DALLAS – Colorado Springs has approved refunding $110 million of combined utility system revenue bonds as the city studies the possibility of selling or leasing its electric power system to a private operator.

The city council approved the refunding on Tuesday but has not announced a date for the bond sale.  The council serves as the board for the combined water and electric utility board.

Standard & Poor’s has rated the bonds AA with a stable outlook.  Moody’s Investors Service had not reported its ratings as of Wednesday.

Deliberations over whether to sell the electric utility system coincide with a separate study over whether to sell or decommission the Drake coal-fired power plant that produces about a third of the city’s energy.

The study over whether to sell the electric system is led by the Utilities Policy Advisory Committee, which was given the assignment last August. At its Tuesday meeting, the council agreed to hire NewGen Strategies as consultant on the study. The committee is preparing a request for proposals for a second consultant to review alternatives and provide a valuation for the utility.

UPC representatives told the council last month that it has not taken any position for or against the sale of the electric utility so far.

In a similar divestiture last September, Colorado Springs sold its Memorial Hospital system to the Colorado Hospital Authority, which assumed $310 million in outstanding debt for the hospital.

Colorado Springs expects to invest about $1.3 billion in the combined utility systems during the next five years, funding about 40% of it with debt, according to S&P. Officials are planning for annual residential rate increases of about 6% to help fund the investment and maintain strong financial metrics.

The utilities' overall business risk profile is 3 on S&P’s scale of 1 to 10, with 1 being the strongest.

“The score largely reflects our view of the utilities' good competitive position, the management team's strength, and a favorable regulatory environment with regard to rate-setting,” analysts noted.

The utilities provide electricity, gas, water over a large area of the city and its suburbs, including Ft. Carson Army Post and Peterson Air Force Base. Colorado Springs is Colorado’s second-largest city behind Denver 70 miles to the north.

The Drake power plant is expected to be in violation of federal emissions regulations, which has prompted the city to consider stepping up decommissioning of the plant or selling it.

In addition to the power issues, the city is dealing with a drought that has grown severe in recent years. To increase water supplies, Colorado Springs is building a 50-mile pipeline called the Southern Delivery System that is expected to cost $1 billion financed with bonds over 40 years. The pipeline from the Pueblo Dam to the south is in its second year of construction.

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