Posted Nov 11, 2009; 12:46 PM
Offer to resolve steam plant financial issues on the table
By Michael King
The News-Record
MENASHA — A resolution to the financial dilemma facing the dormant Menasha Utilities steam plant is in the works.
WPPI Energy, power supplier to the city’s electric utility, has offered Menasha $18.2 million to help finance a settlement of all claims related to the failed plant.
The sale-and-lease back agreement would require approval of the state Public Service Commission and Menasha residents in an April referendum.
It would provide the city upfront money to negotiate agreements with bondholders owed $22.8 million, resolve Sonoco’s steam overcharges claim headed for arbitration and settle any outstanding environmental claims.
Officials say if the deal goes through, it would save Menasha taxpayers money in the long run. They said it represents the best opportunity to resolve the city’s |fiscal problems stemming from the Sept. 1 default of steam plant revenue bonds.
Following an hour-long meeting last week, the Menasha council and utility commission authorized city officials to continue negotiating with WPPI Energy on the proposal and hire a consultant to assist with a surplus funds analysis.
If all goes well, final approval would come at the Dec. 7 council meeting.
Mayor Don Merkes and Roy Thilly, president and chief executive officer of Sun Prairie-based WPPI Energy, said last week that the objectives of the purchase-lease agreement are to:
Enable Menasha to have funds it needs to help reach a “global settlement” on all claims.
Allow the electric utility to remain financially healthy while remaining under control of the Utilities Commission, with no loss of jobs and retention of its favorable electric rates.
Provide for continuation of payment-in-lieu-of-taxes of just more than $1 million annually from the utility to the city to help pay the debt service on $13.9 million of general obligation debt being paid by city taxpayers for the steam plant that closed Oct. 9.
“It is much more of a loan than a sale of the utility,” Thilly said. If it were sold to a private utility, electric rates would go up 15 percent to 20 percent, jobs would be lost through consolidation and the payment-in-lieu-of-taxes to the city would go away, he said.
“If this deal does not move forward, then there’s no money to settle anyone’s claims,” Merkes said before the special joint meeting of the Common Council and Utilities Commission.
Menasha was a charter member of WPPI Energy and is the second largest (to only Kaukauna) of 51 members, accounting for about 10 percent of its overall power use.
Thilly guessed that the purchase-lease agreement might increase residential electric rates “1 percent or less.” He noted that Menasha is overdue for an electric rate increase application to the PSC because it was last done four years ago, so the request will definitely be larger.
Monthly lease payments to WPPI Energy would include a 6.5 percent return based on the electric utility’s current 6.75 percent authorized rate of return from the PSC.
Merkes said Monday the city was looking for “some other sources” of funding to help resolve all the outstanding claims but declined to elaborate.
“This is a very positive way to resolve the situation,” he said.
“A big key is retaining the PILOT (payment-in-lieu-of-taxes),” said Mark Allwardt, utilities commission president. “Overall, it looks like a reasonable solution. We have to take a good look at it to make sure it is good both short term and long term for both the city and the utility.”
Asked what other options were available to provide funding to settle claims, Allwardt said, “We’re not sure of any other options right now.”
“The city’s in a huge financial problem here and the largest asset it has is its electric utility,” said Dick Sturm, utility co-general manager. “Like it or not, we need to settle the claims with the bondholders and move on. This is a very positive way to do it.”
Michael King: 920-729-6622, ext. 33, or mking@newsrecord.net
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