780 AM | 96.1 FM | “Yours for Western Alaska”

Utility, City Council Grapple with Finances to Keep Lights on into 2015


After weeks of figuring out how to keep the lights on through 2015, the Nome Joint Utility met with the City Council for a Monday afternoon work session to finalize a budget and planned rate hike, but as Utility Manager John Handeland took the podium, another of the utility’s financial issue demanded immediate attention.

“We’re looking for new money from [the Department of Environmental Conservation], but we also owe DEC some money,” Handeland told the council. “At present we have funding sufficient to pay our fuel note for January, but we’re short on our DEC payments.”

In short, Handeland said,  the utility has enough cash on hand to either make a payment owed on DEC loans, or an installment of its fuel loan bill, but not both. The two payments are both due by the end of the month, or within the first three days of January. Missing a payment to DEC could put in jeopardy future loans that Handeland said the utility is relying on to stay solvent in the new year.

The big question, then, became one at the heart of the $2.2 million line of credit the city granted the utility back in November: can the utility use money from that credit line, established to pay bills that would be reimbursed with grants, to pay for fuel?

Council member Jerald Brown said no.

“I don’t see any authority for fuel payments as an add-on,” Brown said, “unless it’s also secured by grant funds that are on the way.”

The council has already allowed a portion of that $2.2 million to go toward the utility’s fuel bill. City Finance Director Julie Liew said Monday that, despite the city granting what was thought of as a one-time exception for a fuel bill payment in mid-November, the utility still made the payment late and incurred a $25,000 fine.

Council member Matt Culley’s frustration was clear, saying that, despite the city’s money going toward a fuel bill in the past, seeing another routine payment come due does not bode well, and threatens the foundation of the initial multi-million dollar credit line.

“We had a loan for the reimbursements, then we had to go back and modify it for the fuel payment,” Culley said. “Now we have to go back and modify it again, and there’s another $200,000. I mean, what else don’t we know about? And now we have more? It just seems like a hole that gets bigger and bigger every time we look.

“What’s the next one we don’t see?” he asked rhetorically. “I just see a lot of concern and, like I said, a lot of unanswered questions still.”

Ultimately City Manager Josie Bahnke and Finance Director Liew argued that covering the fuel bill would be allowed under the original credit agreement, but only if grant money comes back to the utility, and, ultimately, to the city. Council members seemed to begrudgingly agree, even if many said doing so seems to stretch the limits of the original credit agreement.

Council member Brown said, going forward, he wants to see exactly where the money’s going.

“Is it possible to do a projected cash flow analysis, over the next six months that would show, OK, who all is owed money? And then schedule in your revenue per month. Just to let us see, what is the expectation?” Brown said to the council members and Handeland. “We’re moving outside just the grant and loan anticipation money, so, let’s look at everything.”

But just what grants and loans are explicitly securing the city’s money? That also needs modification after Monday’s meeting. A $1.3 million loan and grant bundle to the utility from the U.S. Department of Agriculture was withdrawn; Handeland and Liew explained the utility was able to quickly replace it with a different loan from DEC, which both said would come on more favorable terms. But the USDA loan and grant was part of the $2.2 million credit line’s “founding documents,” forming a large portion of the city’s security and collateral at the time of the credit line extension. Even if the DEC loan is for an equal amount, the group agreed, such a fundamental change to the credit agreement requires a ratifying vote by the council.

The Nome City Council's security agreement with NJUS outlines $1.3 million in loans and grants from the USDA. Image: City of Nome.

The Nome City Council’s security agreement with NJUS outlines $1.3 million in loans and grants from the USDA. Image: City of Nome. (Click for full PDF)

As of the end of December, finance director Liew said about $1.2 million of the original $2.2 million credit line has been used so far, all of which she said should be coming back to the city in the end—but just when that “end” will be, she couldn’t say.

“Based on the pending reimbursements from the granting agencies, we’re anticipating about $1.4 million [in reimbursements],” she said. “The repayment schedule … it could be the end of March, it could be the end of April, it could be the end of May. There’s no firm timeline, because it’s dependent on a lot of moving pieces.”

The council brought up other issues at the meeting, talking through a proposed rate hike of two cents per kilowatt hour for electricity, as well as possible alternatives when it comes to buying the city’s fuel in bulk. But those issues remained on the sidelines; the immediate payments due dominated the council’s one-hour work session.

With the end of the year just over a week away, the council scrambled to set a date for one more meeting to officially take up the changes to the utility’s credit line, and approve the DEC loan in lieu of the USDA grant and loan package. That meeting is set for noon on New Year’s Eve.