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Elizabethton Mayor says electric department sale is in danger without more negotiations

John Thompson • Feb 9, 2019 at 8:48 PM

ELIZABETHTON — Extensive discussions had already been held on the possible sale of the Elizabethton Electric Department to BrightRidge. A financial study on how much the Elizabethton Electric Department was worth had been completed.

Then, last week, Elizabethton Mayor Curt Alexander made a comment that quieted a room full of Johnson City and Elizabethton leaders.

“I told them there were four deal breakers that have to be resolved, or there is no point of our City Council even considering the deal,” Alexander said.

What’s it worth?

At the top of the mayor’s list was the issue usually at the center of sales negotiations: the right price.

What should Bright Ridge pay the city of Elizabethton for its electric department? To help resolve the question, the groups hired Mid-South Utilities Consultants at a cost of $80,000 to conduct a system valuation of the Elizabethton Electric Department. Elizabethton paid $24,000 of the total and BrightRidge $54,000. Alexander said the Mid-South valuation came to somewhere between $29 million and $34 million.

“I know how they got that figure, it is based on cash flow,” said Alexander, a financial adviser with Edward Jones.

But Alexander said a better figure on what the electric department was worth was the bottom line on the annual audit of the utility.

The 2018 audit by the Johnson City accounting firm of Blackburn, Childers and Steagall reported the electric department’s “total net position as $54,988,177. That represents a $2 million increase over the 2017 total net position.

Alexander said what the audit evaluation reflects is that Elizabethan Electric Department is a “first-class” operation, highlighted by the fact that all nine of the substations have been rebuilt over the past few years. That means the substations now have about 50 years of life in them before the city or BrightRidge would have to make any major expenditures.

He said that condition justifies a premium on the price of the utility: “If I have a house and every year I put more money into it, that should justify my asking a premium when it comes time to sell it.”

Falling payments

Alexander said the second potential deal breaker is Bright Ridge’s proposal to gradually lower the amount of payment-in-lieu-of-taxes paid to the city of Elizabethton.

Even though the utility is an entity of the local government and not required to pay local property taxes, he said the utility has made such payments. In recent years, that has amounted to $1.4 million a year that goes directly into the city’s general fund.

Alexander said that under the Bright Ridge purchase plan, the utility would start by paying the full amount of the payment in lieu of taxes, but reduce that amount each year for a decade, until no more payments were made. Alexander said that would mean Elizabethton taxpayers would have to fill the breach though a 52-cent increase in the property tax rate.

Representation

Alexander’s third deal breaker might the easiest to resolve.

He said the plan is currently to have two representatives from Elizabethton placed on the Bright Ridge board of directors after acquisition of the Elizabethton Electric Department. He said based on the number of customers served, a third seat for Elizabethton would be justified.

Setting the rates

The final deal breaker is the most mundane. It has to do with what the new rate should be on the electricity sold by the larger utility. BrightRidge and Elizbethton Electric use different rates and the one that is used in Elizabethan helps those customers who use smaller amounts of electricity. Alexander said he bottom line can be seen with a monthly bill of a typical customer who uses 1,200 kilowatt hours.

That bill would amount to $132.97 for the month with the Elizabethton rate and $138.56 with the BrightRidge rate.

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