Owensboro Municipal Utilities presented its five-year financial plan for its first reading to the Owensboro City Commission Tuesday. The plan, which is projected to decrease customer bills by approximately 5.8 percent, was well-received by all commissioners. Ordinances for bond defeasance, (a provision in which the borrower sets sufficient cash aside to pay off the debt, increasing the bond’s safety) and a base rate increase, will be read again and voted on for approval at the commission’s May 7 meeting.
Tonight’s reading comes on the heels of a unanimous approval of OMU’s plan by the Utility Commission in mid-March.
OMU General Manager Kevin Frizzell admits it is difficult and somewhat confusing that the city commission is being asked to approve a base rate increase, but customer bills are expected to decrease. He explained that a base rate increase will be offset by decreasing rates for energy cost adjustment (ECA) and environmental cost control adjustment (ECCA), mainly stemming from the closing of Elmer Smith Station.
In order to maintain OMU’s debt service ratio, the utility must pay off some of its bonds early — $19 million worth to be exact. OMU is asking city commission to approve $3.5 million to be paid off in fiscal year 2019. Another $15.5 million is expected to be paid off in 2020.
According to Frizzell, this will reduce the utility’s debt service over the next nine years, saving customers $22.2 million because of the avoided interest on the debt.
Commissioner Larry Conder asked Frizzell at Tuesday’s meeting to quantify OMU’s total debt, as well as clarify how long those debt payments are to be made. Frizzell told the commission OMU’s total principal debt was $146 million, adding that the debt of Elmer Smith Station will be paid off on Jan. 1, 2026. Fiber makes up $6 million of OMU’s debt and has another 20 years to be paid off.
Frizzell said that OMU’s purchased power agreement with Big Rivers Electric is contracted through 2026. Once that agreement ends, Frizzell said OMU will conduct another power supply study, to begin in the next few years.
Mayor Tom Watson asked Frizzell about the decommissioning of Elmer Smith, which is set to occur in two phases beginning on June 1, and the cost associated with that.
“It depends on the level of decommissioning we do,” Frizzell said, noting that OMU is currently conducting a study in order to present options to the utility commission this summer. “It could be anything from $10 to $12 million up to — name a price — $40 to $50 million in you want to take that plant completely down to the ground.”
Watson suggested to Frizzell that OMU is moving toward alternative energy options for the future.
Frizzell said that while OMU’s purchased power agreement with Big Rivers is the bulk of the utility’s power at 90 percent. OMU also has a current allocation for hydropower at another 5 percent and solar power for another 5 percent to come online at the end of 2022.
“The good thing our commission did was to make a good choice not to lock us in for a very long term for any one source of supply so that whatever happens, we’ve got some flexibility to diversify our supply moving forward,” Frizzell said.
For average OMU customers, approval of these two ordinances will mean about a $2.86 monthly bill decrease in the first year and a $7.27 decrease by the second year.
If passed at the city commission’s second reading, the plan would be effective June 1.
