Minutes 11/13/1962 - Laserfiche WebLink

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~8 TUESDAY NOVEMBER 13. 1962 results and conclusions developed in the analysis, and to discuss the salient effects of the acceptance of either proposal upon the City's financial prospects. No attempt has been made in this report to analyze considerations of other than a financial nature which might influence the City's decision. The comparisons which are made in this report involve to some degree an attempt to predict future trands, and must of necessity be based upon judgment and analysis of past events. A conservative approach has been used in order to make the proposals in question appear as attractive as possible, and an attempt has been made to avoid all factors of judgment which would unduly belittle the inherent advantages of sale or lease of the system. Present and Anticipated Revenues Any decision which would result in the loss of income which the City may expect to receive from the electric utility must of necessity be based on an estimate of the anticipated revenues. Such an estimate has been prepared from an analysis of the present trends and past fin- ancial records. A tabulation of the relevant financial data for the years 1945 - 1962 inclusive is given on the attached Exhibit B. The average annual increase in net revenues for the years 1945 - 1962 has been approximately 6.9%. Since this figure includes some years in which abnormal capital investments were made following World War II, a further analysis of the years 1952 - 1962 has been made to derive a more accurate present trend in net revenue increase. The annual increase in net revenues for the years 1952 - 1962 was found to be approximately 7.4%. On the basis of these records, an estimated annual increase rate of 7.0% has been used in projecting net revenues for a period of thirty years to evaluate the City's income prospects. This projection is given on the attached Exhibit C, and indicates that, if present trends continue, the City may expect a net revenue of the order of $3,500,000 per year from the electrical system at the end of thirty years. While the income which will be obtained in any specific year may vary from the anticipated value for various reasons, it is expected that the overall trend will continue approximately as shown on Exhibit C. Effect of Sale Appalachian Power Company has offered to purchase the City's electric u"~ili ty for $5,981,000, plus the cost of construction materials on hand up to $65,000. For purposes of this analysis, it is assumed that the total sale price would be the maximum of $6,046,000. The offer to purchase has been analyzed on the assumption that the proceeds of the sale would be invested at four percent and that a with- draval would be made from the total funds each year in an amount equal to the net revenues which the City can anticipate if the system is retained. It is realized that the prospects of such a high interest rate for this