Glendale council OKs bonds for power utility upgrades
The City Council this week approved issuing $60 million in bonds for electricity-related capital improvements, a move that will cost city coffers about $3 million a year in principle and interest payments.
The bonds, which were already incorporated into multiyear electricity rate increases approved by the council on a split vote in August, are expected to get the electric side of Glendale Water & Power on a path to self-sufficiency, officials said at a Tuesday meeting.
Glendale Water & Power has been struggling financially after spending tens of millions of dollars the utility didn’t have for infrastructure improvements. Officials warned that the utility would have become insolvent if the council hadn’t ratcheted up rates last month.
The council bumped up rates on a compounded basis over five years by 29.1% for residential customers, 25.9% for commercial customers and 22.9% for small commercial customers, much to the chagrin of many residents and businesses.
The bonds are set to pay for the first three years of a five-year, $94 million capital improvement plan. The remainder, as well as debt payments on the bonds, is expected to be covered by electricity rate revenues.
“This is kind of the final piece of the five-year financial plan,” said Finance Director Bob Elliot.
As the city is set to issue the debt through a competitive process, which means the bonds will be purchased by investors that offer the lowest interest rates, those rates are edging up. They had been at historically low levels to spur investment during the protracted recession but as the market turns around, interest rates are climbing.
Glendale’s rates on these bonds, expected to hover around 5%, will also depend on the utility’s fiscal health as deduced by bond-rating agencies. Glendale Water & Power most recently received a negative outlook from Fitch Ratings and a stable one from Moody’s Investors Services.
Work to be paid for by a combination of the bonds and increased electric revenues includes improvements to the Grandview substation, the Grayson Power Plant and Scholl Canyon Landfill.
Councilmen Frank Quintero and Zareh Sinanyan, who voted against the rate increases last month, also opposed the bonds. The other three council members supported them.
“To be consistent with my previous vote on this issue, I will be voting against it,” Quintero said.
Sinanyan echoed his sentiments.
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Follow Brittany Levine on Google+ and on Twitter: @brittanylevine.
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In a Nutshell
The $60 million in bonds is slated to cover the first three years of Glendale Water & Power’s five-year, $94-million capital improvement plan. Expenditures planned include:
• $18,642,000 for Grayson Power Plant work, such as ventilation for boilers, replacement of unit parts and fire protection system upgrades.
• $230,000 for Scholl Canyon Landfill improvements. Methane gas produced at the landfill is transported to steam boilers at Grayson Power Plant.
• $11,789,000 for modernization work such as computers and computer systems.
• $2,818,000 for power transmission work.
Source: Glendale report
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