PUC customers to benefit from federal Build America Bonds

Grand Marais public utilities customers are going to benefit from a good deal Southern Minnesota Municipal Power Agency (SMMPA) was able to get when it issued $75,000,000 in bonds last month. The city is one of 18 member municipalities that buy power from SMMPA.

Build America Bonds, available until December 31 through the 2009 American Recovery and Reinvestment Act, comprise $66,565,000 of the total. Thirtyfive percent of the interest SMMPA pays will be reimbursed by the Treasury Department. The combined interest rate for the $75,000,000 bonds will be 3.72 percent.

The sale of the bonds will allow SMMPA to pay off higher-cost commercial notes, construct the 25-megawatt gas-fired Fairmont Energy Center, and increase its liquid assets. The sale also upgraded SMMPA’s Moody’s Investors Service rating to A1 and its Standard & Poor’s rating to A-plus.

An October 5 Moody’s report states that while SMMPA’s debt-to-asset ratio remained “significant” at 116.3 percent, its financial strengths were more significant, with $57 million in operating reserves, $33.6 million in capital reserves, and $66.7 million in debt service reserves at the end of July.

All of this translates into savings expected to be in the millions of dollars. SMMPA is able to not raise its rates for 2011, whereas other Midwest power agencies such as Xcel Energy in Minnesota and Alliant Energy in Wisconsin will be raising their rates by 14-23 percent, according to Ray Hayward of SMMPA.

In addition to its coal-fired Sherco plant and the future gas-fired Fairmont Energy Center, SMMPA is investing in renewable resources such as wind and water power. Moody’s reported that SMMPA is currently in full compliance with the Minnesota Renewable Energy Standard. The standard requires power companies to increase their renewable energy sources in increments to a total of 25 percent by 2025.

Grand Marais Public Utilities Commission Chair Hal Greenwood said he was “very proud and happy” with the bond sale. “Southern Minnesota Municipal Power Agency is a very sound organization,” he said. “Whoever decided for us to pick up SMMPA made a good decision.”