Bond refinancing will save RPU $1 million
The combination of historically low interest rates and Rochester Public Utilities ' relatively high financial rating will add up to slightly more than $1 million in savings for the utility.
That savings comes from refunding $4.1 million in electric utility revenue bonds . The savings, which was more than originally anticipated, reflect the net after all costs associated with the refunding.
Competitive bids were taken at 10 a.m. Wednesday, said Dave MacGillivray, with Springsted Inc. who presented the results to the RPU board at noon. Of the six bidders the best interest rate, 0.88 percent, was from Bank of Montreal out of Chicago.
When RPU first started looking into refunding the bonds in early December, the best interest rate was 1.08 percent, MacGillivray said.
Under the new interest rate RPU will save $200,000 a year up to $220,000 a year over the next five years for a total savings of $1,031,000, he said.
The savings is a relief to the utility board, which expressed some concern about its recent sub-category drop in financial rating from Moody's, one of the top three credit rating agencies.
Moody's changed RPU's rating from Aa2 to Aa3. An Aa1 rating is the best in the Aa category from Moody's. Aaa is the highest rating.
In its report, Moody's sited RPU's lack of a rate increase for customers for the past several years as among the utility's challenges. The RPU board took umbrage to that noting that a rate increase hasn't been necessary because the utility has strong reserves, didn't have a rate increase from the Southern Minnesota Municipal Power Association from which it purchases power, and has continued to invest in the system.
The interest rates that RPU received for its bonds were not impacted by the sub-category change. A drop in the rating to the A category could impact interest rates, but the outlook from both Moody's and Fitch Group rating agencies, was stable.
Fitch Group rates RPU at AA-, which is equivalent to Moody's Aa3.
RPU moved up from the A group to the Aa group in 2007 after building up its reserve, said Sue Parker, director of corporate services for RPU.