1992-02-24 Board of Selectmen Minutes

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Selectmen's Minutes - 2/24/92 - Page 2 that rate of return. Rucker went on to explain that the change in 1988 from using the gross plant value to the net plant value in determining the eight percent has had a drastic impact on the RMLD's ability to make additional payments. One additional source of revenue for capital projects is bonding. This has the advantage of increasing plant value, which will increase the eight percent yield. Even without granting the Town of Reading additional earnings distribution, the RMLD will need to bond in order to meet $2.1 million in capital needs per year, or will be required to reduce capital expenses or cut the earnings distribu- tion. The RMLD could also increase its depreciation, but that would have the effect of reducing the net plant value. Rucker also pointed out that interest on the operating fund goes to the Town of Reading. In 1991, that was approximately $215, 000. Rucker outlined a projection of RMLD capital needs, reflecting the need over the next five years for approximately $4.7 million needed over and above the three percent depreciation, which could come from either bonding or the unused eight percent return. As a result of bonding, rates would have to go up approximately 1.25% per year. However, only a portion of this would be attributed to additional earnings distribution to the Town of Reading. Mr. Rucker indicated that the $2. 1 million is for ordinary capi- tal needs only. Extraordinary projects such as the new building, and the potential for a transmission project would need specific additional bonding authority. Chairman O'Leary proposed in calendar year 1992 an increase in the payments for the earnings distribution to $1.4 million, up from $1.25 million. This would affect the payment in June and December, 1992 . He also proposed that that would be set at that level for calendar year 1993 . The proposal is contingent upon bonding authority of up to $5 million to be drawn down by the RMLD. The payments to Reading from the twenty-year contract would continue in the same formula, but would reach approximately $75,000. The RMLD was asked why the entire $1.615 million dol- lars available from the eight percent could not be given to the Town. Concerns expressed by the RMLD were: 1. Cash flow problems. 2 . The $1.615 million is not a real figure because it reflects borrowing $5 million from the rate stabilization fund. 3 . Other towns and ratepayers might object and file suit. There was considerable discussion as to whether or not the RMLD should take bolder steps in terms of this earnings distribution, what a private utility's rate of return is, what the Town's debt to equity ratio is, compared to the private sector, etc. Bill Burditt asked if the Board would reconsider their $1. 4 million proposal at this time. Chairman O'Leary polled the RMLD Board members present, and they decided not to reconsider at this time.