By VERNON ROBISON
The Progress
To borrow money now, or to borrow it later? That was a major point of discussion during a meeting of the Overton Power District (OPD5) Board of Directors on Wednesday, Oct. 20 in Overton.
What no one questioned, though, was that there would be a need to borrow money; and probably soon.
OPD5 General Manager Mendis Cooper reviewed an extensive list of essential capital improvement projects on the horizon for the district. These infrastructure projects have long been identified as necessary to increase system reliability and keep up with future growth.
Over the next 8 years, the estimated cost of all these projects in today’s dollars totalled more than $50 million. Of that, about $21.5 million is projected to be spent over the next two years, Cooper said.
Perhaps most vital among these is a new transmission line from the district’s Tortoise substation in Moapa – the OPD’s gateway connection point to the regional grid – and the OPD Gila substation near the Riverside Bridge west of Bunkerville. This new line, which will provide redundancy to the single transmission line currently feeding the Virgin Valley communities, is estimated to cost about $17 million.
Cooper told the board that the district had recently been able to complete a number of costly capital projects without even having to borrow. This was done with careful financial planning and by using available margins in the budget to pay for the project, Cooper said.
As an example, Cooper pointed to a $3.2 million transmission line winding its way through the desert from the district’s Dinosaur substation in the Pulte/Sun City area of Mesquite to the Gila substation. This project is being built to provide added redundancy to Mesquite’s system. Cooper said that the project is nearing completion and is on budget without adding any debt to the district.
But with multiple capital projects still looming ahead for the district, this debt-free approach to capital improvement construction would not be able to continue forever, Cooper said.
“We didn’t have to take any loans or use any of our investment money (reserves) on that project,” Cooper said. “We have been able to do it and pay that piece off just because of our margins. I’m anticipating that we can continue to use margins to help alleviate some of these costs. But we are going to have to do some borrowing here soon.”
This initiated a discussion among board members about the best timing for that borrowing.
“We keep talking about that we are going to need to borrow and borrow,” said OPD5 Board Chairwoman Judy Metz. “And rates are so low right now. But, given conditions I’m seeing out there, I don’t see them staying low. So I’m a little concerned. Do we go ahead and borrow the money now, even though we are still months out from even starting construction on these things?”
Cooper said that staff had been discussing this same dilemma. “It is a problem of timing,” he said. “Right now we are still in the engineering phase (on the transmission line). We are probably going to be there through the end of the year. But I don’t want to get deep into next year before we start borrowing. So at some point we may want to start taking out some loans ahead of time.”
Mesquite board member Mike Young suggested that the district could borrow the money and lock in existing low rates, then shift that money into investments to await the beginning of construction.
“Then we would be borrowing money at around 1 percent,” Young said. “I am just afraid, if we wait, that interest rates are not going to be 2 or 3 percent, but more like 5 or 6 percent!”
Cooper said that the challenge in this strategy would be in correctly reading the tea leaves and predicting the future.
“The struggle we have had is coming up with the right number on what to borrow now,” Cooper said. “I have been a bit reticient to say, ‘Okay, just give us $25 million, and we will put it in investments, and use it over time when we are ready. But I don’t know what the right number is.”
Moapa board member Chad Leavitt noted that the margins for the district over the past year had been nearly $3.5 million more than had been projected in the budget. This had allowed those funds to be invested in the capital projects. He lauded the district staff on being conservative on their margin projections. But he suggested that this might be one area where a more aggressive budgeting approach should be taken.
“We have to be careful about being too conservative on that and then borrowing too much ahead of time,” Leavitt said. “So I think we need to be really aggressive on that margin projection because that could save us a ton of interest later on.”
Cooper said that the unexpectedly higher margins over the past two years have been due to uncommonly hot summers with very short turnover between hot and cold in the fall and winter. But there is no knowing if such a trend would continue, he said.
“I understand that,” Leavitt replied. “But I’d rather be aggressive on the margins in this case, and borrow less in advance of needing the money. Because that strategy (of borrowing far in advance) seems like a backwards approach to me. I don’t want to borrow money that we are going to use next year just to invest it until we need it. That seems a bit like hedging. And as a public utility I don’t know that we should be in the business of hedging.”
Metz asked that all of the available information be compiled by staff, and that board members do some research of their own, in preparation for an agenda item on the subject in the November board meeting.
“If we can have all this information in front of us, and we know where we are going, maybe we put it on the next agenda and see if we can come up with a plan,” Metz said. “That way we are not suddenly in the spot where it is not our choice anymore; where rates have suddenly gone up but it doesn’t matter: we need the money and we have to borrow anyway.”
Cooper said that staff would prepare for that discussion.
The next meeting of the OPD5 Board will be held on Wednesday, Nov. 17 at 3:00 pm in the Mesquite office at 731 Turtleback Rd.
