Independence Independence Power & Light’s debt is significant, but considered stable

While the City of Independence recently repaid $ 10.6 million in Power & Light bonds about 15 years ahead of schedule, saving over $ 4.5 million in interest payments, this still represents a small amount of the city’s total debt.

The $ 10.6 million, used from excess cash, was part of what had been $ 151.5 million in past due bond payments through 2046, as well as $ 91 million future interests. These bonds were issued to pay for a wide variety of projects, including factories that are no longer in use.

In addition, the city is obligated over the long term to make $ 290 million in bond payments under its power purchase agreements with the coal-fired power plants in Nebraska City and Iatan (near Weston). , according to the city’s annual financial report released in mid-2020. This includes $ 165 million through 2038 for the Iatan plant, which started up in 2010; and $ 125 million through 2049 for the Nebraska City plant, which started up in 2009.

In total, the IPL has over half a billion dollars in debt obligations planned. However, experts say the city’s utility debt is currently in good shape – a stable rating from Standard & Poor’s Global, according to its most recent ratings, “which is investor grade,” said Bryan Kidney, director. of the city of financial and administrative.

The city’s utility debt portfolio has come into play as authorities begin to consider a possible next-generation electricity project to replace the city’s around 50-year-old combustion turbines – a project that will be costly. , whatever its size. Even a small turbine plant to replace the 93-megawatt capacity of current turbines, and perhaps run regularly to sell electricity, would cost tens of millions of dollars.

Existing bond issues with the city

The recently paid advance bonds, issued in 2010, paid for, among other things, repairs to factories in Missouri City (closed in 2017 and since demolished) and Blue Valley (closed in June 2020), as well as combustion turbines in the city, and some underground transmission and cable projects.

Other bond issues in progress, according to city documents:

• 2012A: $ 55.1 million for a 12.3% interest in the Dogwood gas plant in Pleasant Hill. The city still owes $ 53.6 million in principal.
• 2012F: $ 52.5 million to replace the city’s street lights with LED lights, transmission projects, the repayment of certain 2009 obligations, the inspection of certain turbines and repairs in Blue Valley. The city still owes $ 39.74 million in principal.
• 2016: $ 47.18 million to pay for, among other things, the closure of ash ponds, turbine inspections and repairs, the decommissioning of the Missouri City plant, various transmission projects, the new building of the utilities, the new billing system and potential funds to design a new automated meter system – a plan ultimately scrapped after a citizen petition campaign. The city only made interest payments on these bonds.

According to the 2016 bond documents, according to the current schedule, the city was to make around $ 10.5 million per year in bond payments until 2024, then slightly less until 2036, up to 6.6 million dollars and a slight decline from 2037, until a final $ 2.3 million payment in 2046.

The city’s current fiscal year budget includes spending of $ 8.3 million for Dogwood and $ 53.6 million on power purchase contracts, including approximately $ 7.1 million for two parks wind turbines in Kansas and the city’s community solar farm.

Pay them

The 2010 bonds were paid on their 10-year call date, which Kidney says the city will look at similarly when the 2012 bonds hit their call date next year. Otherwise, these bonds run until 2037, and refinancing between 2022 and thereafter can be trickier and have tax impacts.

The 2016 bonds can be recalled in 2026, and otherwise run until 2046. The interest on the current bonds varies between 2 and 5%.

To pay off the 2010 bonds, Kidney said the city had considered refinancing with new bonds at lower interest rates – “Much like refinancing a mortgage,” he said – but finally waited a bit and undid them, or paid the outstanding balance immediately. The city determined that it had these excess funds using its newly enacted cash balance policy.

The idea of ​​the policy, Kidney explains, is to look each year against the year-end fund balance and then recalculate what the next target balance will be after covering all necessary expenses. If there is a cash surplus beyond the target balance, as financial advisors have determined this year, Kidney says his first recommendations would be to remove the bonds if possible or direct the funds to projects of ‘one-off fixed assets.

“The idea is to make sure taxpayers don’t pay more on debt than they owe,” Kidney said. “That’s the whole point of cash balance policies.”

When the 10-year call date arrives with the 2012 and 2016 bonds, the city could choose to direct the excess funds to pay them off if possible, or to refinance with new debt at lower interest rates.

Kidney said if any refinancing occurs with the bonds at the Nebraska City and Iatan power plants, it would be through the owners of those plants, who use payments from IPL and other power companies as sources of revenue. , and not by the city.

New power?

If the city were to eventually issue new bonds to pay for the new power generation, it may earn lower interest rates than some current bonds.

“Everything is market driven,” Kidney said. “We are in an unprecedented period of low interest. It is very difficult to project what these rates will be in a year or two, but there is every indication that rates will stay low for some time. “

City Council Member Mike Huff, a former division manager at IPL, pointed out a few weeks ago that he was simply pushing to replace combustion turbines with base production that generates revenue for the city. To say that he is pushing to build a large power plant that would cost hundreds of millions of dollars is “incorrect,” he said.

Paying for replacement electricity can involve current income more than issuing a large amount of debt, he said, and if done well enough, it can lead to lower rates – not higher rates to pay off financial debt.

“What we’re talking about is replacement; we’re talking about replacing the 93 megawatts, ”Huff said, amid discussions after the short blackouts and how IPL could theoretically sell more power in similar events if it had the capacity. “It has always been important for IPL. This should not be taken lightly by anyone. “

Even before the cold snap and power outages, Mayor Eileen Weir said city council needed to feel comfortable with the idea that it would be making a power-related decision that would affect the city for decades.

“We need to replace what we currently have,” Weir said after the power outages. “It’s not about fear, although it has caught the attention of a lot of people. I understand that we have a lot of debt and it’s not going anywhere overnight, but we have an obligation to at least maintain what we currently have.