OPD Board Votes To Pay Down Debt

By VERNON ROBISON

Moapa Valley Progress

The Overton Power District (OPD) Board of Trustees voted last week, in a 5-2 decision, to use some of the district’s reserve funds to pay down a small portion of its debt.

At a meeting held Wednesday, Aug. 15, board members were faced with a decision on what to do with two of its loans that are scheduled to be repriced in October. The loans are for roughly $3.5 million each with a current interest rate of 6.23 percent. The total interest cost on each of the two loans is just over $200,000 per year.

Both loans are scheduled to reach maturity on October 1. There are two options that the board may take at that point. The first is to reprice all or a portion of the loans at the going interest rate at the time. The second is to pay the loans off. If the loans are repriced, the district also has the option of locking in a new rate as early as September 1.

OPD staff members explained that current interest rates on the loans is at 4.9 percent and are likely to rise in the near future.
“Our concern is that the Federal Reserve is hinting that it will raise rates as much as four times per year in the next few years,” said OPD General Manager Mendis Cooper. “So this may be a good time to reprice at a lower rate.”

There was a divergence of opinion expressed by board members. Some trustees proposed that a portion of the district’s cash reserves be used to pay off one of the two loans.
“I think that we owe that to our customers,” said Mesquite board member Mike Young. “Considering how much cash we have on hand, it would be a relatively small paydown. Otherwise, we are just paying high rates and getting nothing for the money.”

Bunkerville board member Bob Bunker agreed. “I’d like to see us use our cash to pay the debt down,” Bunker said. “Even if it is just a portion.”
Others on the board, while in favor of the concept of paying down the debt, were uncertain whether the timing was best to do so now.

OPD Chairman Mike Fetherston pointed out that the district has another loan coming up for repricing in December. This loan, in the amount of $3.2 million, has a current interest rate of 3.5 percent. Given current market conditions, that rate would likely reprice at much higher in December, Fetherston said.
“It may be better to grab the 5 percent rate on these now and then look at paying off the one in December that is going to go up,” Fetherston said.

In addition, board members looked forward to several significant capital improvement projects that are planned for the district within the next two years.

Earlier in the meeting, Cooper had presented a number of possible projects that were in the works that he said are needed to provide better reliability for the OPD system. These projects will be brought to the board for a formal vote later on this fall, he said.

The first of these proposed projects was to provide infrastructure to accommodate a second connection to the OPD system from the regional grid. Currently the district has only one connection that delivers all of the power into its system at the Tortoise Substation in Moapa.

In 2016, a lightning strike to a single power pole at Tortoise caused an outage to the entire OPD system that lasted for more than 16 hours. The proposed second line would presumably prevent such an occurrence from happening again.

Cooper said that he was ready to begin work on this project almost immediately, with engineering starting later this year, construction beginning in early 2019 and completion expected by the end of next year. The total cost of the project is estimated at $6 million.

But that was not all capital projects being proposed. A series of other projects involved the eventual construction of a 25 mile-long transmission line from Tortoise Substation to a second connection point in Virgin Valley. This would provide the adequate capacity in transmission to ensure better reliability to Mesquite customers, Cooper said.

Several projects installing the supporting infrastructure for the new line are projected to be in place by 2020, with the new line completed by 2022.
The total cost of all of the proposed capital projects was around $38 million.

With so many capital improvement projects so soon in the works, some board members wondered if the reserve cash ought to better be used to pay for part of the expense of the projects, rather than to pay down a relatively low interest debt.
“We are looking at three big projects coming up within the next two years costing $18 million just to get us started,” said Moapa Board member Chad Leavitt. “Paying off debt is a good thought and we may gain some ground by doing it. But then we may be just taking out another loan within the next two years.”

But Young wasn’t so sure that the proposed timeline for the projects would be so imminent. “I don’t think it will be so soon,” Young said. “There is still a lot of groundwork to be done. I think it will be more like five years.”

By that time, the cash reserves of the district will have had time to replenish again, Young said.
Cooper worried about planning to delay the initial projects too far. Any delay would snowball on to the later phases that depended on the initial work getting done, he said.
“My worry is that we have three projects, totalling $18 million that have to be in place before we can do the line from Tortoise,” Cooper said. “If you push those first three out five years, you push the transmission line out to 12 years.”
“You actually just push them off until you can afford them,” responded Young. “That is all we are doing here.”

Leavitt acknowledged that the board could only make decisions based on current information in the market. Thus he said he was willing to vote for the paydown on one of the loans now.
“It is not wise to make decisions based on what-ifs,” Leavitt said. “We can only make decisions based on the information we have in front of us today.”

Young made a motion to pay off one of the loans and reprice the other. Young, Fetherston, Bunker, Leavitt, and Mesquite trustee Doug Waite voted in favor. Logandale trustee Jack Nelson and at-large trustee Judy Metz were opposed.

In an interview after the meeting, Metz said that she also was anxious to pay down the district’s debt. But she voted against the measure because she had felt it better to wait until December to make the decision when more information about the other loan and upcoming projects would be available to the board.
“I feel that the capital improvement projects are vital to providing the reliability to our customers and preventing power outages,” Metz said. “I don’t think that we should delay on those.”

But she feared that the board might face a situation where they pay off a loan now and then be required to borrow the same money later at much higher rate.
“Holding off may have saved us more money in the long run,” Metz said. “But with the information that we have right now it is hard to tell.”

Jack Nelson agreed. “I just felt like we should wait to see what happens in the election with Question 3,” he said in an interview following the meeting.

Ballot Question 3 proposes to deregulate the state-wide energy market. Under the initiative, regional utility company NV Energy, which provides transmission services for OPD, would be required to divest a large part of its generation facilities. This could have a rippling effect that might eventually affect OPD, Nelson said.
“There is a lot of uncertainty and a lot we don’t know,” Nelson said. “I just felt like it would be wise holding off a couple of months to see what the reality on the ground will be. It may be sixes in the end anyway, but I felt like it would be worth the wait.”