Minutes 03/27/1979 - Laserfiche WebLink

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MEMORANDUM SUBJECT: Financial Analysis, March 2~,rtJl~1. ~:,;...;! ,'~f,.i;' .,~~.. '..... ~,".lIt ~ "<, i'~ ),J'.' t" \\~t'~, .';' -,'.-,," l~< ! ~~ \.~H.;.A\A V If" IJ:: . U\).",...... '~i~' MAR 231979 Ridgeway Hydroelectric Developmenly, 0 ~~&9k'/{r!..'It.~ltf' ~';'h.t'~1\ "hl F .~1i\.fi'a\::B;ly li/HfEi,wt Oe!P.ARltJ1-' Ar!! Il~H. TO: The Honorable Mayor and Council FROM: Councilman Barry A. Greene OBJECTIVES: To determine if the hydroelectric plant can be financed as a completely self-supporting project with no tax increases to the citizens, no disruption to or sacrifice of City services, and without raising retail electric rates higher than those charged by Appalachian Power Company. BACKGROUND: On January 9, 1979, the Select Citizens Committee recommended the following: "The Committee is in agreement that the long-term profitability of the project is good. However, the Committee also believes there is a high probability that short-term cash shortfall to the City during the early years of the project could be very significant, $3-5,000,000. The Committee would recommend proceeding with the Phase I I study only after Council thoroughly analyzed the financial impact upon the City and options available to cope with a short-term cash deficit." The purpose of my report is to discuss how to cope with the potential short-term cash shortfall. METHODOLOGY: This report is a result of input received at four meetings: 1. A meeting of the Select Citizens Committee. 2. A meeting with George Brown, Holladay Yeaman, Tom Noland, Bob Corekin. 3. A meeting with Paul Stach and Gary Wolf of Blyth Eastman Dillon and Company, Walter Craigie, Jr., and Jack Lester of Wheat First Securities, George Brown, Holladay Yeaman, Tom Noland, Bob Corekin and Bill Cole. 4. A meeting with the Finance Subcommittee of the Select Citizens Committee-- Aaron Harrell, Joe Cobbe, Fred Schuermann, Steve Pannill. George B. Adams, Jr. ASSUMPTIONS: The Select Committee made two changes in the Beck Report's assumptions: 1. The Beck Report assumes a demand cost of $129.60 in 1985 in the cost of purchased power from APCo. The Select Committee reduced this figure to $100/kw. My analysis is based on the Committee's more negative figure of $100/kw. 2. The Beck Report assu mes an inflation rate of 7% and an interest rate of 6.25% . The Committee's worst potential short-fall situation for 50-year bonds occurred at 6% inflation and 7% interest. Mr. Craigie and Mr. Stach feel that it is unreasonable to project a 6% inflation and 7% interest situation because historically the rate of inflation is greater than that of municipal bond rates. They feel that the worst reasonable situation is 7% inflation and 7% interest.