in the normal course of its regular business activities and kept it as a business record of
regularly conducted business activity.
10. I co-authored and reviewed the key assumptions in putting together the package provided
to S&P, which consisted of a presentation describing the economic conditions in Fort
Collins, the planning and execution involved in creation of the Broadband business, and
the risks, opportunities, and mitigation strategies considered by the City. Included in that
risk assessment is a sensitivity analysis of the potential financial impacts of an
underperforming market share. The final debt service payments associated with the 2018
Revenue Bonds provides that the Fort Collins Electric Utility Enterprise will make
payments related^ to the bonds for the first thirty months, between June 2018 and
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December 2020, from bond proceeds, rather than from ongoing operations of the Electric
Utility Enterprise. Payments from the Electric Utility Enterprise and its new component
Broadband service line will begin in January, 2021.
I l. After thirty months, the annual debt payments on the bonds will begin at approximately
$5.8 million rn 2O2l and increase slowly over the next five years until they reach
approximately $10.2 million in2026. The term of the debt, as shown in the S&P PPP, is
25 years, which results in a lower l5Va take-rate as the break-even point (holding all other
assumptions constant). This means that if at least 15Vo of Fort Collins residential
premises subscribe to the City's broadband service it will cover all expenses, including
debt service payments on the 2018 Bonds. The City structured the debt in this manner to
minimize the possibility that electric utility rates might go up.
12. During the November I ,2017 electron on the charter amendment to borrow r.rp to $
150
million to fund the internet services, a majority of the voters (57Vo) approved the measure
to allow the City to provide its own broadband facilities and services, which is in further
support of the conclusion that the City will meet its take rate expectations.
13. Construction of the broadband network is expected to begin in November of 2018. It is
expected to be completed by the end of 2021.
14. I have personal knowledge, based on my role as the Chief Financial Officer, that the City
is currently below its estimated capital budget for construction of the broadband services,
which is evidence that the City is likely to meet its expectations regarding expenses.
15. On June 14,2018, the City delivered the 2018 Bonds to the underwriters and received the
net proceeds of the 2018 Bonds in return as evidenced in the Delivery Certificate and
Receipt of Enterprise. Attached hereto as Exhibit C is a true and accurate copy of the
Delivery Certificate and Receipt of Enterprise. The City, through persons with personal
knowledge, prepared Delivery Certificate and Receipt of Enterprise in the normal colrrse
of its regular business activities and kept it as a business record of regularly conducted
business activity. Attached here to as Exhibit D is a true and accurate copy of the
Certificate and Receipt of Underwritels. The Underwriters, through persons with
personal knowledge, prepared the Certificate and Receipt of Underwriters in the normal
course of their regular business activities and the City received it and kept it as a business
record of regularly condncted business activity.
16. Based on the statistically valid surveys, the election, construction costs, and other
diligence conducted by the City, in my opinion the estimates are conservative and have a
high degree of confidence there will be no impact on the electric rate payers.
Furthermore, it will be 5 to 8 years before it can be determined whether there will be any
impact on electric utility rates.
I hereby swear or affirm that the foregoing is true and correct to the best of my knowledge,
infbrmation and belief.
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48702363.3
Michael Beckstead
STATE OF COLORADO )
)ss.
COUNTY OF LARIMER )
Subscribed and sworn to before me this l8[h auv of \ilu
Witness my hand and Official Seal. My
lseall
Notary Publc
Staie of Colorado
nm
C , 2018.
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