WENATCHEE — Now free of its contractual obligations to pay for dam upgrades and projects by issuing bonds, the Chelan County PUD plans to pay down total debt by about $250 million over the next five years.
Total debt would drop from the current $821 million to about $618 million in 2017. It topped $1 billion in 2009.
That forecast was part of a first-quarter financial update commissioners received Monday from staff.
The pay-down plan would reduce debt by about $50 million annually from now through 2017, Mark O’Bryan, director of strategic financial planning, said in an interview Tuesday.
The reduction would come through a planned schedule of payments and some additional pay-down, he said.
In February, the PUD paid off about $20 million, he said.
The utility has taken advantage of historically low interest rates to refinance much of its debt.
The plan continues an effort that began in 2011 to reduce debt to a level comparable to other highly rated utilities, O’Bryan said.
It would pull the utility’s total indebtedness to about 41 percent of its accumulated “bottom-line” earnings, O’Bryan said.
“A strong entity is usually below that 60 percent,” O’Bryan said. “You don’t want to be too leveraged.”
This figure, known as a debt ratio, is one of many factors that rating agencies like Moody’s and Fitch consider when calculating the PUD’s ability to pay back its debts, he said.
A stronger financial outlook means higher ratings from these agencies and lower costs on future borrowing. Lower utility costs mean lower rates for PUD customers.
Long-term, cost-sharing contracts with the big power purchasers Alcoa and Puget Sound Energy required the PUD to borrow money, rather than use cash, to fund dam upgrades and projects. These old contracts expired last year.
New contracts give the utility the option to pay cash for these projects or borrow. They also require the big power purchasers to contribute to funds for capital projects and debt reduction.
Christine Pratt: 665-1173