Board of Aldermen 05-04-2020 Page 7
Alderwoman Kelly
Thank you, Madam President. | had a couple of questions. | wanted to know, you mentioned being a debt
only funded corporation a couple of times. Can you just explain what that means?
Larry Goodhue, CEO & CFO Pennichuck Corporation
Yes, this is Larry Goodhue responding to that question. One of the basic things that occurred when the City
of Nashua purchased Pennichuck Corporation in January of 2012, is we went from being what is called an
“Investor Owned Utility’ or IOU, which traditionally would have 50% equity and 50% debt in its capital
structure. One of the bases for the entire acquisition being approved and being beneficial for the City and the
Corporation and the Corporation’s customers and/or rate payers long-term is that the cost of debt is far less
costly than the cost of equity. So prior to January 25, 2012 we were a publicly traded company on the
NASDEC Exchange and we could issue stock into the public market. When you issue stock into the public
market it is subject to, you know, what that price might be to raise those funds by issuing stocks in the market.
But it also has an expectation, especially as a regulated utility, that you would generate significant enough
profit to not only meet the requirements of the PUC relative to our earnings and allowed earnings, but also
came with that a dividend requirement relative to pay a public company dividend.
In our prior ownership structure and basically a 50/50 debt-equity company, the equity portion or about 50%
of our capital structure had a post tax return in our allowed revenues authorized by the PUC of 9.75%. At the
current tax rates at that time, that resulted in about a 16% pre-tax cost of that part of the capital structure.
With the City’s acquisition that 16% cost went down to less than 6% and as a result, the overall cost to
ratepayers for their water in our structure is far less. However, what it means is, in order to fund all capital
operations within the company and in order to provide for working capital back stop to operations during
seasons — we are a seasonal company, a lot of our revenue is generated during the summer. But during
those off-season months where our revenues may not be enough to meet the fixed operating costs in those
off-season months, you would need that working capital line of credit to backstop those costs. So that, as a
debt company is the case. And the structure was set up to be a structure such that it did not generate excess
profits, but was designed merely to cover the cost of operations including servicing that debt, paying back the
City for their debt to buy the company and to cover our operating costs. Whereas in IOU situation there
would be extra profits generated such that it could provide cash resources to pay a public company dividend
to public company shareholders. That’s a long answer to a short question and hopefully it gives you what you
need but | can add more if you need.
Alderwoman Kelly
If | could follow up please?
President Wilshire
Absolutely.
Alderwoman Kelly
Thank you. Thank you for that answer | thought it was great. Sometimes | think we put words out there and
not everybody is fully understanding of what they are so | like to make sure that people at home listening also
understand what we are talking about. My second question was around your line of credit, you said you were
drawn about $3 million on your $4 million line of credit. Is that, you know, business as usual or does it start in
January and it has become a slow drip? Like how did you end up in that situation?
Larry Goodhue, CEO & CFO Pennichuck Corporation
Well part of that is because of the time of year Alderman. You know, we are coming out of our base
