PILOT: Columbia's view

Jan. 23, 2003

It has come to our attention that the City of Sikeston is looking at implementing a payment-in-lieu-of-tax on the revenues of the Board including any revenues derived from sales or participation in the Sikeston generating station. So there is no misunderstanding between us, I thought it might be important to indicate that we are concerned about any attempt to pass along such a PILOT to the City of Columbia.

When Columbia entered into the arrangement with Sikeston for construction of the plant, the contract was created as a unit participation agreement. What that means is that we pay for our share of the costs of constructing, operating and maintaining the plant and have the right to our share of the capacity and energy from the plant. That arrangement is not a simple sale of energy. Rather, the City is contributing funds to Sikeston to support the Sikeston plant in a manner similar to a cooperative. The mechanism that has been used to make the payments has been for Sikeston to develop an annual budget that is then billed out in 12 monthly payments. At the end of each fiscal year the budget is "trued up" against actual costs and any final adjustment is either paid by Columbia or credited by Sikeston. In no event was it ever contemplated that the cost for our share would be subject to any local payment-in-lieu-of-tax. Our City Counselor has reviewed the participation agreements and can find no authority for such a PILOT. The contract between Sikeston and Columbia spells out the manner in which the contract costs are determined. It does not provide for Sikeston imposing a charge on Columbia for the operation of Sikeston's city government. Columbia would dispute the imposition of any such PILOT.

I should also point out that the City of Columbia has stood by Sikeston and the Sikeston plant from the very beginning. While other entities attempted to cancel contracts or were involved with lawsuits, Columbia continued its support for the long term. When an opportunity arose for re-financing Columbia again stood by Sikeston and contributed to the successful bond issues. In fact, Columbia has increased its take from the plant at a time when Sikeston was faced with another entity seeking to terminate a share. We did this because we considered that we had made a long-term commitment to Sikeston and the success of the plant as a form of cooperative venture. To seek to frame this relationship as a mere energy sale is in direct conflict with the spirit and intent of the participation agreements and our long time relationship.

The City of Columbia values the long relationship we have had with Sikeston and is very interested in supporting the successful operation of the Sikeston plant. We very much appreciate the hard work you and your staff have put into operating the plant and reducing costs. In this era of highly competitive wholesale markets the last thing you need is to have costs artificially increased. We certainly hope this matter can be resolved without financial penalty to either of us.

Sincerely

Dick Malon,

Director, Columbia Water and Light