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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 48702363.3 2 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. 3 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. 4 48702363.3