BRADENTON, Fla. — Kentucky's Paducah Power System plans to investigate selling some of its interest in the troubled Illinois Prairie State coal plant and refinance debt as part of a plan to stabilize finances and provide customers with rate relief.
Those were among the actions taken when a three-year rate recovery plan was approved by the PPS board of directors on Wednesday.
The plan included freezing the amount of the cost adjustment charge that had ranged from 6.5% to 23% between February and June, and irked customers who had also seen base rate increases.
In addition to stabilizing rates, the board took a series of actions designed to strengthen the utility's financial metrics and ensure compliance with bond covenants, according to interim general manager Mark Crisson.
"We're trying to strike a balance between the need to provide rate relief and maintain strong metrics," Crisson told The Bond Buyer. "For it to work, we need to maintain healthy credit ratings and cash balances. We think this plan does both."
The recommendations approved by the board from a 23-page rate recovery plan included hiring a new resource portfolio manager to market PPS's assets and potentially reduce power costs.
Hilliard Lyons was also hired as financial advisor to explore freeing up cash by converting security for debt service reserves to surety bonds.
PPS will try to cut debt costs through a refinancing by the Kentucky Municipal Power Agency, which was created by Paducah Power and Princeton to issue bonds for their ownership interest in Prairie State. KMPA obligations currently amount to 67% of PPS's budget.
A longer range plan includes refinancing some bonds that Paducah Power issued to build a local generating plant in 2008 to provide energy needs at peak times. About $164.25 million in bonds are outstanding.
PPS will also explore selling some assets, including a portion of its ownership in Prairie State, a coal-fired plant in Washington County, Ill., that has been more expensive to build and operate than owners anticipated. The higher costs have been paid by PPS and other communities that bought into the project.
Paducah Power contracted for 104 megawatts from the Illinois plant, while PPS's power needs are closer to 80 megawatts, Crisson said. PPS also owns other generating facilities, but also needs to purchase power from the market at times particularly since Prairie State has yet to reach 100 % capacity.
"We're very long in terms of our resources," he said. "We're not necessarily saying we'll sell all assets but we want to achieve a different balance between ownership and the purchase of power we need."
Crisson said PPS will schedule meetings in early December in New York to meet with rating agencies to discuss the recovery plan.
Earlier this week, Fitch Ratings placed its A-minus ratings on PPS's debt on rating watch negative citing the system's constrained financial position and reliance on the troubled Illinois Prairie State Energy Campus.
Fitch said that base rate increases from November 2012 until April 2014, intended to align with PPS's cost of service, have not sufficiently supported system metrics at previously projected levels. Moody's Investors Service assigns an A3 rating to the bonds.
Paducah is a city in western Kentucky with a population of 25,000. Fluctuating power rates and lack of a plan to stabilize them led to the resignation of PPS's general manager and several board members in recent weeks.
Crisson, former chief executive officer of the American Public Power Association, came out of retirement as interim manager to help Paducah stabilize costs. The search for a permanent manager is under way.