Bond secured for BIPCo purchase

Fri, 11/04/2016 - 10:15am
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With the closing of the stock purchase scheduled for Monday, Nov. 7, Block Island Power Company Transition Team member Bill Penn congratulated Town Finance Director Amy Land on securing financing for the purchase. The $1.8 million bond will be a two-year, interest-only note, callable within six months, at a rate of approximately two percent. The announcement was made at the BIPCo Transition Team meeting on Thursday, Oct. 27.

Upon closing, a new Board of Directors will need to be in place. (On Wednesday, Nov. 2, the Town Council appointed First Warden Ken Lacoste and Second Warden Norris Pike as the town’s representatives at BIPCo shareholder meetings.)

The Transition Team would like to have a new Chief Executive Officer for BIPCo in place as soon as possible after the closing. At the suggestion of Kirk Johnson of the National Rural Electric Cooperative Association, the Team has decided to hire a CEO on an interim basis for this position. Team Chair Barbara MacMullan reported that Kirkwood had, based on an email he had sent out as a feeler, indicated there were several individuals, now retired, that might be interested in the interim position.

The NRECA would charge $7,500 to search for the interim CEO; however, the cost for the search for a permanent CEO would be higher. “It’s thorough, but pricey,” said Penn of the proposal. NRECA would charge 25 percent of the candidate’s first year salary. That too was a bit pricier than expected. Kirkwood recommended a salary of $150,000 per year plus full benefits.

The Transition Team decided to go ahead with the search for the interim CEO and to wait until proposals are received from two other firms to decide on filling the permanent position.  Upon Pike’s suggestion, current President Cliff McGinnes will be asked to stay on at BIPCo until Christmas so that there will some overlap.

McGinnes’ wife Sara holds the remaining third of BIPCo’s stock that is not being sold to the town. However, they are currently in negotiations to divest their interest by some other means. Full ownership of the company will make the transition to either an electrical cooperative or a municipal utility district much smoother, according to members of the Transition Team. 

The Transition Team, with input from the general public, still needs to determine which way to go — a co-operative or municipal utility district. That decision must be made in order to file enabling legislation with the state in January. 

There is also the question of whether a municipal utility district can be a member of the NRECA. MacMullan said there were two primary conditions to be a member. One is that the entity be not-for-profit, and the other is that revenues of the entity come primarily from the sale of electricity. 

Co-operatives are formed under section 501(c)12 of the Internal Revenue Code and are subject to what is called the “85-15 Rule” by which at least 85 percent of its revenues must come from co-op members. There had been some concern that the 85 percent had to be specific to the sale of electricity, but MacMullan said that the sale of broadband services would also be revenue from members, so that should not be an issue.

However, revenues from organizations leasing space on the communications tower would fall under the 15 percent category unless those organizations have an electric meter on Block Island. 

Based on BIPCo’s audited financial statements for the year ending May 31, 2015, income from the rent of utility poles and towers, interest, and other miscellaneous income amounted to 3.8 percent of total revenues. 

Another aspect to consider about cooperatives is the requirement that “excess revenues” be returned to the co-op members. MacMullan said that there needs to be a “plan and a process for doing that.” Such a plan could include the development of a “sinking fund” and environmental programs.

“It’s not necessarily bad to refund excess profits,” said Penn.

MacMullan clarified that she didn’t think it was bad, but that it’s “a distinction between the two.”

Member Kevin Hoyt, who had reviewed the enabling legislation for the Pascoag Utility District, was concerned that one section of that legislation gave the state the authority to end its status at any time. Pascoag is considered a quasi-municipal entity.

Penn shared the concern, saying he had “lived through it,” with a quasi-municipal agency he had worked with. “The legislature took everything at the eleventh hour and gave it to another agency.” 

Hoyt questioned whether it may be more effective to change existing state legislation regarding not-for-profits, than to introduce legislation specific to Block Island. 

MacMullan said it would be better to create legislation that “tailors to ourselves” as opposed to proposing changes to state laws regarding not-for-profits that would raise “red flags” because those changes could then apply to the entire state. 

“A special act is more appropriate to get what we want,” said Town Finance Director Amy Land. 

“We’re speculating,” said Hoyt, calling for the need for more expertise on the differences between co-ops, municipal utility districts, and quasi-municipal agencies, especially as to how such things like public bidding and procurement laws would, or would not apply.

“Again, I think it’s how the legislation is written,” said MacMullan. 

“We need a good utility lawyer,” said Pike. 

Earlier, it had been decided to also consult with a tax attorney on some of the many issues arising. “My hope is there’s a firm that can do all that,” said Hoyt.

“You might be able to get that in one firm. I don’t know,” said Pike. 

A bit further down on the Transition Team’s to-do list is for BIPCo to come up with a “Standard Offer Rate” for purchased electricity in time for the interconnection with the electric cable from the mainland. This will replace the current Fuel Adjustment Charge on Block Island’s electric bills, and will not only include the price of purchased power, but also  capacity, transmission, and cable charges. Everett Shorey, who was not at the meeting, had sent a memo outlining the issues. He wrote that according to the RI Public Utility Commission’s staff a filing should be made with the PUC “in early February at the latest,” in order to be in place by April 1, 2017, when the interconnection is expected.

The interconnection is between the new National Grid substation on Block Island and the BIPCo transmission system. Town Facilities Manager Sam Bird said that National Grid would most likely be ready on their end in January, with BIPCo being ready about four to six weeks after. 

Bird told The Block Island Times after the meeting that the interconnection situation would not prevent the Block Island Wind Farm from going online and sending electricity to the mainland as soon as it’s done with its commissioning process — most likely later this month.