St. James City Council approved an ordinance for a General Obligation Bond election totaling $8.075 million for acquiring an electrical substation and making other improvements to the city-owned electric system, including the construction of a transmission line.

Mayor Dennis Wilson outlined the substation purchase during the Jan. 20 meeting.

“St. James was approached in 2005 by Rolla because they had the intention to get out of the Phelps substation and build a new substation in Rolla,” Wilson said.

Rolla and St. James are the only two occupants of the substation and together cover an annual lease amount of $316,043.

“We pay a tremendous amount of money in user fees from Ameren each month because they own the substation and the 34.5 kV lines, which run to the City,” Wilson said. “At the end of February the final agreement will be signed to purchase the substation from Ameren and the 34.5 kV lines.”
Wilson said St. James currently pays approximately 14 percent in user fees to Ameren and Rolla pays the remaining percentage.

“When Rolla moves out the entire annual lease becomes ours,” Wilson said.

Superintendent of Utilities Mike Licklider explained the $6.7 million substation purchase project, which includes two transformers to be sold to Rolla and the purchase two smaller transformers.

Licklider noted if the city continued to lease the substation once Rolla moved out, the city's annual fee would jump from $67,000 to $316,043. He said purchasing the substation would save the city financially because it would own the substation in 20 years instead of continuing to lease from Ameren.

Licklider also explained the $2.6 million tie-line project.

“If you get on a regular loop system, you can take any part of the line out of service and still have service throughout the city,” Licklider said.

Candace Connell noted the city is requesting a 50 percent matching grant from the Economic Development Administration for financial assistance for the tie-line. The grant totals approximately $1.3 million.

“If this grant is received, the City must have financing in place for the remaining $1.3 million project cost,” Connell said.

Joy and Nathan Howard of WM Financial Strategies prepared a preliminary financing analysis for the two combined projects, which recommended using general obligation bonds instead of a lease-purchase option.

Howard concluded the bond issue was a more cost-effective vehicle. She recommended the city seek approval of the bonds if: “The voters know the city is committed to finance and purchase the substation and that for the tie-line the financing would only be put in place if the city receives the 50 percent grant from EDA.”   

Howard said the bond amount sought for the substation would total $6.7 million and the new transmission line would total $1.375 million, with the total bond amount of $8.075 million.
Connell also explained the general obligation bond option.

“General obligation bonds are approved by taxpayers and obligate the city to pay for the entire amount of the debt, resulting in a lower interest rate,” she said. “With lease-purchase the interest rates are higher because the council doesn’t have the authority to in-debt the City beyond one year.”

Connell explained the impact of rate increases on projected revenues. 

“I prepared projections based on a 4 percent increase annually for four years (in electric) to gradually increase revenues to cover debt service,” Connell said.

Howard noted that a portion of the issuance, not included in the report, were Recovery Zone bonds, recently approved by the Phelps County Commission for St. James, and totaling $1.6 million. The bonds would significantly reduce interest rates, Howard said.

Connell said the reduction would be 45 percent lower interest costs over typical bond financing.

The council unanimously approved the $8.075 million bond issue for the April election.