After looking at several options and using the base cost of $2.5 Billion to do so it may be difficult for us to obtain this even though not impossible. To better explain this I will first give more background from a city government stand point which will show why a public/private partnership would not work and then go into what PEPCO would have to do to possibly attempt to make this happen.
In looking at the city's current financial situation as I have mentioned before the District of Columbia has a self imposed 12% debt cap which has been one of the major reasons that we have been able to keep such as positive bond rating while at the same time continuing to be one of the few jurisdictions in the country to have a growing budget. Currently the city is near its current debt cap which is 12% of our annual operating budget $720,000,000. For the city to take part in this endeavor as part of a public/private partnership the city would have to be willing to add in the area of $1 Billion - $1.5 Billion to the project which broken down over 20 years would mean the city is on the hook for $50 - 75 Million a year. This means that we would have to increase our debt cap by 1/2 - 1% for just this project. Further we would also have to find a way to pay back the debt of at least $50 Million a year and please notice that this doesn't even include interest on the bonds but just the cost its self.
Now as it relates to PEPCO, because the city more than likely can't truly afford to fully find this as part of a public/private partnership that the company would have to fund this investment of $2 - 3 Billion on its own. According to the 2011 Annual Report for PEPCO Holdings, Inc (PHI) the parent company of PEPCO the company across the board is already investing $1.4 Billion in transmission investments across all regions covered. This of course was part of the Comprehensive Plan to improve reliability in PEPCO's services which was released in 2010 (I'm still looking for a copy of this statement which I will try to read over the next week or so as the Annual Report was 160 pages already and I still have a full time job to do, lol). With this being said we will now move on to the companies finances.
Currently, the company is seeking a $42 Million rate increase in our city for potential improvements which are being fought across the city. In looking at their actual financial statements the company had a net income of $260 Million (based on GAAP) and Basic Earnings Per Share from Continuing Operations of $1.15 (based on GAAP). Please understand that this is for the parent company and not just for local arm of PEPCO. This would mean that for the company to pay for this enhancement based on a conservative cost of $2 Billion would have to pay an addition $200 Million to finance the debt for this project which doesn't include interest cost. The other option would be to do this over a 20 year time period at a cost of $100 Million a year. By using the most recent numbers this would drop their net income by 38.5 - 76%. This alone would add issues to the companies financial outlook because of the massive amount of debt that the company would take on by at least 1/3rd based on the 2011 numbers.
Now one way that the company would be able to possibly cover some of these cost would be to reduce the current dividend which they pay on common stock which was $1.08 on an end of year price of $20.30 which is in the area of 5.3%. Currently the company has a debt/equity ratio of 1 (according to Morningstar's based on the current stock price). This number currently is on par with many of its industry peers and slightly below the industry average of 1.2 but leaves the company open to possible loses down the line. This means that eventually the company will be forced to find a way to increase funds which would mean (a) decreasing its dividend which would more than likely be in the area of 1 - 1.5% which would put them at the bottom of the industry and bother some investors/debtors or (b) of course increase rates.
My personal thought process is that they more than likely are already going to have to increase their rates by a few percentage points across the board in all of their businesses practices as well as slightly cutting their dividend for the short term (3 - 5 years) just to cover the current cost they have. This would of course more than likely have to double to deal with just the issue in DC let alone across all of the areas they serve. Now of course they may be able to obtain some one time cash infusions by selling some of the facilities they are retiring including one of the facilities on Benning Road but these one time infusions will do little to deal with the long term debt.
With all of this being said the best and more than likely the only way for us to have at least partial grounding of our power lines in the city would be for the company to increase its long term by an amount of at lest $1 Billion possibly up to $3 Billion to just solve the issue in DC. The city may be able to encourage this or cover some of the cost by encouraging the company to do this in areas in which they are already making significant road improvements by allowing the company to ground lines while the city has the street open which may offset their cost by 30 - 40% but even then the city would have to delay road projects and possibly kick in another $500 Million to $1 Billion. This plan from my stand point would be the only way of possibly getting it done and of course the community would have to work with the Office of Planning, Outside City Planners and of course PEPCO to do so. Even still the money must be found and the residents of the city in the long run must be willing to find other areas in the city's budget to take significant cost or fork over more fund via taxes and fees to the city as well as increased rates to PEPCO.
--
Eric J. Jones, MSF
ejjones.threed@gmail.com
"I for one believe that if you give people a thorough understanding of what confronts them and the basic causes that produce it, they'll create their own program, and when the people create a program, you get action."
El Haj Malik El Shabazz
--
WardFive@googlegroups.com is open to WardFive residents for community discussion and information sharing.
To post to this group, send email to wardfive@googlegroups.com
To unsubscribe from this group, send email to wardfive+unsubscribe@googlegroups.com
For more options, visit this group at http://groups.google.com/group/wardfive?hl=en
0 comments:
Post a Comment