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Thu February 27, 2014
Frugal Holland takes on biggest one-time debt for natural gas plant
The city of Holland will issue $160 million in bonds to build a new power plant. It’s the biggest bond offering the city, the public school district or the city’s publicly owned utility has ever issued.
Holland is home to a huge population of conservatives whose families emigrated from the Netherlands. That's why the city is known for its Tulip Time festival, historic windmill, wooden shoes, and as Holland Mayor Kurt Dykstra puts it, being frugal.
“It is sort of funny but that was one of the comments that we heard from, I forget if it was Moody’s or Standard and Poors, but they were really quite surprised,” Dykstra said. “We did have a little bit of convincing to do to the ratings agencies, because we haven’t done this a lot. We’re relative newcomers to this sort of market and part of that reason is because, in fact, we just don’t take on debt.”
Holland’s new natural gas power plant is a huge project, costing an estimated $200 million to $225 million. The city hasn’t selected a bid for the construction of the plant yet, so the final cost could change.
But Dysktra says it’ll pay off in the long run, in terms of lower electricity rates for customers, and lower carbon emissions than the city's really old coal-fired power plant.
City Council’s vote Wednesday night to take on the debt was unanimous.
“On the one hand it was historic, but on the other hand all the due diligence that’s been put into this made the vote pretty straightforward and almost an easy one,” Dykstra said.
The city has been discussing a new power plant for years. During former Gov. Jennifer Granholm’s administration, the city sued the state because Michigan’s Department of Environmental Quality refused to issue the city the air permit it needed to upgrade and expand its existing coal plant.
When Gov. Rick Snyder took office, MDEQ changed course and issued the permit. But then the city changed course, opting instead for a natural gas-fired plant in a new location.
The new plant will generate up to 130 megawatts of power. The city hopes to bring it online by the fall of 2016.
Dykstra said Detroit’s bankruptcy was brought up in discussions about Holland’s AA bond rating. But he says it didn’t “dominate the conversation.” Instead, he says the ratings agencies focused on Holland’s history of paying off its debt in cash, the merits of the project and the way the public utility is run.
Holland will have the option to pay down the debt early if it chooses. Dykstra says all of the bonds will be paid in full no later than 25 years from now.
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