At the November 12 city council meeting, Banning Electric Utility Director Tom Miller explained that there are a couple of factors that will erode his department’s revenues.
The “last mile delivery charge” Southern California Edison charges the city to deliver 46 megawatts of electricity will increase from $1.6 million annually to about $3.4 million over the next eight years, and cap and trade revenues are shrinking.
“Once those go away, rates aren’t enough to cover our expenses,” he warned.
For the past few years, however, “We’ve done extremely well,” Miller said. “We haven’t done a rate increase since May of 2013: our customers already pay lower than most Californians, of which I’m very proud of, and we want to keep it that way.”
In order to preserve that position, he said, the utility has to maintain its creditworthiness and its financial strength.
He told the electric utility’s ad hoc committee during its Nov. 13 meeting that the utility lost $1 million in 2018, but will meet its budget this year and the next, as the first of the homes in Pardee Homes’ Atwell development come online, and later down the road, homes in the Rancho San Gorgonio development move forward.
“Because we borrowed money, we have to make $3 million annually in order to make our payments,” Miller said. “We’ll make it this year and next year, but in three years we will struggle.”
The city closed its 2007 series revenue bonds at $45,790,000, Miller explained to the Record Gazette.
“In 2010, it appears we decided not to consume the entire $45.8 million and reduced the outstanding bonds to $38,535,000, as not all the bonds were sold in the initial offering. In 2015 we refinanced the $38.5 million debt to $31,755,000; the audit report says the savings for electric was $6.8 million,” Miller said. Further, “We refinanced in 2015, and the city agreed to not refinance again until June 30, 2026.”
Miller explains that “If cash flow is needed for capital improvement, then the decision has to be made: from whom will the funds come from? It is unrealistic to expect a large war chest, as the money comes from the customers. Rather than taking the money via rates from our customers, we can opt to take the money from our bond investors,” which he maintains “is cheaper than taking from our customers.”
In refinancing, the life of the debt was not extended, according to Miller. “The original 2007 covenants include a balloon payment. When we refinanced, I believe we finessed the principal interest payments as to not have a balloon payment in 2037.”
He anticipates bringing forth suggestions to the city council in February, recommending incremental electric rate increases for Banning of 1 to 2 percent a year over three years, rather than implementing a sudden larger rate increase in 2022.
Frank Burgess participated in the ad hoc committee meeting, and has some concerns.
“It’s a little early for us to be talking about rates because the committee hasn’t really had a chance to review the electric utility’s expenses and income,” Burgess says.
He feels that more study needs to be conducted.
“It’s my understanding that we owe $28 million in bonds, and that we have a $26 million savings account for the electric utility,” Burgess recalls. “Since 2016 we’ve paid $7 million in interest. It’s my belief that you pay for projects as you go: you put the depreciation funds into an account and take care of projects as you go. It’s pretty hard for me to understand how we got into this. It indicates that poor management over the past 15-20 years, and that falls on the city council, since they approve the decisions” that govern the Banning Electric Utility’s expenses.
According to Burgess, there was a bond refinancing in 2015 that saved the electric utility more than $3 million, but Burgess is still trying to determine whether that was a result of the bond company approaching the city to suggest a refinancing, or if the city initiated a refinancing effort.
Refinancing a bond, Burgess explains, usually provides for a better interest rate, but it also means that it extends the life of the bond, meaning more payments in the end.
Councilman David Happe hopes another solution may come through.
“As it is right now, we’re looking at having to raise rates to keep things funded,” he said in an interview, though he was excited after a Nov. 12 workshop prior to that evening’s city council meeting, during which representatives from a consortium of representatives from New Energy North America, LLC informally announced efforts by their organization to come up with alternative energy solutions for Banning.
That group, which includes companies that manufacture and install solar panels, solar carports, battery energy storage units, and electric vehicle charging stations.
Former county supervisor Marion Ashley serves as its vice president for government affairs.
Happe is excited about that group’s efforts: if they come up with a palatable proposal to install alternative energy infrastructure in Banning, it could reduce costs and reliance on outside energy, and even put the city in a position to sell off excess energy that it would produce, as the city does not currently generate its own electricity.
That group expects to approach the city with a proposal by February — around the same time the city will have to discuss options on potential rate increases.
Staff Writer David James Heiss may be reached at email@example.com , or by calling (951) 849-4586 x114.