The Municipal Electric Authority of Georgia sought to reassure investors yesterday that a lawsuit filed recently contesting certain power fees is not a threat to the agency's finances.
The lawsuit, filed July 7 by Calhoun, Ca., alleges that the authority breached contracts governing its sale of power to the city. The suit also contends that the overall method the authority uses to calculate a key power rate is "unfair and discriminatory" to Calhoun.
The authority has until early next month to formally reply to the suit, which was filed in the Superior Court of Gordon County. But Ronald O. Vazquez, the authority's chief financial officer, said yesterday that bondholders need not be alarmed by the court filing.
The lawsuit does not challenge the basic premise of the authority's power sales contracts, which stipulate that all costs the authority incurs are recoverable from the cities it supplies, Vazquez said. The suit only challenges the way the formula for determining those costs applies to Calhoun, he said.
Calhoun officials familiar with the lawsuit could not be reached for comment yesterday.
The authority supplies power to 48 cities in Georgia and entered a power sales contract with each of them in 1975. The contracts, which expire in 2025, govern how much power each city draws from generating facilities in the region, and how much they must pay the authority.
Several cities were overly optimistic in 1975 when forecasting their electric power needs for the following 50 years. As a result, the cities are entitled to more power from the generating facilities than they are able to use.
Under its agreements with the cities, the authority is required to buy back the excess power and sell it to cities that need it. Calhoun, which has grown more rapidly than expected in 1975, must purchase some of its electricity under that arrangement.
The lawsuit the city filed this month argues that the authority is paying too much to buy other cities' excess power, and is in turn overcharging Calhoun.
In a statement released yesterday, however, the authority disputed that allegation. "The authority believes that it has allocated its charges in a fair and nondiscriminatory manner and in a way which results in the most economical overall power supply arrangements to all of the 48 participants," the statement said.
Vazquez said the authority has been aware of Calhoun's complaints for some time, and is trying to negotiate with all its participating cities to see if a better system can be devised to calculate power sales charges.
The difficulty, he said, is that the existing power sales contracts are legally binding for 50 years, so all 48 participants must come to an agreement before changes can be made.
Regardless of the suit's outcome, Vazquez said yesterday it would not affect bondholder security.
"What the [lawsuit] involves is an allocation of costs within the contracts, as opposed to a challenge of the validity of the contracts," Vazquez said. "The authority under the power sales contracts is required to cover all our costs."
If the court determined that the authority's charges to Calhoun were too high, that would mean the court would also deem the authority's charges to another city or cities too low, he said.
"So. the authority is not in jeopardy of not being able to recover all its costs," Vazquez said.
Excess power problems contributed to downgrades for the authority earlier this year from both Standard & Poor's Corp. and Moody's Investors Service. Standard & Poor's lowered its rating to A-plus from AA-minus on $4.4 billion of senior lien bonds. Moody's downgraded the authority to A from A1 on $3.2 billion of bonds.