OMU forecasts no water rate increase and projects to maintain or decrease the electric rate in the next five years.
At a City Utility Commission meeting Thursday, board members approved spending $14.3 million of the public utility’s reserves to pay off bonds, which will keep customer rates from increasing and maintain a required debt to service ratio. The decision will be voted on by the City Commission before enacted, but OMU says by paying off its debt early they will save a total of $24.5 million, or an average of $2.72 million per year.
OMU Manager of Planning Jason Potts said his team analyzed several options before arriving at the $14.3 million as the optimum redemption amount. Paying off too little did not help the debt to service ratio required for OMU to maintain and too much would stretch the public utility too thin with looming costs of decommissioning Elmer Smith Station in summer 2020 ahead.
“When you go into a period of uncertainty, the best cash position to be in is a strong one,” Potts said.
With this proposed plan, the only debt remaining for OMU by 2027 would be telecommunication bonds approved in 2017. Board members discussed the possibility of refunding those bonds in the future to become debt free if cash flow would allow.
Potts also told the commission that previous projections of the commercial and residential usage were now estimated to be 16 million kilowatt hours higher, reducing revenue by $1.5 to $2 million.
Potts said the projected less usage is most likely due to more efficiency on the part of OMU’s customers, both commercial and residential.
To cover that OMU estimates that customer base rates will remain the same through 2023, but will need to increase by 5.5 percent in fiscal year 2024-2025. But like the 2019 customer rate increase, this will not result in higher bills.
This is achieved by a decreased energy cost adjustment (ECA), which is lower due to more efficient power purchasing from Big Rivers Electric Corporation rather than producing power at the soon-to-be decommissioned Elmer Smith Station. Higher base rates are also offset by a lower environmental cost control adjustment (ECCA), which covers costs to comply with EPA regulations, also decreased with closing Elmer Smith Station.
Potts told the commission that the water side of the public utility is in good financial health, although it will lose one of its largest water customers when Elmer Smith closes in June 2020.
OMU borrowed $48.6 million in September 2018 for the William H. Cavin Water Treatment Plant expansion. No additional borrowing is needed, Potts said, and stable rates are projected for the next five years.
Owensboro City Commission will hear the first reading of the bond refunding proposal at the Oct. 15 meeting. Should it be approved upon second reading on Nov. 5, OMU anticipates the bond closing on Dec. 4.
