EPB plans $125 million bond issue to power grid growth and upgrade

Staff File Photo / EPB lineman David Everett, left, and foreman Clint Stanfield work to install fiber optic cable along Amnicola Highway  by moving cables to a new metal pole.
Staff File Photo / EPB lineman David Everett, left, and foreman Clint Stanfield work to install fiber optic cable along Amnicola Highway by moving cables to a new metal pole.

EPB will ask the city of Chattanooga to issue up to $125 million of tax-exempt bonds this year to help expand and upgrade its power grid after a surge of new homes and commercial buildings were added to the utility's network coming out of the pandemic.

"Last year, we had the highest number of additional units (homes and businesses) we've seen added in any year in the past 10 years, and this year is trending even higher," EPB President David Wade told utility directors during a board meeting Friday. "We are going to continue to see new growth in our community, and we need to make the investments required to serve that growth and to continue to improve the reliability of our service."

Earlier this week, EPB was awarded a $32.4 million federal matching grant to upgrade its electricity grid over the next five years. The grant from the U.S. Department of Energy will help EPB to finance the burial of another 101 miles of power lines and circuits, the replacement of at least 1,388 aging poles and the construction of six new microgrids for backup power.

EPB will match the federal grant with its own capital investments and is borrowing money to help expand its power lines to serve more customers, the utility's chief financial officer, Greg Eaves, said. Although EPB avoided taking on debt through much of its 88-year history, the city-owned utility has issued bonds during the past couple of decades to finance its downtown headquarters building, to expand its fiber optic network across its service territory, and to pay for other grid improvements and additions.

EPB has added more than 3,000 new electric meters already this year, or 47% more than in the same period a year ago. Wade said he expects the number of homes and businesses served by EPB to continue to grow as more people move to the Chattanooga area.

"Issuing bonds will help EPB spread out the cost of needed capital investments that will serve customers over the next several decades," Eaves said during Friday's board meeting. "This is a standard practice for many utilities across the country because it means current customers pay only for the cost of the power infrastructure in place today and are not responsible for bearing the costs of improvements that don't benefit them directly."

EPB also will use the bond issue to finance capital improvements to its existing network, which has about 80% of its electric lines overhead across the Chattanooga area. Only about 700 miles of power lines are now underground even though EPB has required new subdivisions to bury their utility lines since 1993.

Underground lines are not susceptible to high winds, storms and vehicle accidents that can topple poles and lines and cut off power.

"We will focus this effort (of burying another 101 miles of power lines) where there is the biggest potential service problems to get the most bang for our buck," Wade said.

EPB expects the new microgrids planned in the next five years will provide not only more backup power across its grid but also more power storage to help EPB cut its monthly demand charges for peak energy use from its wholesale supplier, the Tennessee Valley Authority.

(READ MORE: EPB Headquarters win "Gold" energy certification)

EPB directors endorsed the proposed $125 million bond issue Friday, but the bonds must still be approved by the Chattanooga City Council.

If the 20-year bonds were issued today, Eaves said he expects the tax-exempt bonds would be priced at 4.4%. Although the rate is below what many businesses and homebuyers are paying today, the rates will likely be higher than EPB's current borrowing rates, Eaves said.

The bonds will be repaid from future electricity sales by EPB, but fees paid for use of EPB's smart grid network by EPB telecommunications customers should cover some of the bond expenses.

In a statement Friday, Chattanooga Mayor Tim Kelly endorsed the EPB bond issue.

One of Chattanooga's "greatest assets is our advanced electric grid that delivers reliable power at rates lower than most places around the U.S.," Kelly said in the statement. "Combined with recently announced funding from the Department of Energy, EPB's upcoming bond issue will continue investments that make our city a highly competitive destination for investment and innovation."

(READ MORE: EPB boosts rates on Oct. 1)

Eaves said he expects the bond issue will be graded by the bond rating agencies in the next month or so, and the debt issue should be completed before the end of the year.

Although the bonds will be issued by the city of Chattanooga, EPB is responsible for repaying the bonds. EPB is owned by the city of Chattanooga, but it operates as an independent board of the city and is one of 153 local power companies that gets most of its electricity from TVA.

Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.

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