COOS BAY — Jordan Cove is done reviewing the Community Enhancement Plan, and it wants to see changes — mainly to ensure it doesn't pay more in the plan than it would in property taxes.
The Community Enhancement Plan work group met Tuesday afternoon, the group's first meeting in three months since it finished the 11th draft of an enterprise zone agreement that would tie Jordan Cove to annual payments in the form of community service fees.
Since then, Jordan Cove and Veresen have been reviewing the plan, and on Tuesday senior project advisor Bob Braddock presented five main concerns — most of which lie in payments that would be made during construction.
"The basic principle we always tried to operate under ... was we're not trying to save any money, but we also don't want to add additional expenses to what we're paying over and above our taxes," Braddock said. "We're trying to make this kind of tax-neutral. At the end of the day, we want to pay the same amount of money, no more, no less, because these are costs that get passed on to our customer.
"And we are in a very competitive market, so we cannot artificially inflate those costs just because we can do so, because they (customers) will push back and we have a fiduciary responsibility to deliver them something that's equivalent to what they've been anticipating."
The main concerns lie in the construction years because, Braddock said, any dollar spent during that period "is essentially the equivalent of borrowed."
Under the long-term rural enterprise zone property tax exemption, Jordan Cove would not pay property taxes. But the Bay Area Enterprise Zone sponsors can grant that exemption conditionally — in this case in the form of community service fees paid through the CEP. The proposal is for $12 million a year during every year of construction, and increasing every year after it's been placed in operation.
In the agreement, Jordan Cove wants to place a $60 million cap on community service fees paid during construction. Every year Jordan Cove is still under construction after the fifth year, Jordan Cove requested the annual payment drop to $3.6 million.
"The greatest risk we have in a project of this size is time," Braddock said. "So the more money that we are committed to pay, even if this project is lagging — particularly that we would not even be required to pay — it's a higher risk activity and we want a cap to it."
Oregon International Port of Coos Bay CEO David Koch emphasized that the North Spit taxing entities would not see a change in payments under this revision.
"It's the South Coast Community Foundation and Waterfront Development Partnership that would potentially not receive any money during those years (of construction beyond the fifth year)," Koch said.
Jordan Cove's second concern was accruing interest on the advance payments.
"Under the current financial model ... it does not account for the fact that if my first tax payment under normal conditions would not have occurred until year three and yet I make a payment in year one ... I've had to put money into the project in advance of when I normally would have," Braddock said. "What we're saying is it needs to be trued-up on a present value basis to reflect the time-value of having that money.
"Because again, we have to go out into the marketplace and secure that: Either borrow it and pay interest, or Veresen sells more equity that has a much higher targeted rate of return to be able to sell it."
The draft enterprise zone agreement also called for Jordan Cove to pay — on top of its annual fee — $27,000 per year to cover management costs. Instead, Jordan Cove wants that to be deducted from its regular annual payment.
"Our position is that we pay the fees already," Braddock said. "We wouldn't have to pay that bill if it was paying taxes."
Jordan Cove's fourth concern involved the cost of capital. In the draft agreement, that's fixed at 7 percent. Braddock said that needs to be described as a variable until Veresen makes its final investment decision — which he said likely won't be until the fourth quarter of 2016.
What's tricky is that the enterprise zone agreement must be in place before construction begins, according to state law. But once Veresen makes its final investment decision, construction will begin immediately. The work group decided it needed time to digest this request before making a decision to incorporate it into the agreement.
"The uncertainty we deal with here is the size of the project and the industry the project is in, i.e. energy, with oil and gas prices, how does the market perceive the creditworthiness of the borrowers," Braddock said. "It really does rely on global events as much as anything and it's so difficult to predict whether the market is willing to put money into these things or if they're reluctant. And if they're reluctant, we pay a higher premium."
Jordan Cove's fifth concern was technical, asking that the agreement provide clear definitions of when the final construction year ends and the first year of operations begins.
"At first blush, it strikes me as what Jordan Cove is asking for is reasonable and fair," said work group member John Sweet. "It doesn't necessarily work to our advantage, but putting myself in their shoes, I don't see anything out there to jump up and down about and say this is horrible."
The work group will discuss these possible changes at a meeting at noon Nov. 9 in Coos Bay City Council chambers.