Finance
Frequently Asked Questions
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Who will pay to buy Central Hudson?
As a public benefit state corporation, the Hudson Valley Power Authority will issue authority bonds to finance the upfront costs of acquiring Central Hudson, including legal costs. After acquisition, it will be authorized to issue tax-exempt authority bonds to run the publicly-owned utility. Revenue from bills people will pay is used to pay back the debt. Central Hudson currently funds 52% of its finances by issuing debt but its cost of operation is higher because, unlike HVPA, it pays high interest rates and its bonds are not tax-exempt. That means the cost of operation for HVPA would be lower, with the savings passed to the ratepayers.
HVPA is not funded with taxpayer subsidies. Authority bonds are not like municipal bonds that need voter approval, and the state or the taxpayers are not liable for HVPA’s debt obligations.
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What will the bill cost taxpayers?
Nothing. As a norm, publicly-owned energy utilities are not subsidized by taxpayers, and neither will the Hudson Valley Power Authority. This is in contrast to other types of authorities that are designed to be subsidized, such as transit authorities like the MTA. HVPA will be a public benefit state corporation that is independently financed, separate from the state’s budget, through authority bonds it issues and revenues it collects from bills people pay. The model of a public authority was designed precisely as a workaround to undertake massive public projects without having to fund it through taxpayers.
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What is an authority bond?
An authority bond is a special type of debt security that is issued by a public authority that manages a public enterprise. The bond is issued to finance the costs of running a revenue-generating publicly-owned business, such as an energy utility. As explained by Investopedia, “Investors buy into authority bonds for a stated period, which allows the financed project to be completed and begin earning revenue; after this period, the bond will pay interest at a specified rate. Buyers of authority bonds have a claim to the business’s revenue, which serves as the bond’s yield. (Yield refers to the earnings generated and realized on an investment over a particular period of time.)”
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How much will it cost to buy Central Hudson?
Central Hudson’s value is not publicly available information. The Center for Public Enterprise’s informal evaluation estimates a valuation between $518 million and $1.19 billion. The range is due to different methods used in evaluating the value. However, this is only an informal evaluation, and we are in the process of conducting a more in-depth study to get closer to the actual value.
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Won't paying to acquire Central Hudson increase the rates?
No. According to a precursory analysis from Tom Konrad, Ph.D., CFA, a net savings of $45 million is expected for an acquisition cost of $1.26 billion. When the Hudson Valley Power Authority finances debt to acquire Central Hudson, we estimate to see the following:
- Increase in interest payments for issued debt: $52 million
- Savings in taxes and shareholder dividends: $99 million
- Net Savings: $45 million
This includes the following liabilities:
- Refinance current public debt of $494 million at 5.26%
- Assume other liabilities, such as short term debt and accounts payable, at $652 million
A more in-depth study is currently being conducted, after which we will have more detailed information.
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