WATER SUPPLY/Nevada localities join to purchase private utility
At a time when privatizing water operations is common, three Nevada localities have bucked the trend. Reno, Sparks and Washoe County recently joined forces and purchased the water assets of Reno-based Sierra Pacific Power. The transaction transferred water service to the public domain, and it ensured public ownership of valuable water rights.
The purchasing process began last fall, when Sierra Pacific Power invited non-binding indicative bids for its water assets. Concerned that water rights along the Truckee River might be sold to “outsiders,” the three local governments made a joint offer.
“Our major source of water is the Truckee River,” explains John Sherman, finance director for Washoe County. “All the water on the river has been allocated, and there’s no new water to bring into our community. We wanted to make sure that we maintained control over that resource. The folks in our community didn’t want somebody from outside this community or state or country running our water system.”
As part of their initial bid, the two cities and county agreed to create a joint authority for owning and operating the water division. They formed the Truckee Meadows Water Authority (TMWA), consisting of seven board members appointed by the local jurisdictions. TMWA submitted a binding bid in December, and, in January, it finalized the terms of the deal, which met with regulatory approval.
Last month, TMWA issued $452.5 million in taxable and tax-exempt bonds to pay for its new venture. “Most of the issue is tax-exempt,” Sherman says. “The taxable piece was required for the purchase of four hydroelectric plants along the Truckee River. We bought them because they had water rights associated with them. Federal law required us to finance the acquisition of electric generating facilities using taxable bonds.”
Proceeds from the 30-year bonds covered the asset purchase ($350 million), a debt service reserve fund ($30 million), a two-year capital project fund ($40 million), an operations and maintenance reserve ($5 million) and miscellaneous costs related to the bond issue. It also provided $10 million to cover immediate operations, maintenance and startup costs. “This was an asset purchase agreement,” Sherman explains. “We did not buy cash and receivables. We had no cash for working capital, so we had to borrow the money to have that startup cash.”
In addition to the hydroelectric facilities, the TMWA purchase included two surface water treatment facilities, 29 wells, distribution infrastructure, water and storage rights, and vehicles. The authority assumed the contracts of Sierra Pacific Power’s union employees, and it hired an assortment of management, professional and technical personnel from the company. It also assumed service for 72,000 customers.
TMWA will pay down its debt with revenue from the water operations. “This is a business,” Sherman notes. “We set up some financial and quality-of-service performance standards to provide [employees] with the incentive to have a high-quality product at a low cost.” For customers, the board expects to maintain current rates for at least two years.
