Refinancing, gearbox repair, will help Light Department financially
BY PHYLLIS BOOTH
June 14, 2012
In the eight months since taking the reins as manager of the Princeton Municipal Light Department, Brian Allen has faced a myriad of issues.
Shortly after taking over in October 2011, he discovered PMLD was behind $1.4 million in debt payments to Massachusetts Municipal Wholesale Electric Company for energy it purchased through MMWEC.
PMLD pays MMWEC for a portion of the energy used by the town as well as debt payments for the windmill project that MMWEC financed through a cooperative.
The wind turbines were installed in October 2009 and went on line officially in January 2010.
Delays in the financing of the wind project resulted in a delay in delivery of the wind turbines. That resulted in payments on the loan coming due before the wind project was generating the revenue needed to make the payments.
Approximately $425,000 was paid toward the wind project loan in 2010, but no regular monthly payments were made. Those began in January 2011, when $75,000 per month was sent to cover the on-going wind turbine project debt, but those didn’t go toward catching up with payments not made in 2010.
Allen since learned that because PMLD was a year behind in payments for the wind project, the payments to MMWEC for PMLD’s energy were applied to the windmill debt, thus causing a shortfall in PMLD’s energy payments.
“We’ve seen this happen with a lot of cooperatives,” said Carol Martucci, director of accounting and financial reporting for MMWEC.
“Ratepayers want to know why we didn’t know about this problem,” chairman Scott Bigelow said at the May 23 light commissioners meeting.
“All the bills for the project weren’t generated by MMWEC, they were generated by your office,” said Ronald C. DeCurzio, chief executive officer of MMWEC. “We just put them through the cooperative. Because of your cash flow shortage, when you couldn’t meet your bills, we carried that.”
“We were not aware of that,” Bigelow said.
“That communication wouldn’t have come from MMWEC, we were working with your manager [former manager Jonathan Fitch],” DeCurzio said. Another issue is some bills were paid from the light department rather than through the cooperative, he said.
The corporate structure under which the project is owned is a Municipal Lighting Plant Cooperative created by PMLD and MMWEC, where PMLD has financial obligations to the cooperative, which is administered by MMWEC, according to DeCurzio.
Falling energy prices, primarily for natural gas, and having one of the two wind turbines off line have added to financial issues facing PMLD.
“We get questions all the time about why isn’t our rate lower,” Allen said. “The problem is we’re saddled with debt service for the wind farm, plus the gear box issue. Essentially, we have a mortgage that is too high.”
“The correct procedure for paying bills for the cooperative, through the cooperative, is now being utilized and properly audited,” he added.
Asked about the issues facing PMLD, former general manager Jonathan Fitch said, “All I can say is that PMLD relied on MMWEC to finance the project through a cooperative. The financing wasn’t completed on time, and this resulted in a significant delay in the project completion date. It’s my fault for not managing and shortening the turbine delivery date after the financing was complete and/or insisting on refinancing the loan sooner.
“We didn’t meet the down payment deadline and this resulted in a longer delivery date, and the first loan repayment was already established and couldn’t be changed,” Fitch added. “I worked on different resolutions to refinance the original loan, from the use of renewable energy bonds to general refinancing, but I didn’t get the support or assistance I was hoping for. Ultimately, the issue is resolvable by refinancing the original loan.”
“I didn’t have any idea of this,” Allen said. “It wasn’t a cost overrun, it was a matter of not paying the debt service for a matter of time.”
“MMWEC is now holding $1.4 million in back debt service but is not forcing us to raise our rates to cover that,” he said.
Refinancing the windmill debt at a lower rate, from the 5.5 percent to around 2 percent would help, according to Allen. He said another option would be to sell an interest in the windmill project or sell outright one or two of the wind turbines.
“The town has expressed interest in wanting green power, but we can’t have a Mercedes if you can’t afford to fix it,” he said.
“The important thing right now is to get the wind turbine fixed and back on line,” said Allen, then refinancing the debt and deciding the best long-term option.
“MMWEC is looking at different paybacks for us,” Allen said. “But we have to wait until we know what caused the failure of the gearbox.” If it was a manufacturer problem, that would solve the problem of paying for the replacement of approximately $600,000; and if it’s not a manufacturer’s problem, the insurance company may give PMLD money to be applied to the debt, he said, and “lost revenue insurance comes into play.”
“ … Strictly as a light department, minus the wind project, we are operating within budget,” Allen said.
“One step at a time,” he said. “The problems aren’t insurmountable. PMLD as a light department is fine.”