Utility district seeks financing options

Wed, 11/22/2017 - 9:30am

The Block Island Power Company has traditionally obtained its financing from the Rural Utility Service (RUS), but earlier this fall it brought in another lender to finance its tank removal and replacement project: CoBank. Now that lender is looking to extend the newly formed relationship to the Block Island Utility District.

On Friday, members of the newly elected Board of Utility Commissioners listened to a presentation by CoBank Vice President Clarence Mahovlich on how the bank works, who its customers are, and what they might achieve together. 

The Utility Commissioners are somewhat in a pickle. They have a mandate, but no money. 

Mahovlich told the Commissioners that CoBank also has a mandate — that of serving rural communities. The literature handed out says CoBank is “A broad-based financial services organization serving vital industries across the rural communities of America,” and lists those as agribusiness, communications, energy, water, and community facilities. It is a member of the Farm Credit System, and has been ranked by Global Finance magazine as “one of the three ‘safest banks’ in the United States.”

Although the bank is a cooperative, as are most of its customers, it is willing to work with other types of entities. For instance, in BIPCo’s case, just being a customer of RUS allows it to be a customer of CoBank.

Chair Barbara MacMullan said she had noticed that CoBank had been a partial financer of Deepwater Wind’s Block Island Wind Farm and “wondered how that happened.”

Mahovlich said that the bank couldn’t be the primary lender on a project such as the wind farm, but could “take a piece of the loan structure” as long as it was under 49 percent. As for the motivation to do so, he said that taking on such loans gives the bank “information about the industry.”

The Utility Commissioners had many questions for Mahovlich, ranging from loan sizes, lengths and types, to the advantages, or not, of pooling existing debt and locking in interest rates. While Mahovlich said it was possible to pool existing debt into one loan, he did caution that sometimes it was better not to in order to maintain “transparency.” The answers indicated that CoBank was quite willing to work closely with its customers to tailor financing products to particular needs and circumstances. 

After explaining to Mahovlich that the Board was trying to put together a program to buy BIPCo, Everett Shorey asked: “How do we go forward?”

Mahovlich responded that CoBank is already providing financing to BIPCo.

“But we’re not BIPCo,” said Shorey.

“The business has assets, and that’s what we’re interested in,” said Mahovlich. “From you,” he said, “I need, or would like, a schematic description of what you need to get you where you want.”

“So do we,” said Shorey, jokingly.

“Is it possible to look at BIPCo as it is today?” asked MacMullan.

“Yes,” said Mahovlich, “but I need that story.”

Commissioner Mary Jane Balser asked BIPCo President Jeffery Wright if he could put together a package detailing existing debts and plans for capital projects.

“We did put together a capital plan,” said Bill Penn, who before being elected to the Utility Board served on the BIPCo Board of Directors, as did Commissioners MacMullan, Shorey, and Jack Savoie.

Wright said that although there is a capital plan put together, when the system mapping is completed in the coming months, it will be developed more fully.

Balser reiterated that the Utility Board has no money, but has current needs such as for legal advice. “We have nothing to give you, besides the legislation.” 

“That’s some maneuvering we’d have to look into,” said Mahlovich. “In the interim, could the community bank step into the breach?”

“We’re trying to work around that one,” said Shorey. (MacMullan is an employee of Washington Trust.)

“Do you have a dollar amount?” asked Mahovlich.

Shorey estimated that about $100,000 would be needed for the formation of the Utility District and to negotiate a deal with current stockholders of BIPCo to buy them out. The Town of New Shoreham owns two thirds of the stock, and Sara McGinnes owns one third.

“We’re a start-up with no seed money….” said MacMullan.

“No seed money and no family,” said Shorey.

“You’re going through the pains,” said Mahovlich. “Here’s a crazy thought: the town wants to step out…can they front you some money?”

“There are multiple options out there,” said Shorey.

Due to time constraints, the Board tabled its discussion of drafting bylaws until its next meeting, which will be held on Dec. 4, at 3 p.m. at Town Hall. At that meeting, they will also hear proposals from another bank – the National Rural Utilities Cooperative Finance Corporation.