Credit downgrade keeps Tarentum on monthly electric deals
A downgrade of Tarentum’s credit is why the borough is going to continue month-to-month agreements for its electric supply instead of getting into a long-term deal.
The long-term credit rating on the borough’s general obligation bonds was lowered in 2017 from “BBB-” to “BB+,” according to Borough Manager Michael Nestico.
“It was based upon low liquidity (cash) of $280,000 at the end of calendar year 2015,” he said.
Tarentum has been working with a consultant, Erie-based PRX Energy, while it was looking for a new supply agreement after its last long-term deal ended and that supplier, Talen Energy, left the market.
PRX President Gregg Shively said that when the borough went into the electric market, all of the suppliers wanted some kind of collateral posted. As a result, a long-term agreement would cost twice or three times as much than a one-month deal.
“What we’re trying to do is minimize the amount of collateral that needs to be handed over to the supplier to hold as credit,” Shively said. “We’re still working on trying to get suppliers to reduce the credit obligation.”
Council on Thursday approved a one-month deal for September with PSEG, its third straight with that company. It has entered a total of four such agreements, starting in June with one with First Energy.
For one month, Nestico said PSEG required a $150,000 security deposit. For a long-term agreement, it would be $600,000.
The borough did not include money for a deposit that large in its 2018 budget, council President Erika Josefoski said.
“We weren’t expecting Talen Energy to not be our provider any more this year,” Josefoski said. “It caught us off guard.”
Josefoski said a number of factors went into the downgrade of the borough’s credit rating, including when the borough was without a manager and information not getting to auditors on time.
“I’m hoping at our next audit, I expect our rating will be improved based on the changes council has made and management has made and getting everything into them they require,” she said.
For September with PSEG, the cost to the borough will be $39.74 per megawatt hour, up from $38.25 in August and less than the $43.13 charged in July. A number of fees are added on top of that cost, Nestico said.
“That number is not a drastic fluctuation,” he said.
Compared to its last long-term supply agreement, the borough is saving $25,000 to $50,000 each month, Shively said.
Getting out of that agreement “gave the borough a chance to look at the market and realize they were overpaying,” he said.
Residential rate unchanged
The residential rate is 11.34 cents per kilowatt hour, with a $10 minimum charge per month, Nestico said. It has not been changed.
While it’s possible the savings could get passed on to residents, Nestico said it’s more likely it would get spent on capital improvements.
“The infrastructure here is very old,” he said. “We have a lot of lines and wires in town that are fragile. It leads to power outages and disruptions in service. We need to start looking at reinvesting in the infrastructure.”
The cash is also needed for credit, Shively said.
“We haven’t quite analyzed what can be passed on or how to deal with the rates,” he said. “We are in the process of looking at that now.”
Nestico said there has not been any discussion or consideration of the borough getting out of the electric distribution business.
Shively said he recommends the borough get back into a long-term supply agreement, such as one or two years, because it would be better to plan a budget around.
Josefoski agreed. “I don’t expect to be doing month-to-month next year,” she said.
Shively said there’s not much risk in going month-to-month in the fall and winter, since price spikes are expected in the summer.
“We have some time to work out a better credit solution for the borough,” he said.
Brian Rittmeyer is a Tribune-Review staff writer. You can contact Brian at 724-226-4701, [email protected] or via Twitter @BCRittmeyer.