Perspective on GVEA G&T — 4 Comments

  1. Gary:

    You’ve done a great job following this issue.

    The GVEA presentation at the library did little to offset my concerns. I believe the CFO said the power sales agreement would have to be approved by the RCA. I find it hard to believe the RCA would approve a contract that locked in rates for the 30 years he kept mentioning.

    The relationship GVEA Distribution and GVEA Power and Transmission to the RCA was never addressed. While both entities share personnel so administrative overhead is low, each entity will face the same RCA with the same representatives. How can the GVEA administration argue for rate settings on both sides of power production. Inflation and investment in infra structure will put different pressures on the two organizations. Rate changes on one side will affect the other. I refuse to believe the power sales agreement will protect the GVEA Distribution side from Power and Transmissions rate increases.

    If Power and Transmission decides on investing in large capital projects to benefit mines or other power hungry users, the debt service will require rate increases to cover those costs.
    How will that be reflected in the costs Distribution ends up paying for power?

    This vote is an extremely complex question. Why has the GVEA board chosen not to discuss this concept at the annual meeting with a far larger audience in attendance, than by using this road show approach.


  2. Gary:

    Thanks for bringing this issue up. I’ve been digging into this a little deeper , and I believe that the savings claimed in the Ruralite are inflated by a factor of about 4. If this is the case, there must be an ulterior motive other than savings (see my understanding of the savings below). So what’s really at stake here?

    Why is the G&T board so removed in its accountability to the GVEA membership, why can the G&T board include non-GVEA members? Does GVEA have some highly controversial projects planned that benefit from working in this political vacuum? A hypothetical worst case scenario could be to replace the downtown powerplant to a nuke.

    With respect to the Ruralite’s claimed savings – the utility must collect a refundable fee from its members for loans taken against capital projects. In a short/simple analysis, this fee is about 10% of the interest expenses for project loans under a G&T, and 25% for projects under a cooperative like under GVEA’s current setup. The Ruralite’s claimed savings are based on a current fee of 75%!

    Thus the actual potential reduction in fees collected from a GVEA customer is 15% (i.e., 25% minus 10%). However the Ruralite claims this savings will be 65% (i.e., 75% minus 10%). Thus on a loan that has $1,000 in interest, the actual savings is $150, while the Ruralite is claiming a savings of $650!

    Thanks -Ed

  3. Good point, Ed. They repeated this claim at the presentation at the Noel Wien Library on Nov. 15. I also heard that they were comparing apples and oranges (this was the next day): the 10% figure for the G&T’s loans is the minimum required, whereas the 75% figure is apparently the maximum allowed, if I understand this margin business correctly. 25% is the minimum for a full-fledged power company like GVEA. Thus, they were NOT making a fair comparison. Our supposed $30 million in savings is reflective of our maximum savings. A fairer comparison would have been of our minimum, or around $8 million, I think.

    Calling the piece in the Ruralite an “article” is giving it far too much weight. The damn thing is an advertisement, a propaganda piece.

    I did find a possible motivation for getting the assets away from the membership’s control: a mine. It doesn’t seem like the project will go through, but the lode is huge, the biggest in North America, so GVEA’s staff may be planning ahead. The November 2007 start date would explain the rush that the staff seems to be in…

  4. PS: Tom Irwin would be aware of this possibility, having been the DNR commissioner and also having lots of connections to the mining industry in this state. So the staff surely knows of the potential power bonanza for GVEA. This may be why they’re so keen on getting the best rates possible for captital loans, and quickly. It could represent a lot of return. But why not tell us of this up front? I mean, even if it’s an unlikely possibility, it’s still a reason for GVEA to invest in power generation equipment, and to do so at a low rate of interest.

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