Sunday, November 19, 2006

Apples and oranges and GVEA

The News-Miner's article today, while illuminating a couple of additional issues with the GVEA proposal to transfer assets to a generation & transmission co-op, was, unfortunately, not a good example of examining the validity of claims made. Rather, it was a he-said, they-said sort of thing...
The utility estimates that the switch will save members about $30 million over the next five years, although electric bills will likely continue to increase because of rising fuel prices and other factors.
This claim remains unexamined by the News-Miner. Alas, it looks like the GVEA staff presentation was downright deceptive; I'll be calling them on Monday to see what they have to say for themselves about this.
Here's a rundown (PDF) of the problems with the figure provided of a $30 million savings:
􀂃 The Ruralite mistakenly implies that GVEA currently collects 75% of the interest expense for loans on capital projects.
􀂃 The minimum amount that a distribution cooperative like GVEA is required to collect is 25% of the interest expense.
􀂃 The minimum amount that a generation and transmission cooperative like GVEA G&T would be required to collect is 10% of the interest expense.
􀂃 To minimize interest costs, GVEA would have to collect more than these minimum amounts, regardless of whether the current structure is maintained or the GVEA G&T structure is adopted.
􀂃 A more accurate (i.e., apples and apples) comparison of the savings on a loan with $1,000 of interest expense would compare the minimal amounts that must be collected. This would show a savings of $150 (i.e., 25% minus 10% of a loan with $1,000 in interest costs), rather than the claimed savings of $650 from the Ruralite.
􀂃 GVEA is currently collecting about 30% of the interest expense. Using the actual figures greatly reduces the potential savings.
􀂃 The “savings” claimed by GVEA are from “capital credits” that are ultimately refunded to GVEA Members once the loan has been repaid. This further reduces the potential savings claimed by GVEA.
􀂃 Reference(PDF)
This is from a point-by-point examination of the Ruralite article's claims. More useful source material is available at Common Sense and Comity, Gary Newman's blog, and there will soon be a website just on this issue at (should be up by Tuesday, from what I hear).

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