Public Private partnership could be answer for HSUD

A law firm and consulting firm have proposed a solution to the Holly Springs Utility Department’s crisis with its electric utility.

Tray Harrison, with Butler & Snow law firm in Ridgeland, and Nick Schorr, with Government Consultants met September 8 with the Holly Springs Mayor and Board of Aldermen and discussed public/private partnerships.

Hairston, who practices within the firms public finance, tax incentives and credit marketing group, said his firm has experience in forming P3s (Public/Private Partnerships) with some utilities.

He said he met with Mayor Charles Terry prior to his election to discuss P3s.

His firm has worked with a couple of entities in the state that were hybrid hotel/conference center types sharing revenues.

The other is when a community is replacing or upgrading infrastructure and solicits financing through a third party.

Hairston said he has looked at SB 2453 authored by Sen. Neil Whaley and also at the authority of the Public Service Commission. He thinks the city should look at various options to look for P3s.

One type of solution would be to solicit the assistance of an operator. But before anything can be done with a private entity or public entity partnership, rates have to be raised, he said, whether a private entity comes in to operate the facility or whether the public continues to operate it. He said a rate consultant analysis would be the way to consider rate increases, making sure it is done in a responsible way for constituents.

Number two, you really need to evaluate what is actually needed, Hairston said, adding that the city has engaged an engineer who could help evaluate the cost – if it is a $50 million, $100 million or $150 million problem.

Structuring debt could be an immediate solution to what is needed, he said.

“P3s, you are tapping the private sector to come in and be a meaningful partner,” he said. “It is a step down from an outright sale.”

He said tax exempt financing could be done by forming a non-profit, but ultimately a professional operator would come in and procure staff.

Another method is to procure a long-term operations, long-term maintenance of the system.

With that model, the city would be taken out of the dayto-day operations. All options should be looked at and the system evaluated.

In a perfect world, a data center could come in and look at certificated utilities in the area and look at a $15 billion investment and just make this happen, Hairston said.

He will provide an outline of different approaches, discuss RFPs and work with the Public Service Commission to show the city is on the right path.

“We think we can be of value in helping the city turn this around,” he said.

He said the system could be sold outright or may do a 50-year concession agreement with an operator. It is important to look at the capital market and to determine the value of the grid.

“You have to know the numbers,” Hairston said. “But private markets will dictate. The more interest you can get in the P3 model, the better.”

Board attorney John Keith Perry Jr. said the utility is not in receivership yet – that the city can petition to ask for more time. But the city has to be able to rectify some of the things that have been done.

Hairston said one of the roles of the receiver is to make recommendations.

And that’s sort of why I am here, he said, to address the concerns of the PSC, to show the city is heeding the concerns and be proactive in looking for long-term solutions. He said raising rates can be done slowly over time because the demand for power is only going to increase and so will the rates.

Perry said he has worked with Hairston as a consultant and has confidence in his ability to work with the utility department and the city.

Hairston said he wants to come back with a proposal to present to the board with different options the city can choose to try and mitigate the situation with the PSC and try to get ahead of it.

Terry said he has always thought the direct sale of the electric company is not going to be the answer. Looking at other options would help the PSC see the city is trying to move forward.

“There are a lot of different ways to skin a cat,” he said.

Hairston said when he comes back to the board to discuss options he hopes Nick Schorr, with Government Consultants will come also to discuss rates and rate consultants.

“You are not throwing a rate out there, but you are doing it in a way that makes sense,” Hairston said.

Perry said there is a process before the electric company can be put into receivership and go through court.

He said there are various rights, such as certification.

Schorr joined Hairston before the board to give “a crash course.” Two main functions of government are public service like streets, public works, and then there’s enterprise, he said.

From the financial side there is no money being transferred from the utility company to the governmental side – the general fund, from the enterprise – the utility water, sewer, gas, and electric, he said.

The interest is now focused on the governmental side of things and how to shore up the budget for the general city, Schorr said.

Since there is no income now from the PILOT payments from HSUD, the city must focus on how it gets income from property taxes, sales taxes, fines, etc.

“I’m going to encourage this board to do that,” Schorr said. “It’s going to take a lot of effort and time, but it will be worth it in the end.”

He knows a rate consultant that is one of the best and he recommended a rate consultant that specializes in utilities to look at the utility’s water, gas, sewer and electric companies’ rates and how it costs the

system to operate and expand. “I think if you take a detailed look across all these things, opportunities will bench mark on off the rates,” Schorr said.

The city has three general obligation bonds, one for street and the police station.

The city has a borrowing capacity of $7,500,000 on the governmental obligation side of things, Schorr said.

On the revenue side it has debt of $7,512,000.

The note the city is taking out with Governmental Consultants is $650,000, a 5-year note. The street and police bonds will be paid off, one in two years and another in three years. This note will help with cash flow issues short term.

He said the city is going to have a tough time and has not had an audit in quite some time. A lot of cities haven’t.

“We will do our best to get things organized in a short period of time,” Schorr said. “It’s going to be a challenge.”

The board passed resolutions to borrow the money for the general obligation bond and to provide engagement letters to work with Butler and Snow and Governmental Consultants.