Minutes 08/12/1980 - Laserfiche WebLink

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General Conclusions on the Projects Financial Feasibility Analysis of the various case studies and of the variable economic factors described in this report leads me to certain general conclusions, as follows: THE HIGHER THE BOND INTEREST RATE, THE LARGER THE DEFICITS IN THE EARLY YEARS OF PROJECT OPERATION. A change in the interest rate from 8% to 9%, for instance, is a 13% increase, and such a change could increase annual debt service requirements by $900,000'. POSITIVE ARBITRAGE WILL DECREASE THE SIZE OF THE BOND ISSUE; INCREASE THE PROFITABILITY OF THE RESERVE FUND AND IDLE CONSTRUCTION FUi'fDS; AND INCREASE NET REVENUES FOR THE LIFE OF THE PROJECT. Although the bond market is currently in disarray, an assumption of positive arbitrage in the range of 2% is not out of line, based on history. THE HIGHER THE RATE OF INFLATION, THE MORE PROFITABLE THE PROJECT WILL PROVE TO BE. APCo's Mountaineer Plant is scheduled to go on-line in early 1981. There is talk of a 20% increase, as a result, when the cost of this new plant is figured into APCo's rate base. The cost of power generated by the Ridgeway Project will not be as vulnerable over the years to high inflation rates as will APCo's plants and the difference will be beneficial to our citizens. INNOVATIVE FINANCING AND CASH ACCUMMULATION CAN OFFSET-THE THREAT OF SHOHT-TERI\l DEFICITS. The ramped capitalized interest approach, coupled with cash set aside in the Ridgeway Project Excrow, provides reasonable guarantees against the problem of projected deficits. SUMMARY AND RECOMMENDATIONS The Ridgeway Hydro Project is technically complicated and has a rather involved history. A constant feature, however, in the project's development over the years has been City Council's cautious, step-by-step approach. Citizen participation has been soug'ht and received, and funds have been committed on a phased basis as positive reports have been completed. The project has become stuck to a certain extent in recent months while the advisability of a near-term referendum has been considered. The immediate question has become whether to hold the referendum soon or to postpone the referendum until a more appropriate time and proceed, in the meanwhile, with Phase III-A of the project. My recommendations, reflective I believe of our staff and consultants, are as follows: -10-