DALLAS — Colorado Springs is preparing to sell $477 million of utility system revenue bonds that will include refunding and new money for a 62-mile water pipeline called the Southern Delivery System.

The negotiated deal, expected to price the week of Aug. 23 with Piper Jaffray & Co. as senior manager, will include about $100 million of tax-exempt bonds and $377 million of taxable Build America Bonds in two series.

Both Standard & Poor’s and Fitch Ratings rate the bonds AA with stable outlooks. Moody’s Investors Service, which last rated the city’s utility revenue bonds Aa2, had not issued its report on the new issue as of Thursday.

Colorado Springs Utilities is an enterprise fund of the city, providing electricity, gas, water, and sewer to customers in Colorado Springs, Manitou Springs, and residential suburban areas around the city.

The military installations of Fort Carson, Peterson Air Force Base, and the U.S. Air Force Academy receive water and electric service, gas supply and transportation, and Peterson Air Force Base also receives wastewater treatment service.

With a population of 414,358, Colorado Springs sprawls from the base of Pikes Peak about 60 miles south of Denver. Faced with a weakening tax base, the city recently made national news with its decision to turn off a third of its traffic lights to save money.

The City Council voted Monday to seek voter authorization to keep $600,000 in excess property tax collected last year. The Nov. 2 ballot proposal would direct the money to be spent on unspecified city services.

In another sign of slowing growth, sales of newly built and existing homes fell nearly 25% in July, according to the Pikes Peak Association of Realtors.

Despite the recession, each of the utility services experienced moderate growth in 2008 and 2009, according to Standard & Poor’s. The City Council acts as the utilities’ board.

The $1 billion Southern Delivery System will account for the majority of capital spending during the next five years and will begin operating in 2016.

Proceeds from the Series 2010B bonds will fund most of the initial investment, according to the city, with additional debt expected later.

The pipeline from the federally owned Pueblo Reservoir to the south of Colorado Springs will make up 60% of projected capital spending of $1.63 billion.

The city’s electric system will invest about $415 million in capital projects, of which about $200 million will purchase a natural-gas fired power plant.

Pueblo Reservoir, surrounded by Lake Pueblo State Park, is the last in a chain of five reservoirs that make up the Frying Pan-Arkansas Project, which was completed in 1981.

Most municipal and agricultural deliveries for the project are made out of the reservoir before the Arkansas River continues east to Kansas.

The city has been planning the Southern Delivery System from the Pueblo Reservoir since 1996.

Colorado Springs will be the majority owner in the SDS project with a 95.3% stake, with neighboring water systems owning the remaining share of the ­project.

“The SDS project is challenging and highly political at the state, regional, and federal levels,” Fitch analysts noted. “Key major permits are now in place and SDS construction can begin as early as the end of 2010. Once SDS is completed, Colorado Springs’ water supply would be adequate through 2040.”

Throughout the arid state, Colorado’s fast-growing cities on the Front Range of the Rocky Mountains, from Fort Collins in the North to Pueblo in the South, the battle for water rights is one of the most contentious issues. 

In Colorado Springs and Denver suburbs, limited water supply is often the ­biggest restriction on growth.

“Our charge as a utility is to provide a reliable water supply for our customers, and SDS will ensure that we can deliver water for many generations to come,” said Colorado Springs Utilities chief executive Jerry Forte. “Many cities would love to be in the position we are in today, ­discussing the actual implementation of a regional water system.”

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