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OPD Hit With Credit Downgrade
Posting Date: 07/30/2012

By John Taylor

Overton Power District (OPD) received a financial blow in May when its credit rating was downgraded by Fitch Rating Agency from ‘stable’ to ‘negative.’ The rating reflects weakness in the District’s cash flow and debt service capability in 2011, continuing into 2012.

According to Fitch, Overton Power’s policy of locking in long term contracts and keeping unchanged projections will not materially change the company's financial outlook in the future. Persistent weakness in OPD's debt service of its outstanding $16 million special revenue bonds, Series 2008, may lead to further downgrades.

Fitch’s credit downgrade is certainly not welcome news, coming on top of a rating downgrade from an ‘A’ to ‘A-‘ by Moody's, another national rating agency. Moving from A to A-, or from stable to negative, signals financial concerns and OPD’s outlook is weak according to experts.

The downgrade is attributable to concerns about OPD's ability to cover its debts. In simple terms, debt coverage measures a company's ability to pay its debts. It is cash flow divided by debt service. The rating agencies do not like what they see in OPD’s future.

Delmar Leatham, General Manager of OPD, said it is not as bad as it looks. “Everybody is in tough shape in this economy. When we lost the income from the Oasis Casino (which closed in 2008) and had about ten percent of our homes go into foreclosure, our income dropped from about $40 million to $35 million. That triggered the downgrade.”

OPD has attempted over time to resolve its debt problems with a variety of cost savings ideas from reducing expenses to reducing staff. OPD also made an agreement with the Colorado River Commission to sell its surplus power. That power, purchased through a long term contract, was sold at a significant loss.

To address the loss of revenue, OPD raised rates in 2011, increasing the base fee it charges residential customers across the board by five dollars from $20 to $25. Business users got a similar increase. It’s expected to generate $800,000 a year in additional income. OPD also increased rates in 2009.

Mesquite’s electric rates average about $150 a month for 1,600 kilowatts of power for residential users. The same usage costs about $90 if it were purchased from nearby Dixie Escalante Power Co-Op in southern Utah. NV Energy, the power company that services much of southern Nevada, has much higher rates than OPD or Dixie Escalante. Its rates are among the highest of the seven western states.

With the explosion of renewable energy projects nationwide, attention has focused on the possibility of those kinds of energy sources around Mesquite. Most recently the Toquop Energy Project garnered attention, followed by the Lincoln County proposed solar project on Flat Top Mesa, and the K Road Solar project on the Moapa Indian Reservation. Unquestionably, a major shift is taking place in energy production that focuses on a move away from fossil fuels like coal and oil toward use of natural gas and other renewables like solar.

Leatham points out that the major stumbling block to the use of renewables like solar are startup costs and government bureaucracy. With the state of the current economy, he says finding dollars to start a renewable energy project can be quite an undertaking.

Indeed, many renewable energy startups have failed, just as many automobile companies failed during the birth of the auto industry in the early 1900s. In North Las Vegas, Amonix, a solar manufacturing plant, recently closed its doors. The company suffered a series of setbacks including the death of its Chief Executive Officer in an airplane crash, a challenging price structure for solar panels, and a low demand for its concentrated photovoltaic systems.

“The global solar industry is facing significant challenges,” said Jen Stutsman, Press Secretary for the U.S. Department of Energy (correction made, 10:20 am, July 30). “However, the United States simply cannot afford to cede America's role in the growing, highly competitive solar industry.”

Last year, the global market for clean, renewable energies reached a staggering $260 billion and is expected to grow into the trillions of dollars in the coming years. America's solar industry now employs over 100,000 workers; that’s expected to double.

The financial weakness at OPD is a double edged sword. Not only can OPD not pursue any renewable energy projects but that translates into Mesquite not having any renewable energy jobs or any job training programs for years to come. The resulting effect is that Mesquite will be left far behind in the shift into the ‘smart power’ grid.

Recently, the U.S. Department of Interior announced a slew of renewable, mainly solar, power projects throughout the western states. The locations were picked based on the area’s proximity to current power grids. That left Mesquite out of the running because it’s too far away from the power grid to make a solar project economical.

Overton Power District currently has no renewable energy projects in its future. The company recently signed a contract to buy power from an out-of-state company through the end of 2017. Any project involving renewable resources like solar or wind energy would have to come after that date, according to Leatham. He explained that utilities lock in rates through long term contracts to avoid price fluctuations. If OPD were to embark on a renewable energy plan, it would have to displace energy set forth in established contracts resulting in a conflict with its current power provider.

While renewable energy projects are popping up all over the state and catching the attention of the public, Mesquite will not likely see any renewable energy unless a major shift in public policy occurs. Several Mesquite mayors in the recent past, including Chuck Horne, Bill Nicholes, and Susan Holecheck, tried to get momentum for renewable energy projects with little success. Past Mesquite City Councils had no appetite for that kind of change. There’s no indication, one way or

another, how the current Council feels about renewable energy projects.

The lack of planning for renewable energy and forward thinking poses problems for OPD. According to most major research, utilities must proactively change their business models to meet consumer needs and demands. Developing a major, innovative spirit in a utility has numerous challenges.

Leatham, who has been with OPD for 35 years, says in order to keep rates low, long term contracts are a necessity. For a consumer, the city, or a business, bringing in any renewable resource would have to go through OPD. The earliest OPD could bring in any major renewable resources would be January 1, 2018. Residents and businesses of Mesquite would not see any major changes until that time even if a movement was soon made to install or connect to renewable energy projects.

That sentiment is partially shared by the largest electric utility in the state. “There is a cost to investing in renewable energy,” said John Owens of NV Energy. “A rate payer will benefit from energy efficiency but that may lower sales from the utility.” As a result, a utility is forced to decide if offering renewable energy programs will negatively cut into its bottom line financially. The easiest route for a utility is to stick with traditional thinking.

Past problems at OPD show how long term relationships can fall apart to the detriment of the rate payer. In July 2001, OPD entered into a contract with Idaho Energy to purchase 210,000 megawatt hours, at $88.50 per megawatt hour, until June 2011. The long term contract would provide electricity at that price for many years to come.

However, factors in place at that time, mainly the demise of Enron, caused prices to drop to $40 per megawatt hour shortly thereafter. OPD tried to re-negotiate the contract without success. In November 2001, Idaho Electric sued OPD for defaulting on a $2.5 million payment. OPD answered that they entered into the contract when prices were grossly overpriced. Because prices had dropped to $40 per megawatt hour, they wanted out of the contract and were not going to pay.

Idaho Electric sued OPD for breach of contract. The lawsuit was settled when OPD paid $52.5 million to get out of the contract. OPD ended up paying $5.5 million up front and spread the remaining $47 million over equal quarterly installments beginning in October 2003, with an interest rate accruing at six percent per year.

OPD then had to find energy from a different provider. Then-State Senator Warren Hardy, now Mesquite’s current lobbyist, said at the time it was a near death experience for OPD.

The lawsuit and resulting settlement caused major ripples throughout the state and a very contentious relationship split between the City of Mesquite and the OPD. At that time, the Board of Directors for OPD consisted of five members from the Moapa Valley area and Bunkerville only. The City, fearing lack of oversight on OPD, requested a more equitable board.

The highly political issue ended up in the Nevada State Senate where Senate Bill 124 passed in 2009, giving Mesquite a seat on the board plus another at-large seat. That brought the total number of Board members to seven. Mesquite’s current representatives on the Board are David Anderson, Douglas P. Waite and Craig Anderson, owner of Heritage Electric in Mesquite

Most recently, in 2010, OPD was fined $10,000 for failing a compliance audit in accordance with Federal Energy Regulatory Commission rules. The Commission found OPD did not have the proper documentation and plans in place for maintenance and testing protection systems of their transmission facilities, as well as other violations. OPD paid the fine.

A new financial problem may be looming on the horizon in spite of the $800,000 earned by the latest rate increase. In 2014, a major NV Energy power transmission line being built from Northern Nevada will come online. OPD, along with other utilities, may be required to pay a share of the expenses, potentially increasing its costs by $500,000 a year. The District has retained legal counsel to fight the expense.

In 2011, a study conducted by OPD found it needed to generate an additional $2 million to help service its debt load. “Over 62 percent of our costs come from purchasing power,” said Leatham. “With revenue down, we had to start dipping into our cash reserves and that can't go on very long.”

The financial outlook for OPD doesn’t seem to get any better for the long term. Leatham projects that energy sales growth rates and operating revenues for the District will remain flat until about 2018.

Leatham, who has been with OPD for 35 years, is set to retire soon. While he would not name his successor, he said there are several well qualified people at OPD to take over when he leaves. He believes it’s best to promote from within, in order to have effective succession planning that will stay the course OPD is on.

To be sure, rates will go up eventually with all utilities. The State of Nevada is about in the middle average nationally for electricity prices. Most electric utilities will undertake future projects to mitigate the necessity of rate increases. Governor Brian Sandoval issued an executive order in November, 2011 that forms a task force who will report back to him and to the people, providing “a clear direction the State should take in regards to energy.” The order also states that Nevada needs to be an active participant in renewable energy projects.

[Editor’s note: While the residents and businesses of Mesquite are completely dependent on electrical rates determined by Overton Power, this series will look at other electric utilities near our community and their approach to providing power to their customers, their look at the future and how it will affect their customers. The series will finish with a second look at Overton Power District.]

 

Commentary
  • Posted Date: 07/30/2012
    Looks like someone is not minding the store over there and once again us home owners will pay. Maybe the city should pay more attention to OPD and give them their marching orders.
    By: Vic M
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  • Posted Date: 07/30/2012
    This a perfect example of poor planning. utilities are always whining about something just to raise rates. When the citys light bill goes up 50% the mayor will wonder what hit him. OPD dropped the ball 10 years ago and now we're gonna pay. We probably don't want to even be around 10 years from now.
    By: Larry
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  • Posted Date: 07/30/2012
    Excellent article. Looks like it is time for OPD to cease business. Mismanaged is the right word.
    By: bobbiethompson
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  • Posted Date: 07/30/2012
    For clarification: OPD is a separate government entity, similar to the Virgin Valley Water District, and is not under the governance of the City of Mesquite. The District extends from Logandale/Overton to Mesquite and not just in Mesquite. Barbara Ellestad, Editor/Publisher
    By: Barbara Ellestad
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  • Posted Date: 07/30/2012
    The problems at OPD reflect the fact that the good old boys have been firmly in control for decades and work harder to take care of themselves than they do about the power company. We really need to do to OPD what was done to VVWD and to the previous city administration- clean them all out and start with a new professional group of thinkers.
    By: Mary
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  • Posted Date: 07/30/2012
    Oh, boy. This is a sign things are bad at OPD. I would like to know with all these financial problems, how much the head guy and top management get paid down there. Bet they haven't tried to do any cost savings with that.
    By: Randy
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  • Posted Date: 07/30/2012
    These kind of things make me worry and will affect every single person living in Mesquite. One more nail in our coffin. Time for a major change at Overton Power.
    By: Kenny
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  • Posted Date: 07/30/2012
    When a company has money problems they usually first cut labor, salaries, etc. You should look at Mr. Leathams salary, bonuses, perks and those of other senior people. If there are not cuts there, we have major major issues. Our city government is failing its job if it doesn't have oversight on such a big potential liability. Stop fooling around with a foolish tent idea and start paying attention to the bills.
    By: Bill
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  • Posted Date: 07/30/2012
    Susan tried and tried and tried to get Overton Power to move forward on energy issues but she couldn't break into their "inner sanctum." If you want a real story look at the good old boys that run that place. It is amazing. A "secret club" that quietly doesn't let anyone in unless you are a member of the club. And we wonder why we have a mediocre power company.
    By: Brenda
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  • Posted Date: 07/30/2012
    Great job on this story. I look forward to the follow-ups coming. A few glaring issues become evident. If the people of this area do not wake up and remove all of the good old boy network folks from positions of authority, we will continue to see the gross mismanagement that always follows. Contracts and jobs given to friends and church associates and nepotism with all of the same family names running these organizations will give us the same results we see here. In the real world, mismanagement that resulted in the loss of over $50 Million should have resulted in many heads rolling and a real change in personnel and oversight, but not at OPD! Just keeping the same folks in control with most of the oversight from friends, family and neighbors will not ever result in competent or efficient operations. Promote from within? How about looking outside your circle of family and friends to find competency? And now Leatham is running for State Assembly? Maybe he’ll bring the same kind of management and fiscal expertise to the whole state – heaven help us all!
    By: justsayin2
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  • Posted Date: 07/30/2012
    I can attest to the fact that Susan repeatedly tried to get OPD to look to the future but they refused. All of the top leaders and all of the board are men that have been in their for years and years and consider it "their" group and no outsiders allowed. Only men and no women. When Susan tried, they just dismissed her, she was only a woman. Look very close at who runs OPD and the problem becomes crystal clear. You don't see one single person screaming for change at OPD.
    By: Peggy
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  • Posted Date: 07/30/2012
    OK, no one will say it so I will. All the top guys at OPD are LDS, all the board members are LDS. The are beholden to the "group" not to the unclean citizenry. What benefits the "group" is what is important. Keeping the status quo is paramount in all future planning. You think when Mr. Leatham retires, they will hire from outside? You are delusional. $52 million here or there, it don't matter to them, it will be paid by the unwashed.
    By: Karl
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  • Posted Date: 07/30/2012
    I don't get it. Isn't anybody watching these guys? This sounds like another VVWD scenario. Can anyone say Mike Winters? I looked at the OPD web site to check this out and there isn't nothing on that web site. What are they hiding?
    By: Charlie
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  • Posted Date: 07/30/2012
    Another example of a quasi government agency gone awry and taking advantage of the people.
    By: Tim
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  • Posted Date: 07/30/2012
    Wow - that's sad. A relative of mine worked for a power company in Colorado that had A+ status for 30 years!!! As far as LDS: I notice a lot of the land around Mesquite is owned by Mormons and they are just letting it go by the wayside. Some of them don't care about their God-given property!!
    By: Esteelouder
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  • Posted Date: 07/30/2012
    If a community seeks to have fully active involved residents who love their community and want to make it better and society better, you simply cannot have these closed secretive groups. You need to keep people fully invested in making the community a better place. There are several serious red flags here, lack of change, a web site that doesn't have the required information for the public, the same people always at the top, no women on the board or in upper management, and lack of transparency. This is bad news for Mesquite.
    By: Intelligent
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  • Posted Date: 07/30/2012
    Every organization, federal, state or local should operate by a Code of Ethics to insure they are providing the best service they possible can. Sounds like OPD doesn't pay attention to ethics.
    By: Gloria
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  • Posted Date: 07/30/2012
    Companies that are mismanaged or have people in charge that are not the most highly qualified always will start to nickel and dime the rate payers to death. Beware.
    By: Caleb
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  • Posted Date: 07/30/2012
    People may be jumping to conclusions about OPD. I don't know if there is anything wrong with their finances or not. But I do know that the arrogance of not putting public information free to all of us who pay their salaries on their website is absolutely disgusting. And my wife would say not have a woman on a public board is old school stupidity of old white men.
    By: Quentin
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  • Posted Date: 07/30/2012
    This isn't shocking news, it's sad. OPD board of directors has been controlling our electrical past and future utilizing only good old boy standards - take from the poor, give to the rich. If I would have know about this situation prior to this article, I would have vigarously run against David Anderson, a position he has held for over 10 years throughout all this mess. I don't believe I would have been elected though as I am a member of the outcast part of our local society, plus being a woman. I firmly believe most of the remaining board members all belong to a closed society that I will never be allowed to belong to even though I have been on many other more significant boards for many, many years.
    By: Lin
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  • Posted Date: 07/30/2012
    make the board of directors fiscally responsible for their poor actions. David Anderson, Bishop and Holy Man has no business being involved with OPD as he has no background. The electrician maybe. Clean house
    By: ralph
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  • Posted Date: 07/30/2012
    People would not have to be speculating here whether there is funny business going on at OPD if they had all their douments posted on their web page for the world to see. Like the city does. That is a sign of poor managing so maybe there is something wrong.
    By: Frank
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  • Posted Date: 07/30/2012
    Wonderful job of reporting. It's time to lobby for a major change in how overton operates in the 21st century.
    By: mmcgrer
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  • Posted Date: 07/30/2012
    It don't matter if someone is LDS or not, if they are incompetent or just dead wood gaming the system and doing nothing that is what counts. Look at their performance and their record. What they did in the past. Thats what counts.
    By: Dottie
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  • Posted Date: 08/02/2012
    We need people that can see the future when buying power and houses for that matter no one bought a house thinking it would tank just like buying power huh
    By: Something to think about
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  • Posted Date: 08/03/2012
    The OPD sounds like Virgin Valley Water district, small town management, Good old Boys, in charge and then wanting the RATE PAYERS to pay for their stupid decisions. DIXIE ESCALANTE SPENT 12M LAST year on a transmission line from Saint George, down to Beaverdam, so that small commuity to get away from the higher rates of OPD. THE CITY OF MESQUITE could form their own power company and or allow Dixie to service Mesquite, Nevada. One thing for sure, OPD is nearing Belly Up and we don't hae to go down with them. The 14m loss the VV water company had, due to Winters, is nothing compared to the 52m loss that Overton Power created. Then for OPD to blame their down grade on the closing of the Oasis Casino, They need to not be out spending their income. OPD needs to take a few notes from Dixie Escalante Power, on how to run a power company
    By: Here we Go again
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  • Posted Date: 08/04/2012
    Same old same old - LDS beliefs include "bleeding the beast" - that is, the rest of us. Get rid of them and observe the economic turnaround of OPD.
    By: BL
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  • Posted Date: 09/03/2012
    all this and no one mentioned or even know that they will proudly tell you they are a NON-PROFILT COMPANY AND DONT HAVE TO BE REGULATED BY ANY GROUP. THIS IS SO UNREAL IN 2012.
    By: fannypak
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