February 8, 2011
Dear Members of the Kirkwood Community,
We would like to update you on the Kirkwood In-valley energy project. Several significant events have happened in the last few weeks that will be discussed this Saturday, February 12 at the KMPUD Board meeting scheduled for 8:30 A.M. at the KMPUD’s community services building. We encourage you to attend.
Many of you used the blog: kirkwoodenergy.wordpress.com to express your ideas and concerns. We encourage you to continue to do this. All information we collect will be posted there, and we will deliver comments from the blog at Board meetings. To add your comments please scroll to the end of this article.
The current focus is on the process, structure and costs for issuing approximately $21 million of bonds to: rebuild and operate local diesel generation ($7.6 million), refinance existing debt ($7.4 million), acquire Mountain Utilities’ electricity and propane businesses ($2.9 million), and continue progress on the Out-valley interconnection project ($2.8 million). These are obviously large amounts of money for our community. Getting it right the first time will be critical to our community for decades to come.
Energy Finance Committee
At the January Board meeting, the KMPUD voted to establish an Energy Finance Committee (EFC) that consists of 5 members from the community and two Board Members. After two preliminary meetings, the first official meeting of the EFC took place today at 2PM. The committee members are:
Frank Majors, KMPUD Board and Chair
Larry Lacey, KMPUD Board
Tony Tucher, Homeowner
Allan Sapp, Homeowner
Bob Ende, Homeowner
Bob Epstein, Homeowner
Dave Likins, KMR representative
All meetings of the EFC are open to the public. A subset of the committee also held conversations with three financial firms interested in supporting KMPUD financing needs for 2011. In addition to meeting with Cantella, the underwriter KMPUD used last year, we talked with First SouthWest and Raymond James. Both submitted letter requesting an opportunity to work with KMPUD. To read their letters, please click on the following:
First SouthWest Board Letter January 26, 2011
Raymond James KMPUD Board Letter January 26, 2011
This is a significant change from the January Board meeting where the Board voted unanimously to proceed with Bob Haight’s recommendation of an exclusive, non-competitive relationship with Cantella as the Bond underwriter. This change in direction has lead to an actual competitive process for bonds issued in 2011. All three firms will be asked to submit proposals in time for Saturday’s meeting. We do not expect a decision at the meeting but rather we expect the EFC will have an opportunity to review the proposals and offer advice so a final decision can be made quickly. We strongly recommend that the Kirkwood community continue to urge a competitive process. We now know from both firms and from KMPUD bond council that it is possible to have a competitive process and meet the April 27th Bond offering date.
Financial Plan
At the January Board meeting, KMPUD Bond Counsel, Bob Haight, presented financial options (see project financing alternatives). He concluded that 40-year “Certificates of Participation” (COP) were the best financial structure to use. There was no disagreement with this position. It requires that KMPUD guarantee that it will set rates for electricity and propane revenue such that KMPUD will collect 20% more than required to meet the debt service payments.
At the next Board meeting, Mr. Haight will present an alternative that we strongly favor to long-term COP financing. The alternative is to issue short-term bonds (three years maximum) that would then be replaced at a later date by long-term COP bonds. There are several possible advantages of this approach compared to the plan presented and approved by the Board at the January meeting:
1. Significantly lower interest rates in the short term. Interest rate costs are anticipated to be 4.2 – 6.0% under this alternative, compared to 7.4 – 7.5% under the January plan.
2. Over $2 million less of bond principal issuance due to no Reserve Fund requirements.
3. The combination of 1. and 2. above results in less than half the average annual interest rate payments; i.e., < $1 million compared to > $2 million.
4. This approach allows KMPUD more time to develop a stronger offering that could be at a lower long-term cost.
Project Plan and Timeframe
At the January Board meeting KMPUD General Manager Tom Henie committed to provide a detailed project plan for this meeting. We look forward to seeing it this Saturday.
Summary
The EFC is a very positive development and it will provide a good vehicle to insure a competitive and cost effective financing for both In-valley and Out-valley projects. Board Member Frank Majors and Assistant Manager Michael Sharp have done a good job of pulling the EFC together. The members of the committee are all willing to invest time and energy to help.
We continue to be greatly concerned about financing and management of the project. However, as a community, we have made progress since the last Board meeting. We expect to be able to resolve these issues and achieve our ultimate goal of affordable, reliable, high-quality power for the Kirkwood Community.
Sincerely,
Bob Epstein and Standish O’Grady
February 9, 2011 at 7:48 am |
While Dave and I will be unavailable to make the meeting on February 12, I wanted KMPUD to know that the Kirkwood In-Valley Energy Project is very important to us. We appreciate the direction it is moving with input from the newly developed Energy Finance Committee and support its members in their recommendations. Thank you KMPUD and EFC for working so hard “to get it right”.