Commission recap, Oct. 23, 2018

Commissioners support more funding for faster fiber build-out

Commissioners voiced strong consensus Tuesday for more money in the 2019 budget for fiber-optic network build-out and shortening from 10 to five years the proposed time to finish extending the network to all Grant County residents. (3:17 on the recording. See budget presentation here)

The discussion came after commissioners learned that Fitch Ratings and Standard & Poor's, two of three bond-rating agencies consulted last week, appear to agree that Grant PUD can reduce its reserves by $50 million in the 2019 budget without lowering its very good AA bond rating. A third agency, Moody's, asked for more information, which PUD Financial staffers will provide.

Commissioners could choose to use some of this $50 million for faster build-out of the fiber-optic network or other projects, General Manager Kevin Nordt said Tuesday.

Stronger finances, made possible in part by refinancing some outstanding debt late last year before changes in the tax law, are making it possible to reduce reserves.

Grant PUD's $279.6 million budget for 2019 includes a debt-service payment of $87.5 million on its $1.3 billion in total external debt. Also planned is an issuance of $20 million in new debt to help with budgeted capital costs of $132 million for upgrades of the dams and electrical system.

Total debt is expected to decline to 60 percent of Grant PUD's $2.05 billion in plant assets and continue declining to 56 percent by late 2023, lower than industry standard for a utility of its size.

Debt service coverage of 1.91 is expected next year — nearly twice as much cash as need to cover annual debt service. This figure is expected to climb to a healthy 2.00 by late 2023. Debt-service coverage and debt-to-net-plant ratio are key indicators for a continued strong bond rating.

The budget includes a 2-percent rate-revenue increase. The rate increase is projected to drop to 1 percent or lower in 2020, also based on strengthening finances. The 2019 budget forecasts a positive $58.5 million change in net assets (bottom line).

The current draft of the proposed 2019 budget currently doesn't include additional funds for new fiber build-out to the approximately 30 percent of county residents that don't have access.

Chief Financial Officer Jeff Bishop agreed to present to commissioners next month different spending scenarios for fiber prior to commissioners' final vote on the 2019 budget.

Commissioners also:

— Agreed by split decision to expand from 10 to 25 years the time Crescent Bar leaseholders have to repay Grant PUD for the leaseholders' share of the island's new $12.5 million sewer system, providing the island homeowners associations first pay their $20,282 in past-due leasehold taxes. (3:00 on the recording, commission packet, pages 9-15)

Homeowners associations' representatives asked for the extension, because the final cost of the new system was higher than earlier estimates, making it hard for some leaseholders to repay on the original 10-year schedule.

A staff analysis of the proposal showed the extension has a neutral to slightly positive impact on Grant PUD, which would benefit from interest payments on the longer-term debt. All other aspects of the Crescent Bar Settlement Agreement remain unchanged.

Commissioners Bob Bernd, Tom Flint and Larry Schaapman voted in favor of the motion, saying it was the right thing to do, given sewer system's actual cost was much higher than the original estimate. Commissioners Terry Brewer and Dale Walker opposed, citing concerns about state law that limits how PUDs can spend their money or, in this case, extend credit.

The 10-year pay-back dates to 2015 agreement the island homeowners signed with Grant PUD that ended years of litigation. The homeowners got new long-term leases that allow them to remain on the island through at least 2047.

— Learned that Grant PUD has the potential to add more than 200 MW of traditional load – non cryptocurrency — in the upcoming years. This according to Power Delivery's quarterly update to the commission that outlined the need for system enhancements to accommodate this anticipated growth.

This year, staff has reviewed applications for 28 potential projects. Specifically Power Delivery personnel wanted to understand how to best accommodate and meet this cumulative level of power needs from the applications by developing preliminary service options. These options outlined what customers could anticipate if their project were to move forward to completion. Based on this input, customers narrowed the number of potential projects they plan to pursue down to 15.

Although the number of potential projects has dropped, current applications show customers are still needing approximately 200 MW of service. In comparison, Grant PUD's average load last year was 590 aMW. This level of growth would increase Grant PUD's load by more than a third.

Many of these potential large general service and industrial projects would be based in Quincy and the Wheeler Corridor of Moses Lake. A small number of projects are anticipated in other parts of the county.

To continue the exploration and the development of a full plan of service, customers will now pay the second half of the application fee for the projects they plan to pursue. Timing to complete any finalized plan of service for each project will vary depending on the type of work that needs to be accomplished. (Discussion begins at 2:00:00 of the commission audio and the presentation materials can be found on pages 19-31 of the staff presentations)

— Learned that the amount of electricity Grant PUD expected to sell to residential, commercial, industrial, irrigators and other customers — was 3.5 percent below forecast from the July through September (third quarter) and is 3 percent below forecast, year to date. (1:20 on the recording. Presentation materials, pages 13-18)

Across all retail customer types, 49,673 fewer megawatt hours were sold. This electricity would have fetched $1.8 million in additional retail rate revenue.

It's very hard for Grant PUD to track what happens to unused electricity, although it is often sold on the regional wholesale market, where prices during the third quarter averaged $45.50 per megawatt hour, enough to surpass the power's local retail value.

Nolan attributed the missed forecast to a variety of factors, including imprecise predictions that will improve as Grant PUD's advanced meter program becomes fully operational next year and increased staffing allows more detailed analysis of markets.

One big manufacturer reduced operations due to an international market downturn for its product. Other big customers experienced changes in ownership or experienced delays in their construction plans.

Load – energy used – by two customer rate classes was greater than forecast for the third quarter. Electricity use for irrigation grew 12.5 percent, owing to a hot, very dry July and August. Energy use from Rate Class 7 for large general service 68.4 percent above forecast, owing to growth from cryptocurrency mining.

The new Rate 17 for "evolving industries," which includes crypto mining takes effect in April 2019. Because it's phased in over three years, the new rate isn't expected to have much impact on crypto mining in 2019, Nolan said.

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