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W A T E It E N E R G Y t I f F RIVERSIDE PUBLIC UTILITIES Board Memorandum PUBLIC UTILITIES BOARD OF PUBLIC UTILITIES DATE: June 15, 2012 ITEM NO: 8 SUBJECT: CLEARWATER POWER PLANT DEBT REPAYMENT ISSUE: That the Board of Public Utilities consider reserving surplus Fiscal Year 2011-12 and Fiscal Year 2912-13 Electric Funds to pay forthe redemption of callable bonds in the amount of$33,718,939 associated with the Clearwater Power Plant purchase due on September 1, 2013. RECOMMENDATIONS: That the Board of Public Utilities: 1. Recommend that the City Council authorize the reservation and use of the projected surplus Fiscal Year 2911-12 and Fiscal Year 2012-13 Electric Funds to pay the required debt service obligation pursuant to the ClearwaterAsset Purchase and Sale Agreement previously approved by Riverside's Public Utilities Board and City Council; and 2. Authorize the City Manager, or his designee, to execute the appropriate paperwork. BACKGROUND: The Board of Public Utilities and City Council approved the purchase of the Clearwater Power Plant, a 30- megawatt combined cycle, natural gas-fired power plant from the City of Corona ("Corona") on February 5, 2019 and February 23, 2019 respectively. Under the Clearwater Asset Purchase Agreement ("Purchase Agreement'), Riverside is to make a series of payments to Corona which in turn enables Corona to pay for the debt service payments on two series of bonds[2003 and 2095 COPS(Certificates of Participation)]originally issued to finance the initial construction of the Clearwater Power Plant. The principal amount of Corona's outstanding COPs (related to the power plant)on the purchase date was approximately$50.4 million. The 2093 and 2995 COPS included an option to call(repurchase)the outstanding bonds on September 1, 2013 and 2915, respectively. Under the Purchase Agreement, Riverside is obligated to pay Corona$33,718,939 and$6,951,099 on the respective call dates for the power plants'proportional outstanding bonds. Riverside could issue additional bonds or make the payment from cash reserves in order to meet its payment obligation to Corona. In light of historically low power and natural gas prices throughout this fiscal year and anticipated to continue through the next fiscal year, the Electric Fund is projected to realize short term (i.e., one-time) savings in Power Supply costs. Staff recommends that funds realized from such savings be reserved and used to pay the final payment obligation for the 2903 COPS due on September 1, 2013. The benefits of using the one- time savings are as follows: • Avoids future principal and interest payments and new debt issuance costs; • Maintains existing reserve balances that help support high credit ratings thus keeping interest costs low;