DALLAS — The Lower Colorado River Authority will price $308 million of revenue refunding bonds for its electric transmission system in a competitive sale Tuesday.
Bids through the Ipreo Parity system are due by 10 a.m. Central Time. OBP Muni serves as financial advisor on the deal.
The debt issue is designed to convert commercial paper to long-term fixed-rate bonds, according to Brady Edwards, chief financial officer for the LCRA.
“We are selling this deal on a competitive basis because we don’t need structuring flexibility on sale day,” he said. “We believe that interest rates will remain low and that we can save some issuance costs.”
“That said, we will be coming to market in the next month or two with a refunding for debt service savings and it is planned as a negotiated transaction,” Edwards added. “That’s because those transactions are interest-rate-sensitive, and we will need structuring flexibility on sale day for that one.”
The bonds will mature through 2043, and maturities from 2014 through 2023 must be serials, according to the preliminary official statement.
Bidders may not bid more than three term bonds.
The bonds carry ratings of A from Standard & Poor’s, A2 from Moody’s Investors Service and A-plus from Fitch Ratings. The S&P rating comes with a negative outlook.
The LCRA is fine-tuning its debt portfolio amid struggles with drought and disputes with some wholesale power customers.
Standard & Poor’s revised the authority’s outlook to negative from stable in November, based on the uncertainty created by the sooner-than-expected load loss of nine of the LCRA’s wholesale electric customers and allegations that the utility had breached their contracts.
“While final resolution of that dispute is not likely to come within our two-year outlook horizon given the probability they will go to court, the negative outlook reflects the possibility that the LCRA could possibly have difficulty maintaining its financial margins as well as preserving cash at levels that had previously supported the rating,” said S&P analyst Theodore Chapman.
In June 2011, 10 of the authority’s wholesale electric customers provided the required five-year notice of plans to buy power elsewhere in 2016.
The 10 customers represent about 30% of the LCRA’s operating load, according to Standard & Poor’s.
In mid-2012, nine of the 10 claimed the utility is in breach of the wholesale power sales agreements. They later announced that they would begin buying power from other sources sooner than planned.
That prompted an LCRA lawsuit against eight of the customers designed to enforce its wholesale power agreements through the 2016 contract expiration.
Late last year, the largest of the departing customers, the Guadalupe Valley Electric Cooperative, reached a settlement with the authority whereby GVEC, as of December 2012, could purchase a portion of its energy requirements from suppliers other than the LCRA.
The agency has had preliminary hearings regarding several of the lawsuits and has received some favorable rulings, S&P noted. Other cases are still awaiting hearing dates and venues.
“While the risks to the LCRA are material, the outcome of the breach of contract disputes is not possible to predict,” Chapman wrote. “The authority’s currently competitive power costs are in its favor.”
The utility’s planned capital expenditures through 2017 are roughly $1.3 billion. That’s down from previous years, as the largest expenditures will largely wind down over the next two years.
The LCRA’s power transmission unit TSCorp. is sharing in about $590 million of competitive renewable-energy zone projects that will link wind generation in remote sections of Texas to customers in the urban areas.
Most of those projects are expected to be completed by December.
On the water side of its business, the LCRA is planning the first new reservoir in 40 years to take some of the strain off its seven drought-stricken reservoirs near Austin.
At an estimated cost of $206 million, the proposed reservoir in Wharton County near Lane City would add 100,000 acre-feet to the region’s water supply by 2017.
The LCRA has approved $18 million to begin buying land and will seek grants, loans and other outside funding sources to help pay for the project.
The reservoir would be the first major water supply infrastructure built in the lower Colorado River basin since the 1970s.
“This is a historic project on many levels,” LCRA general manager Becky Motal said in January, after the board voted to move forward on the project. “Not only would it be the first major reservoir built in the basin in four decades, but it’s the first project in our history that would allow us to store significant amounts of water downstream that could be used by multiple customers.”
Motal called the new reservoir “vitally important to serving the needs of our downstream industrial and agricultural customers, meeting environmental-flow requirements and taking pressure off the Highland Lakes.”
The Highland Lakes are the authority’s chain of seven reservoirs in the Hill Country west of Austin, built in the 1930s and 1940s to provide flood control and generate hydroelectric power. Prolonged drought has lowered the lakes to levels not seen in decades.
A recent aerial photo of Lake Travis, one of the Highland Lakes, reveals boat docks stranded by the retreating water and dramatically narrowed boat channels.
The new reservoir would sit far downstream from the Highland Lakes in a region that serves the state’s rice farmers.
“This ongoing drought has highlighted the need for bold and decisive action to ensure that LCRA’s customers have a reliable supply of water in the future,” said board chairman Tim Timmerman.
Most of the water downstream from the Highland Lakes flows to Matagorda Bay on the Gulf of Mexico unless customers withdraw it from the river for immediate use.
Farmers and other users have no way to capture and store those flows for future use. So, during dry periods downstream customers often need to call on water from the Highland Lakes. Last year, more than 800,000 acre-feet of water flowed down the river into Matagorda Bay, according to the LCRA.
The new reservoir would be built to hold about 40,000 acre-feet of water, but could be filled multiple times over a year by capturing water flowing in the river, making it capable of adding 90,000 acre-feet of firm water to the region’s supply, officials said. Firm water is water that can be counted on during a repeat of the conditions during the worst drought on record, the decade-long drought from 1947-1957.
The authority said it studied several potential sites and other options before recommending the Lane City site for the first of three possible downstream reservoirs.
The LCRA last month also announced it will be moving forward with another project in Bastrop County east of Austin to ease demand for Highland Lake water. The Lost Pines Groundwater Conservation District and the Texas Commission on Environmental Quality will allow authority a permit to pump about 10,000 acre-feet of groundwater in Bastrop County for use at its Lost Pines Power Project.
With the Texas Legislature in session, lawmakers are considering new bond-funded water projects to meet the state’s pressing water needs and to prepare for a growing population.
