City-owned utility not seen as bond worry

BOULDER – If the city of Boulder’s financial assumptions about a possible municipal utility are incorrect, the error should be in the city’s favor, the expert in financing public utilities the city used to create its latest financial forecast said Tuesday during a conference call hosted by the city.

Michael Berwanger, managing director of the PFM Group, said Boulder likely would be able to present a municipalization plan that would be well received by the bond market, should the city go through with creating a municipal utility.

The city’s financial forecast “was built with conservatism in mind and utilizes what we would characterize as conservatives assumptions,” Berwanger said. Among the assumptions are an “A-minus” bond rating, which would be well below the city’s current “AAA” rating.

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Selling bonds would be a crucial part of Boulder’s effort to launch a municipal utility. In November 2011, Boulder voters narrowly approved two ballot measures giving the city council authority to create an electric utility under certain conditions. City staff and consultants have been studying the issue since.

Berwanger was involved in the study process. His firm specializes in financial consulting for municipal utilities.

Boulder would have to show investors it has a credible operations and financial plan, and its debt would be costlier because it is a startup utility, Berwanger said. But the market for utility bonds exists.

“Public power is a widely known commodity. Many communities have it,” Berwanger said.

Berwanger was joined by consultants the city used to study reliability and governance structure. The conference call was part of the city’s ongoing effort to reach out to residents and businesses as it considers which course to take. An open house for the public is scheduled for 6:30 to 8:30 p.m. Wednesday at the West Senior Center,  909 Arapahoe Ave., Boulder.

At its April 16 meeting, Boulder City Council is scheduled to decide whether to give the city’s staff the go-ahead to the next phase of its work. Phase 2 would involve creating a more detailed operational plan, preparing information for a possible bond sale and setting the legal framework for creating the utility, said Heather Bailey, Boulder’s executive director of energy strategy and electric utility development.

Boulder currently is served by Xcel Energy Inc., an investor-owned utility which owns the transmission system in Boulder. Xcel Energy has said it does not want to leave the market or sell its assets.

An impasse in negotiations could lead to litigation, as Boulder could take the grid through the power of eminent domain. In that case, Boulder and Xcel Energy would head to state court to determine how much Boulder would have to pay Xcel Energy.

A conference call participant asked about legal fees, and in what cases Boulder would have to pay back Xcel Energy if it decided not to municipalize when the process was nearing its final stages. The Boulder city attorney’s office only believes the city would be liable for Xcel Energy’s legal fees if it lowballed its offer in condemnation negotiations, said Kathy Haddock, a lawyer with the office.