Trinidad City Council Approves Settlement with ARPA

Trinidad City Council Approves Settlement

 By NEWS RELEASE on Thursday, July 31st, 2014

In a Special Meeting held on July 29, 2014 the City of Trinidad, Colorado approved the Settlement Agreement with the Arkansas River Power Authority (“ARPA”) and Syncora Guarantee Inc., which resolves the City of Trinidad, Colorado v. Arkansas River Power Authority, No. 2011cv30 (Colo. Dist. Ct.) and Syncora Guarantee Inc. v. City of Trinidad, Colorado, No. 13-CV-01332 (D. Colo.) litigations.

The City sued ARPA over three years ago in an effort to control escalating energy costs directly related to ARPA’s Lamar Repowering Project (“LRP”). The City’s efforts regarding this Settlement were directed at providing for long term viability of ARPA and stabilizing the City’s future energy rates.

The Settlement Agreement provides that ARPA will review analyses regarding the decommission, deconstruction or otherwise prompt disposal of the LRP. Preliminary studies and recent presentations by ARPA have indicated that the impact of shutting down the plant will help stabilize electric rates and provide a substantial future savings over past expenditures. The parties have developed an agreement for disposing of the LRP in a manner that generates the maximum revenue for ARPA. Any revenue from the disposition of the LRP will be specifically allocated to a “Rate Reduction Fund.”

ARPA has also sued the boiler manufacturer Babcock & Wilcox as a result of the boiler’s inability to meet is performance/emissions guarantees, the principal problem with the LRP. With certain limitations, any funds generated from that litigation will also be allocated to the “Rate Reduction Fund.”

This fund is designated for activities that minimize or stabilize the rates, or minimize any required increase in rates, charged to the Member Municipalities for the electricity they purchase from ARPA. Monies from the Rate Reduction Fund may be used by ARPA to reduce its bond debt, which comprises a significant portion of the energy costs to consumers. If ARPA management believes that monies from the Rate Reduction Fund should be used for a purpose other than the reduction of bond debt, such alternatives must be approved by a supermajority of two-thirds vote of the ARPA Board of Directors. The City believes these additional controls provide the Member Municipalities the opportunity for greater input and involvement in decisions affecting their future energy rates.

While Syncora initially agreed, as part of previous settlement discussions, to contribute $2,035,000 that would be earmarked to retire or pay off ARPA’s 2003 series bonds, such agreement was conditioned on all of the ARPA Member Municipalities agreeing to reaffirm the Organic Contract and Power Supply Agreement. Such funding would have benefited all six municipalities by reducing ARPA’s bond debt. With the City of Lamar’s recent lawsuit against ARPA and Syncora, that reaffirmation was not possible. Therefore, Syncora agreed to offer $2,035,000, on a pro rata basis, directly to the Member Municipalities who reaffirm their commitment to ARPA and waive any past claims against ARPA and Syncora. These pro-rata payments are conditioned upon at least five of the six Member Municipalities approving a resolution agreeing to these terms. The City of Trinidad has executed such a resolution and expects to receive a pro-rata share equal to $410,005.00.

Syncora has also agreed to pay the City of Trinidad $600,000, which will partially reimburse the City’s legal fees. While the litigations have cost the City more than the $600,000 the City’s objective was not to profit at the expense of the other Member Municipalities, but rather to control ARPA’s increasing energy costs and stabilize energy rates, not only for the City’s citizens, but for all ARPA Member Municipalities. Putting an end to the LRP meets that objective.