Manager: Paducah Power Not a Bankruptcy Candidate

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BRADENTON, Fla. - Paducah Power System in Kentucky is not insolvent and therefore does not qualify to file for Chapter 9 bankruptcy, according to its interim manager, Mark Crisson.

A resolution taking bankruptcy off the table as an option for the financially struggling utility will be presented to the power board on Dec. 8, Crisson said in an interview with The Bond Buyer late Thursday.

"We want [the resolution] in hand before we visit our friends on Wall Street," he said, referring to upcoming meetings with rating agencies to discuss a recovery plan adopted Nov.13 to stabilize the utility's rates and finances.

Crisson said he promised local residents and business owners, who are angry because of high electric rates, that due diligence would be performed to examine whether bankruptcy could be considered an option for PPS.

After an internal review of finances, and consulting with financial advisors and attorneys who deal in Chapter 9 cases, Crisson said the experts concluded that Paducah Power is not a viable candidate for a bankruptcy filing.

The chief reason is that the utility is not insolvent, and insolvency is required for a such a filing, he said. PPS is not struggling because of bad debts, and its uncollected billing is better than the industry average at less than half of 1%.

While some members of the community suggested that Paducah Power file for bankruptcy because of its leverage, the utility is current on its obligations and bond covenants. PPS had $164.25 million in outstanding revenue bonds with maturities through 2038 at the end of fiscal 2013.

Paducah Power also has a long-term contractual commitment to purchase 104 megawatts from the troubled Prairie State Energy Campus in Illinois.

Prairie State has not reached capacity, forcing Paducah to purchase power in the market at higher than anticipated costs. Those costs have required that a varying cost adjustment charge be added to customers' base rates to generate sufficient revenues.

In October, the power board voted against implementing a quarterly power cost adjustment after public outcry over high rates. As a result, the utility encountered a $472,000 revenue shortfall compared with what would have otherwise been collected that month.

The constrained financial position led Fitch Ratings to place its A-minus ratings on Paducah's bonds on rating watch negative on Nov. 10.

A rate recovery plan adopted by the power board on Nov. 13 prescribes a number of actions that will be explored to stabilize rates and shore up finances, including potentially selling some of its interest in the Prairie State coal plant, selling assets, and refinancing debt.

Crisson said he would ask the power board at the next meeting to emphasize its commitment to the rate recovery plan, and the fact that it does not include bankruptcy as an option to settle the matter.

He also said that none of the attorneys he consulted had ever heard of a public electric utility filing for reorganization.

"Bankruptcy is always the worst option, until it's the only option," Crisson said, recalling a phrase one attorney told him in recent discussions.

Paducah Power is nowhere near the point that bankruptcy is the only option, he added.

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