5.3. SR 03-05-2007 - Laserfiche WebLink

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The system purchases almost all of its power from Great River Energy and generates a small portion of power for its landfill operations. The contract with Great River Energy allows the system to draw an unlimited amount of power on a take-and-pay basis at an annually set rate. Peak demand in fiscal 2006 was 46MW. This agreement insulates the system from price shocks and exposure to the spot market. According to officials, either party may cancel the contract, which would take effect 10 years from the notice date, The potential for unexpected increases in operational costs is again mitigated by the system's role as a distributor and its purchase agreement with Great River Energy. SOUND FINANCIAL OPERATIONS DEMONSTRATED BY ADEQUATE NET WORKING CAPITAL; SATISFACTORY LEGAL PROVISIONS Moody'S believes system's financial operations will remain healthy due to brisk growth of the system and sound financial management of the utility. Net working capital stood at an adequate $2.1 million in fiscal 2005, or 15.6% of fiscal 2005 operating expenditures. Rate setting authority is ultimately held by a three person Utility Commission appointed by the City Council. The system raises rates on an annual basis, given the annual rate increases of Great River Energy. Though the system absorbs a portion of the rate increase by Great River Energy, its goal is to accumulate reserves equal to 3-4 months of expenditures. Coverage of system debt is somewhat limited because most of the system's borrowing has occurred in the last three years. Previous to 2004, the system only had a 2002 Promissory Note payable from the system's revenues, which had annual payments of a little more than $100,000. However, operating revenues are expected to provide healthy coverage, approximating four times the maximum annual debt service (of $877,000) that is expected to occur in 2015. Going forward, the system's annual rate increases are expected to support continued strong debt service coverage. The legal provisions outlined in the bond ordinance specify a rate covenant of 1.1 times coverage with an additional bonds test of 1.25 times. The additional bonds test does allow for any rate increase put in place after the beginning of the fiscal year to be applied to the entire year. No bonds may be issued with a prior claim on system revenues. The flow of funds specifies that the bonds, together with outstanding parity debt, enjoy a first claim on the system's net revenues (defined as gross revenues less operational expenses). A debt service reserve is required equivalent to (a) maximum annual principal and interest; (b) 10% of the stated principal amount of the bonds, or (c) 125% of the average annual principal and interest coming due, all of which Moody's considers satisfactory. DEBT RATIO EXPECTED TO MODERATE DUE TO LACK OF FUTURE BORROWING NEEDS Moody's believes the system's debt profile will remain manageable due to limited future borrowing needs. In recent years, the system's debt ratio has significantly increased from about 13.4% in 2005 to an estimated 36%, including the current offering. Although this is notable 1 the system's expected debt burden is considered manageable. Debt retirement is above average, with 58.7% of principal retired within 10 years. According to system officials, the strong ongoing commercial and residential growth is expected to support future capital needs. KEY STATISTICS: Nature of system: Electric distribution (open loop) Number of system customers (2006): 8,562 Five-year Average annual growth in system customers: 6.2% Customer demand (FY2005): 193,700 MWh Ten largest customers as a percentage of operational revenues (FY2006): 18.3% FY2005 Net Working Capital: $2.1 million (15.6% operating expenditures) FY2005 operating ratio: 82.9% FY2005 debt ratio: 13.4% Debt ratio, including current issue: 36.7% 2