Order 15673 - Pascoag Fire District: Appl. for Authority to Issue Bonds

 

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

DIVISION OF PUBLIC UTILITIES AND CARRIERS

100 ORANGE STREET

PROVIDENCE, RHODE ISLAND 02903

REPORT AND ORDER

On July 15, 1998, the Pascoag Fire District ("Pascoag") filed an application with the Rhode Island Division of Public Utilities and Carriers ("Division") seeking authority to issue general obligation bonds in the principal amount of $1,500,000. The application seeks authority from the Division pursuant to Rhode Island General Laws, Section 39-3-15, et seq.

According to the application, the bond proceeds will be used to refinance existing debt; specifically, to pre-pay the Contract Termination Charge ("CTC") payable to the Montaup Electric Company  [1 For a full description of the CTC and the genesis of Pascoag's decision to issue bonds to pre-pay this charge, see Public Utilities Commission Consolidated Docket Nos. 2516 and 2688, Order No. 15634, issued on June 30, 1998.]  The application describes the character and terms of the proposed bonds as follows:

The total amount of the General Obligation Bonds will be $1,500,000. The bonds will be dated August 15, 1998, or at a latter date, and will mature on October 1 of the years and in the principal amounts as follows:

Principal of (sic) the Bonds will be payable October 1 of the years in which the Bonds mature. Interest from the date of the Bonds will be payable on October 1, 1999 and semi-annually thereafter on each October 1 and April 1. The Bonds will not be subject to redemption. Purchases of the bonds will be made in bookentry form, in the denomination of $5,000 or any integral multiple thereof. The Bonds will be issuable only as fully registered Bonds without coupons, and, when issued, will be registered in the name of Cede and Co., as Bondowner and nominee for the Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds...... The Bonds will be authenticated by BankBoston, N.A., and their legality approved by Palmer & Dodge LLP of Boston, Massachusetts, Bond Counsel to the Applicant. Application has been made for a rating on the Bonds; the issuance of the Bonds is subject to the approval of the Rhode Island Division of Public Utilities and Carriers. (Pascoag Exh. 1).

In response to the application filing, the Division conducted a duly noticed public hearing on August 7, 1998. The hearing was held at the Division's hearing room located at 100 Orange Street in Providence. The following individuals entered appears:

For Pascoag:                      Bruce Vealey, Esq.

For the Division's

Advocacy Section:              Stephen Scialabba, the Division's Chief Accountant

Pascoag proffered one witness in support of its application. The witness was identified as Mr. Theodore G. Garille, Pascoag's General Manager. The Division's Advocacy Section did not proffer any witnesses.

Mr. Garille testified that the projected interest rate for the bonds is 4.87%. He related that based on this interest rate projection, the gross interest cost associated with the bond issue is $254,257.50 (Id.). He also testified that the bonds will cost Pascoag approximately $40,000 in issuance expenses. Pascoag expects to pay these expenses from the bond proceeds.

Mr. Garille explained that by issuing bonds to pre-pay the CTC to the Montaup Electric Company, Pascoag will save between $12,835 and $36,322 per month, thereby increasing Pascoag's monthly cash flow (Id.). Mr. Garille related that Pascoag plans "to pass along these savings to the rate payers in the form of lower electric rates" (Tr. 9-10).

Mr. Garille next addressed the current CTC "payoff figure" and its relationship to the current request to issue $1,500,000 in bonds. He testified that since the time Pascoag began preparing for the proposed $1,500,000 bond issue, it has made some payments to the Montaup Electric Company which has resulted in a reduction to the earlier approximately $1,500,000 "payoff figure" (Tr. 12). Mr. Garille testified that "the new payoff figure is approximately $1.3 million" (Id.). Despite this lesser CTC amount, Mr. Garille maintained that Pascoag ought to be permitted to issue the full $1,500,000 in bonds.

Mr. Garille opined that it would be proper for Pascoag to use the $200,000 differential ($1,500,000 - $1,300,000) to make its next CTC payments to Montaup in August and September (approximately $65,000 per month). He suggested that the remaining balance, about $68,000, could be used by Pascoag to first offset the costs to issue the bonds, approximately $40,000; and then be used as an additional offset when Pascoag adjusts its transmission charge rate through its first semi-annual rate adjustment filing to the Public Utilities Commission. [2 See Order No. 15634 in Commission Consolidated Docket Nos. 2516 and 2688, supra.]

Mr. Garille further reasoned as follows:

"... it is still the position of the district that even though there will be an excess of cash, we see that and we readily admit to that, that the district will only hold that cash for a period of approximately three months, possibly four months at the most before we're right back here ... at the Public Utilities Commission for a true up on our rates.

Now, the rates that have been previously used to pay the CTC that will now be paid by the proceeds from this bond will also go toward -- I'm assuming at this point in time, anyway, reasonably, that it will go toward a surplus of funds. And those funds, also, when we come back [in] on the true up, if that realization comes to fruition would also be used to offset rate increases or possibly storm funds or the various components of our budget" (Tr. 41).

Mr. Scialabba, representing the Division's Advocacy Section, voiced support for Pascoag's application. With regard to the $200,000 differential, Mr. Scialabba opined that when the Commission reviews Pascoag's semi-annual transition charge adjustment filing in January of 1999, Pascoag's rates may be adjusted to pass on any savings to ratepayers. Mr. Scialabba stated that approving Pascoag's $1,500,000 bond issuance proposal is in the best interest of ratepayers.

FINDINGS

After a thorough examination of the record, the Division finds that the Pascoag Fire District's request to issue $1,500,000 in general obligation bonds is reasonable and in the best interest of ratepayers. The Division is mindful that the bond issue amount contemplated by Pascoag exceeds its current CTC obligation. However, after bond issuance costs and upcoming CTC payments are deducted, the remaining balance is comparatively small. This small surplus balance will subsequently flow back to ratepayers when Pascoag files its mandatory transition charge rate "true-up," to take place in early 1999. This "true-up" proceeding represents a vehicle through which rates can be adjusted to ensure that ratepayers' interests are protected.

Accordingly, it is

(15673) ORDERED:

1. That the Pascoag Fire District's July 15, 1998 application filing, seeking authority to issue $1,500,000 in general obligation bonds, is hereby granted.

2. That the Division hereby limits approval of the instant application to the terms and details contained in the record.

Dated and Effective at Providence, Rhode Island on August 18, 1998.

Division of Public Utilities and Carriers