Minutes 11/13/1962 - Laserfiche WebLink

Metadata

Thumbnails

Annotations

~ NOVEMBER 13. 1962 TUESDAY . ,,- tJ~e of investment are not good, and that certain legal considerations might obstruct such an arrangement. However, this is felt to be a conservative approach, which has been used as a means of attributing all possible advantages to the purchase offer. On the basis of the foregoing conditions, the entire proceeds of the sale and all accumulated interest would be completely exhausted in less than eleven years. Details of the analysis are shown on the attached Exhibit D. Effect of Lease An alternate offer to lease the electric system for a period of thirty years has been made. Appalachian Power Company proposes to pay a leasing fee of $500,000 per year for the first five years, which would thereafter increase in increments of $50,000 in each succeeding five year period. The annual fee during the final five year period would thus amount to $750,000. The lease is proposed upon the condition that all improvements, modifications, and extensions of the system would be made by Appalachian Power Company and would be the property of Appalachian Power Company. Numerous other conditions are included, and the entire text of the proposal is given on the attached Exhibit A. The proposed annual leasing fee is shown on the attached Exhibit C for comparison' with the anticipated net revenue which would be derived from continued City control of the utility. This comparison indicates that, if present trends continue, the annual leasing fee at the end of the thirty-year period would equal approximately twenty per cent of the anticipated annual net revenue which would accrue to the City if the electric system is retained. In view of this differential in income, it might be expected that the lease could be renegotiated after the expiration of the original thirty year period under terms which would be more attractive to the City. However, this is not likely to occur. During the thirty-year period, most of the components of the existing system will have been replaced at least once as a result of depreciation and the requirements of providing for additional loads. Since the replacement components will belong to Appalachian Power Company, the City would be in the untenable position of negotiating a lease for a utility which will have almost entirely disappeared as a result of depreciation and replacement. - If the City should decide to sell the utility at the expiration of the original thirty-year lease, it would at once become apparent that the City would have almost nothing left to sell. On the other hand, if the City should decide to attempt recovery of the utility by purchasing the facilities which had been installed during the thirty-year lease period, it. would be necessary to obtain funds for purchasing a gratly expanded electrical system. These funds would then have to be obtained from a financial structure which would be considerably less able than the existing financial structure to accumulate such amounts. Research 'by a major financial institution has shown that it is a practical impossibility for a municipality to obtain sufficient funds to purchase the electrical facili ties which serve the municipality.