OSWEGO, NY – At Monday night’s meeting, the Common Council announced it had reached an agreement with Niagara Mohawk (now doing business as National Grid) that will save the city money over the next 10 years.
The city and NiMo dually executed the High Dam Power Purchase Agreement on Oct. 5, 1993. The city agreed to sell and NiMo agreed to purchase all of the electricity produced at the High Dam hydroelectric facility.
At the end of 1992, the city had renegotiated the NiMo lease agreement for the High Dam, and replaced it with a Power Purchase Agreement. Instead of leasing the facility from the city, NiMo now purchased power on a kilowatt hour basis.
For the first 500 million kWh (about 12-14 years), NiMo agreed to pay the city $0.0595 per kWh. That number was to increase then to $0.0673 per kWh for the duration of the 30-year agreement. The city agreed to pay NiMo $0.004 per kWh for operation and maintenance.
Working cooperatively with NiMo and using NiMo’s own long-range planning figures, the city entered into an agreement that NiMo would pay the city more than the power was worth during the first part of the agreement term, but less than the power was worth during the last part of the agreement term.
In other words, total payment was ‘front-loaded.’
To keep track of the difference, a so-called “tracking account” was established. It would show how much more NiMo was paying for the first part of the agreement term, and how much less during the last part of the agreement term.
The amount would expectedly increase early but decrease late, until the overpayment would be canceled out by the underpayment.
According to Council President Ron Kaplewicz, under the agreement, the city was selling electricity for a lot more than the market rate. It was thought that the rates would change and the cost would go down, thereby balancing out the pact at the end of its lifetime. However, it didn’t work out that way and the city owes money, he said.
As of Dec. 31, 2013, the “tracking account” has a balance of $11,530,591.93 owed by the city to the company, Kaplewicz said.
The new agreement will allow Dec. 31, 2022, to be just New Year’s Eve party and Jan. 1, 2023 to be New Year’s Day with no great financial burden looming over the city, he added.
“This is just a case of paying the bills and not kicking the can down the road,” he said.
“Last year, we were notified that there was almost $11.5 million in the account. If we chose to do nothing, in 10 years it could be as much as $30+ million,” Councilor Mike Todd said. “So, not to saddle councils 10 years from now with the same problem, this is why we’re addressing it now to the tune of $11.5 million instead of having to address it in 10 years to the tune of $30 million.”
“It’s not taxpayer dollars being spent. It’s the revenue generated from selling the power to National Grid,” Council vice president Eric VanBuren pointed out. “So, there are no taxpayers’ funds going toward this payment. It’s the revenue generated from selling the power.”
According to the deal reached Monday, the city may repay any or all of the outstanding balance in the account without penalty.
On Monday night, the city and the company agreed to modify the agreement. The city agreed to repay, in advance, a portion of the balance of the account each month and the mayor was authorized to sign the first amendment to the agreement.
Starting with the invoice for electricity delivered in January 2015, and each month thereafter during the term of the agreement, the city shall repay the company a portion of the account based on a rate according to a set ‘monthly payment amount.’
According to the resolution, a discount rate shall be applied to that amount equal to the average sum of the company’s pre-tax weighted average cost of capital rate, as adjusted in future approved and ordered NiMo rate cases and the rate for a 10-year US municipal general obligation bond for an A2 rated municipality as adjusted monthly.
Also, each year in January, the balance will be updated. And the company will calculate the new payment amount for the coming year. The city will have 30 days to respond otherwise the figure will be deemed acceptable.
The monthly payments shall have a minimum amount of $40,000 and a maximum amount of $50,000. The city, with 30 days advance notice to the company, may make additional payments during the year.
The city stipulated that for electricity delivered in 2014, NiMo shall apply all of the power sales payments above $1,850,000 that would otherwise be made to the city to pay down the account.
Both parties desire that the payments will result in a balance of $0.00 at the end of the term, Kaplewicz said.