Transition from Mountain Utilities to KMPUD Ready for July

The final major steps needed to transition electricity and propane sales from Mountain Utilities (MU) to Kirkwood Meadows Public Utility District (KMPUD) have been completed, and operations should commence in July!

On June 23, the California Public Utility Commission (CPUC) approved the sale of assets by MU to KMPUD. On May 26, KMPUD completed the sale of $22.5 million in municipal bonds to finance the acquisition, complete the new powerhouse, restructure the existing debt and complete the design and permitting process for connecting Kirkwood to the grid. You can read a copy of the “Official Statement” for the bonds at www.royceprinting.com/jobs/FOSarchive/2011FOS/05_23_11_KirkwoodMeadowsFOS.pdf. The bonds are temporary financing to be replaced by permanent financing sometime during the next two years.

The project that started 5 years ago is ready to begin its first operations. In this letter we will present our views on what to expect and some of the remaining challenges. But first, we express our congratulations and thanks to everyone involved!

What will be different?

The first difference will be a single bill from KMPUD for electricity, propane, water and other services. Kirkwood will continue to operate on temporary generators until this fall when we start using new, more efficient diesel generators located inside the new powerhouse. The new generators are designed to be up to 15% more efficient than what we have been historically using.  This will help moderate electricity bills, as the cost of diesel continues to be very volatile and very expensive. The new generators’ improved emission performance will also help contribute to cleaner air quality within Kirkwood valley.

The cost for power is expected to be more consistent from month to month for two reasons. First, KMPUD can reflect diesel costs in a timelier manner because they do not have to apply for approval to the CPUC as MU currently does whenever there are fluctuations in diesel prices. Secondly, KMPUD will be installing wireless, remote-read meters. Currently, if your meter is inaccessible due to snow or weather, MU makes an estimate of your usage and makes corrections in later months when the meter can actually be read. With KMPUD providing our energy going forward, the meter will always be readable.

Remote-read meters also provide the eventual opportunity for homeowners to securely read their own meters via the internet. This can be helpful for detecting leaks and knowing if electric or propane fixtures are inadvertently left on when you are not there.

While we can hope that the transition from MU to KMPUD is seamless, we suspect there will be some “bumps in the road.” In the long run, we should all expect (and demand) the high level of service and accountability that comes with a public agency with an elected Board.

In-valley challenges

Over the summer the in-valley powerhouse facility will be completed and the new equipment installed. Power Secure will manage the construction and the powerhouse operations. This is the same company that MU has used for the last year to run the temporary generators. This will help provide for a smooth transition and minimize the risk of surprises that cannot be managed.

The larger challenge for in-valley will be financing. We need to secure the lowest cost long-term financing. The current financing is with short-term bonds that are due in two years. Our short-term interest rate is about 4.2%, and the long-term rate is going to be higher, adding to our cost for power. The most important way to keep costs down is to get a rating for our debt from one of the rating agencies. “Rated” bonds are those that have been analyzed by a rating agency and are considered lower risk than  “unrated” bonds.  In our case, the difference could be as much as 1.5%, or over $330,000 per year in interest expenses. This equates to about 5 cents per kWh at current levels of total electricity use.

The Energy Finance Committee is currently tasked with soliciting Requests For Information (RFI) from a number of different financial institutions to determine what is needed for us to get rated. You can read our RFI at https://kirkwoodenergy.files.wordpress.com/2011/06/kmpud-rfi.pdf. It defines steps we can take to secure affordable long-term financings. These include pledging to collect sufficient revenues to make our bond payments, holding a year’s worth of bond payments with a trustee, and having a “back-up” plan in the event a major customer fails to pay their electricity bills (e.g., if a financial issue with KMR prevents them from operating).

Out-valley progress

The out-valley plans consist of three components: (1) permitting, (2) financing, and (3) affordability. The permitting is very far along, and at the current rate of progress could be completed by November – assuming there are no protests. Historically this is a big “if,” but in our case we have very broad support up and down Highway 88.

We are just starting the financing process with the biggest unknown being whether we can secure long-term financing from the US Government’s Rural Utility Service or RUS. RUS was created to assist isolated, small communities with high electricity rates. If we can get low cost financing through this program, the out-valley connection would be much more affordable.

Affordability is THE major issue. With high, unpredictable diesel prices, the out-valley would provide more affordable long-term power than diesel. The real cost savings occurs as Kirkwood grows, and we support more homes and a larger resort with more chair lifts over the same interconnection line to the California electrical grid. According to Kirkwood Resort’s Master Plan, at full development there will be about 40% more electricity demand than at present.  This will significantly reduce the fixed costs per household of providing power. Until residential, commercial, and/or on-mountain lift operation growth resumes, we will need to carefully consider the costs.

Conclusion

Great progress has been made:

  • Over the short-term, since community involvement and energy was initiated earlier this year, resulting in the formation of the Energy Finance Committee.
  • Over the medium-term, since the powerhouse was destroyed 18 months ago, and
  • Over the long-term, since the community and KMPUD initiated plans for the acquisition of MU back in January 2006.

The powerhouse destruction clearly resulted in higher costs than anyone expected. Electricity and propane operations will soon be transferred to our local public agency, which must provide increasing transparency and efficiency.  This unambiguously places control of electricity and propane operations with our own public agency, which “clears the brush” for moving forward more efficiently.  However, the “big calls” really are in front of us now:  whether we can afford to interconnect (or whether we can afford not to interconnect), and the model for long-term financing of whatever approach we choose.  These efforts are just getting started.

Thank you for your support– we plan to continue to keep you informed regarding efforts for a better Kirkwood.

Best regards,

Bob Epstein & Standish O’Grady

6 Responses to “Transition from Mountain Utilities to KMPUD Ready for July”

  1. Charlie Ballantyne Says:

    Thank you Bob and Standish for your tremendous efforts in bringing us all this far. This cannot have been easy in this economy, the uncertainties and the challenges thrown in for good measure but I hope all at Kirkwood appreciate greatly the personal time and energy you have both committed to move us forward.

    To all of those who have committed their personal time to see this through – thank you!

  2. Carolyn Tucher Says:

    Dear Bob and Standish,

    We are all much indebted to the two of you for your outstanding work on our behalf. The progress and the prospects for solving our remaining issues are as positive as they are because of what you have done.

    A thousand thanks!
    Carolyn

  3. Gary Sargent Says:

    Kirkwood by definition is THE remote, high cost electrical rate community. What circumstances would prevent the community from not qualifying or receiving RUS financing?

    • Kirkwood Energy Says:

      We think RUS financing looks promising. The application is complicated and it takes a while (9 month and more) to get a decision. It would definitely make a big difference to us.

  4. John Moran Says:

    Bob & Standish,
    Thank you for your efforts!
    John

  5. Valori & Gordon Stitt Says:

    Thanks again for your clear summation of the issues and the progress regarding Kirkwood’s power plans. We cannot say enough about how much we appreciate the time and expertise you have brought to this process.

    Valori & Gordon Stitt

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