Prowers County Commissioners Review ARPA /Repowering Project Scenarios


The public has a choice of two meetings to learn about developments relating to the ARPA Lamar Repowering Project and the two basic choices Arkansas River Power Authority board members may take to determine the outcome of the coal-fired plant in Lamar.  Meetings will be held on June 25 and June 30, at 7pm, both at the gymnasium at the Lamar Community Building.

Lamar Repowering Project

Lamar Repowering Project

Much of the information ARPA General Manager, Rick Rigel has already provided to the general public on June 11, was reviewed during a Thursday, June 19 meeting with the Prowers County Commissioners.  The discussion focused on ARPA finances relating to the Repowering Project, the lawsuit against the boiler manufacturer Babcock & Wilcox and limited alternatives regarding the payback of the $156M in construction bonds.  The ARPA board is considering decommissioning the project and selling off the equipment or placing it in cold standby in hope the boiler may function up to its expectations once a separate power purchase agreement has elapsed, by 2024.  Rigel said even if the plant were to be decommissioned, the lawsuit against the boiler manufacturer would not evaporate.  “We still would have the suit for the financial damages that have resulted from it not operating as predicted,” he said.

Regarding the rate increases that would come with the cold standby option, County Commissioner Marble asked how the aforementioned 9% rate increase would be applied.  Rigel said, “Every year the rates would be 9% higher if we were in cold standby versus not cold standby.  So if your electric bill was $100 without cold standby, it would be $109 with it.  Let’s say your bill was $100 every year through that ten year time period, every year your bill would be $9 more.”  He explained that there would still be increasing costs each year while the plant was in standby.  “You just can’t shut the lights off the plant and walk away from it.  You have EPA reports that have to be filed, maintenance records have to be filed and you still need staff.”

Rigel replied to a question from commissioner Buxton-Andrade on ARPA funds regarding a reserve fund or consideration of returning reserves to member municipalities from ARPA’s last year’s projection of a five year financial plan.  Rigel said, “The ARPA board is not building a reserve right now.  Our cash reserves are not at where we would like them to be, but the board has chosen to keep them there rather than put any money into them at this time, as we’d rather keep that money going back to the rate payers.”  He explained that it isn’t in the form of a refund, but instead, customers won’t be subjected to an Electric Cost Adjustment or those kinds of additional costs.”  He added that ARPA has pulled back from the cash reserve levels that were discussed by board members last year.

Discussion turned to current rate levels which are set by each municipal member of ARPA and their governing bodies.  Commissioner Marble asked if ARPA does or does not set those rates for its customers and Buxton-Andrade asked what role ARPA had in its own rate structure to municipal members.  Rigel replied that ARPA charges its members ten and a half cents per kilowatt hour for power and about 3.7 cents for debt service.  Of that, he said ARPA also charges for transmission costs and legal fees for another two cents.  Rigel explained that each municipality can charge its customers for the cost of transmission and distribution handling at a rate they determine in order to pay for their lines, wages and substations, for example.  Rigel summarized, “The cost to ARPA is for power supply and transmission.  The cost for Lamar Utilities is for distribution, so you have three components to power supply.  You have the power generation aspect of it, you have the transmission aspect of it and those two are done by ARPA, and the third component is distribution and that’s coming from the substation to the houses, and that comes from the municipal members.”

Rigel also explained ARPA’s role in power purchases for southeast Colorado communities.  He stated he’s been asked, “Why do we need ARPA?  Why can’t our utilities do this on their own?”  He explained that it’s in the economy of scale regarding the purchase of power.  “If one of our smaller members tried to buy on their own, they’d find it difficult to do.  They have no economy of scale.  They would have a difficult time scheduling.  You have to schedule your power, hour by hour and it would be difficult to get a scheduling service and there’s a slew of ancillary services that you have to contract for and that would be difficult, especially for small utilities.  Then you have the purchase of power.  These companies that sell power want bigger volume.  When you have communities that range from Holly to Lamar to Trinidad you get a blended demand cost.”  He said one city alone like Lamar would buy their power on the demand they set that day.  He said various communities don’t all have their power peaks at the same time, so you don’t have the peaking issues you would with a single utility with a blended purchase.

Regarding the revenue bonds used to finance construction, Rigel said there was about $110 million in insurance coverage, but he says the insurance companies, “Are not going to write that check.  They will seek recompensation, and they will go to receivership, and that has the potential to drive rates up.”  He also provided a scenario from a suggestion made at the first public meeting on June 11, that the ARPA board send a letter to the bond holders and insurer saying, ’We’re going to terminate our contract with ARPA.’  It could easily trigger a remedy from the bondholders if something like that were to occur and one of those remedies would be to place ARPA in receivership and if you have a receiver to come in, they’ll take control of the utility and they’ll set the rates through court ordered action and they’ll be the ones who represent the bond holders, not the rate payers.    The bond holders are going to enforce their position. And they have to; because this isn’t the only holdings they have and they work hard to ensure those bonds are covered.”

Joe Marble stated these are revenue backed bonds and there’s no way you can’t get your revenue because you’re going to charge (ARPA customers) regardless of what the rate is.  Rigel explained further on that point.  “The revenue you speak of is not generation from the plant.  It is the power sales to the member utilities.  It’s not the equipment; it’s the revenue stream that is the collateral, irrespective of where that power comes from.”  Rigel said ARPA and some municipal members, acting independently, have studied the overall price tag of $300M from all angles, and said we have not identified a way to get around the debt service, even if we decommission.

Andrade asked about the closed plant still costing consumers each month when power isn’t being produced, stating, “The bonds were for the plant, and now you’re not getting any power from it.  That was where the generation of your revenue was from.”  Rigel reiterated that, “The revenue is not from the plant, the revenue is from the power sales based on the power that the plant could produce.  We’ll still have those power sales.  Those aren’t going away.  That’s why these kinds of bonds are desirable.”  Responding to her statement that Lamar could get power from another supplier, Rigel replied, “In that instance it would be true, but then that’s why you have the organic contract power sales agreement, and that has withstood several challenges.”  He said those contracts are good until 2043 and do not need to be resigned, but member municipalities have been asked to reaffirm them.

Rigel said ARPA plans to have several persons at the June 25 meeting to explain in greater detail the ramifications of the bond contracts between ARPA and its member communities.  That and the June 30 meeting, will both be held in the gymnasium at 7pm at the Lamar Community Building.

By Russ Baldwin


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