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Long‐Term Interest Cost Allowed in Rate‐Base Calculation
Publication year - 1991
Publication title -
journal ‐ american water works association
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.466
H-Index - 74
eISSN - 1551-8833
pISSN - 0003-150X
DOI - 10.1002/j.1551-8833.1991.tb07176.x
Subject(s) - bond , finance , loan , debt service coverage ratio , commission , interest rate , debt , capital (architecture) , business , cost of capital , revenue bond , capital cost , service (business) , economics , external debt , geography , profit (economics) , archaeology , microeconomics , marketing , macroeconomics
Marco Island Utilities (MIU) furnished water and sewer facilities and services to customers on Marco Island, Fla. In 1984, MIU had an $18 million debt, which was in default. It entered into a first‐mortgage bond financing transaction in the amount of $30 million in order to retire the existing loan and to provide additional working capital for needed capital expenditures. The new bond financing was for a term of 10 years at 15.5 percent. An additional 0.6 percent for the cost of obtaining the financing brought the total cost to 16.1 percent annually. The new financing agreement contained a restriction that required the bondholders' consent for refinancing. The Florida Public Service Commission (PSC) allowed MIU only 14.25 percent interest on this indebtedness, concluding that the refinancing restriction was not proper. The court disagreed with PSC and returned the case to the PSC for further proceedings.