By Vernon Robison
Moapa Valley Progress
Submitted May 28, 2008
The Overton Power District (OPD) is in the process of reshuffling its debt in order to stave off possible dramatic rate increases. The OPD Board of Directors voted last week to extend the term on the district’s current debt out 20 years. This move would posture the OPD to be able to take on an additional $21 million in new debt over the next six years to pay for necessary capital improvements in the power delivery system.
“We are anticipating a need for $21 million in new debt,” said OPD General Manager Delmar Leatham. “We propose borrowing it in $3.5 million increments over six years.”
As things are now, that increase would require a 5% rate increase to meet the required debt service on the total OPD debt, Leatham explained. But to avoid that increase, Leatham proposed that terms on the current debt load be extended 20 years. This would drop the current debt service by $2 million per year and would enable the district to add the $21 million in new debt without raising rates to pay for the new infrastructure.
“Our recommendation would be to take the existing loan, stretch it to 2028 and put the savings towards future debt service,” Leatham told the Board.
The $21 million would be used to update the OPD delivery system to meet the demands of growth in both Moapa and Virgin Valleys. These improvements would include the construction of new substations in Mesquite and also south of Overton. Also included is a major upgrade to the existing Tortoise substation in Moapa. Finally the plans would involve a new power transmission line running from Moapa, through Logandale and across the mesa into the Virgin Valley.
“These are improvements to the basic backbone of the system that everyone in the district uses,” Leatham said. “This is the key to the future growth that we will be dealing with in Mesquite and in the system as a whole.”
While a move to extend the current debt would prevent rate increases to pay for infrastructure, it would not solve the problem of rising power costs. The OPD is currently conducting a rate study to explore what increases may be necessary to cover the rising cost of power resources.
The current OPD power purchase contract expires in 2012. At that point, the district will be required to seek contracts under new pricing for its power resources.
“What will be the cost of power in five years from now?” said Leatham. “That is the question.” Leatham said that current bids received for power resources in 2013 have come in at 25% above the district’s current cost.
“We know the cost of power is going up and we don’t want to have to see a sudden 20% rate increase when it does,” Leatham said.
Leatham presented a tentative projection that would raise rates by 5% every other year beginning in 2009. These increases would be expected to cover the increased cost of power.
“What we found was that if we did that, then by 2013 our rates would still be well below what Nevada Power’s rates are today,” Leatham said.
With all of these things in mind, Leatham requested that the Board approve the extension of current debt to, at least, drive down a possible rate increase on the added infrastructure. “If you choose not to extend the debt, we might see an increase of 10% next year,” he said. “We’d have 5% to pay for the increase in debt service and another 5% to cover the increased cost of power.”
Logandale Board member, Larry Moses, made a motion to approve the extension of debt. The motion carried with a unanimous vote.
