OPD5 Board Approves $26M Infrastructure Debt

By VERNON ROBISON

Progress

The Overton Power District (OPD5) Board of Directors voted last week to take on an additional $26 million in debt. OPD5 officials said the huge new funding package is needed to pay for a range of infrastructure projects to increase system reliability and keep up with future growth. This would bring the district’s total debt balance to approximately $54 million.

Over the past year, the board has held a series of discussions about the best time to lock in anticipated debt and how much borrowed capital will be needed.

At last month’s meeting, held on Dec. 15, the board asked staff to prepare a final set of scenarios for borrowing the $26 million, with recommendations on the best scenario.

Last week, at the meeting held on Wednesday afternoon January 19 in Overton, a final proposal was presented to the Board by OPD5 Chief Financial Officer, MeLisa Garcia.

Garcia said debt decisions are made based on market interest rate trends. These trends are clearly on the rise and are expected to continue in that direction, she said.

Garcia presented recent data on the performance of the 10-year US Treasury bond market, the instrument most often linked to loan rates considered by OPD5. Garcia noted that in December, 10-year Treasury bill rates hovered at just under 1.5%. The chart showed that the market rate on the day of last week’s meeting closed at 1.854%.

“All indications from the sources that I usually look at are that interest rates continue to rise from here,” Garcia said.

Earlier in the day, Garcia had received quotes on loans at different maturities. The 30-year fixed rate was quoted at 3.83%, taking into account numerous discounts the DPO5 is eligible for with the lender. The 25-year rate was 3.57% and the 20-year rate was 3.5%.

Garcia presented several scenarios involving different draws at different deadlines trying to find the best option for the district.

Ultimately, she recommended that the district draw down a $17 million drawdown over 25 years and a $9 million drawdown over 20 years.

Garcia likened this scenario to the cost of taking out the full $26 million on a 30-year fixed term loan. This resulted in a reduction in interest expense of $5.5 million over the life of the loan. But the shorter loan term would also increase the debt payment amount by $202,245 a year, Garcia said.

“That would be my recommendation,” Garcia said. “Yes, we have to pay a little more each year in cash, but the interest savings over the 30-year term are significant enough to offset that.”
Garcia explained that if the board approved the plan at the meeting, the loan would be locked in at the next day’s rate.

Board members appreciated the staff’s efforts to prepare the board for the decision.
“I really appreciate that MeLisa has done all of these exercises so far,” said Moapa Board Member Chad Leavitt. “I think it will save the district money. I fully support the plan you presented to us.

Mesquite board member Mike Young said the work done by the staff was a “tremendous job”.
“When I came to this agency years ago, we were just in the power business and the money was just put in the bank,” Young said. “Now we are actually using capital to reduce our customers’ costs. This is a huge change that is important for our customers.

Board chair Judy Metz said she was confident in making the difficult decision because of the reliable information available.

“Because of the level of information the staff gave us, I feel good about this decision,” Metz said. “I know it took a lot of work to provide all these reports on different things. But it certainly made our job easier.

Young offered to accept the recommendation and plan provided by staff. The board approved the motion unanimously.

Comments are closed.