AR 080106 Magnolia Power Project

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DISCUSSION/ANALYSIS On April 2, 2003, bonds were issued to pay for construction costs estimated to be approximately S234 million and emission credits estimated to cost approximately $19 million. The proceeds of the bonds were insufficient to cover all of the costs of construction due to changes in the scope of the project, and difficulties and delays in piping and electrical work. The changes in the scope of work included securing transmission agreements, upgrading the steam turbine, adding an auxiliary transformer, adding performance enhancements, making modifications to the Service and Control Building, and implementing a market manager scheduling system. it was the desire of all of the Project A Participants to seek supplemental bond financing to amortize the cost overruns, to replenish the Reserve and Contingency Fund, and capital improvements over a ten-year period rather than making a large cash payment that would deplete operating cash. The 2006 bonds will provide funds to reimburse the Project A Participants for expenditures related to the construction of the project, provide funds for the completion of the project, replenish the Reserve and Contingency Fund, pay for the cost of certain capital improvements expected to be incurred during the next two fiscal years, fund a debt service reserve account for the 2006 bonds, and pay for costs of issuance related to the 2006 bonds. The breakout is as follows: Reimbursement of expenditures $19.5 million Completion of project $ 2.2 million Reserve & Contingency Fund $ 9.6 million Capital Improvements $ 2.8 million Debt Service Reserve Account $ 3.9 million Cost of Issuance $ 0.6 million Original Issue Premium S (9) million Total $37.7 million Resolution No. R- 18-02, which the City Council approved on March 26, 2002, provides authority to the City Manager and/or Utilities Director to execute documents related to the financing of the Project. Specifically, the Resolution states: "Each of the officials referred to in paragraph 1 is hereby authorized to execute and deliver any and all other documents and instruments and to do and cause to be done any and all acts and things necessary or advisable for carrying out the transactions contemplated by this Resolution, including the Authority's financing of the Magnolia Power Project for the benefit of the City and the other participants in the Magnolia Power Project."' 'The "officials referred to in paragraph V are the City Manager and the Utilities Director. 2