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Council moves to cut IPL debt

By Mike Genet mike.genet@examiner.net

Independence Power & Light will use some of its surplus cash to pay off some bonds several years early, saving the city utility more than $4.5 million in interest payments.

The City Council unanimously approved a payment of $10.6 million last week, covering the outstanding balance on more than $33 million of bonds issued more than 10 years ago for a series of maintenance projects. City Manager Zach Walker said the transaction pays off the bonds 15 years ahead of schedule.

That decision was one of several the council made with long-term implications for IPL. The council also:

• Set a policy of using cash surpluses first for debt reduction and then ratepayer relief.

• Directed staff to consider a new energy source in the near future to replace the city’s combustion turbines. 

• Set a new cash balance policy.

“This is one step closer to being debt free,” Council Member Mike Huff said regarding the early bond payment and cash balance policy. “Now we have a number (for reserve cash), and I’m trying to figure out how we can give this surplus back to the ratepayers.”

The cash balance policy at its most basic is a method of how to determine a cash balance target based on revenue and expense risks, allowing for some fluctuation either way. Cash balance is what remains after meeting obligations such as debt payment, daily operations and capital projects. That reserve amount would be updated annually when staff puts together the city budget.

According to a consultant’s analysis, IPL has more than $82 million of cash on hand, $15 million above its recommended target. 

Previously, the city’s targeted fund balance was based on about two months worth of normal operating costs.         . 

“The policy is how you calculate the target you’re going for,” said Bryan Kidney, director of finance and administration. “The target can be adjusted for various factors.” 

Still up for debate: how best to possibly provide relief to ratepayers. The city, which cut rates 6 percent in 2019, could reduce rates again, make a temporary rate adjustment or issue a rebate.

Council Member Dan Hobart said he didn’t believe the City Charter allows a rebate. 

“I don’t see that the charter allows us to write checks back to ratepayers,” Hobart said. “It says you can apply the annual profits to rate reductions, but I don’t see where it allows us to provide a rebate or refund.”

“How you want to do it is immaterial to me,” Huff said about ratepayer relief. “The charter clearly says you have rate reduction with excess funds.”

Walker said the cash balance policy decides what the term “excess” will mean, but doesn’t give any set number.

Regarding a new energy source, IPL Director Jim Nail told the council earlier this month that staff favors looking at some form of a small turbine plant. IPL is looking at what would be the best fit not only for the needs of the Southwest Power Pool, the city’s wholesale power broker that covers much of the mid-America plains, but also for the city’s long-term budget. Projected costs are unknown but are expected to run into tens of millions of dollars.