Approved Friday on a 5-0 vote by the Cleveland Board of Public Utilities — pending any last-minute changes prior to the Cleveland City Council’s budget retreat — the document includes a .37 of 1 percent internal rate hike in the Electric Division; a total 5.19 percent rate increase in the Water Division (4 percent is internal and 1.19 percent is a pass-thru by the Hiwassee Utilities Commission); and a 4 percent rate hike internally in the Wastewater Division.
As presented by CU president and CEO Ken Webb and three department heads, the budget document does not include a cost-of-living increase in the salary hike proposal.
A motion to send the budget document to the City Council was made by CU board member Chari Buckner and seconded by Cleveland Mayor Tom Rowland, who represents the Council on the utility board.
Others favoring the budget proposal, as presented at Friday’s formal gathering, included board chairman Aubrey Ector, vice chairman Eddie Cartwright and Joe Cate, board member.
Joining Webb in the detailed budget presentation were Bart Borden, vice president of the Electric Division; Craig Mullinax, vice president of the Water Division; and Marshall Stinnett, controller.
Webb, who handed over most of the budget development duties this year to Stinnett after being named late last year to succeed the retiring Tom Wheeler as president and CEO, called the document creation “... a mature process.” That’s because it matches closely the 2014 budget document and is part of CU’s overall 10-year budget preparation plan.
In order to stay abreast of future needs and municipal growth, Cleveland Utilities plans preliminary budgets for as far out as the next decade. Although the FY 2015 budget document concentrates on revenue, net income, expenses and debt service for the coming year, it also forecasts projected needs through Fiscal Year 2024.
“When we look at the budget [year] ... we’re looking at the next nine years,” Webb explained.
The long-term forecast comes with purpose, he said.
“It helps us to avoid surprises,” Webb told board members. “You want to try to avoid surprises and to have contingencies in place.”
Although the long-range documents are a work-in-progress, they do give the local utility a better grasp on future needs and expectations.
Of the small .37 of 1 percent internal rate hike to CU’s electrical customers, Webb said this is needed in order to better convert the wholesale rates it pays to TVA for purchased power to retail rates that the local utility charges to its residential and commercial customers. He said the current system of conversion has a “disconnect” that in the long-term can hurt the utility and its customers if it is not corrected now.
If the electric rate hike is enacted as proposed, it would be the first internal increase (not including pass-thru hikes by TVA) since 2008. Six years ago, CU increased power rates by 2.7 percent.
For an average residential customer using 1,000 kilowatt hours, the .37 of 1 percent hike will translate to about 38 cents per month on billing statements, Webb said in response to a question by Cartwright. The board vice chairman said on occasion he fields questions from CU customers who are concerned about rising utility bills — especially during the colder winter months.
Looking to the long-term forecast, Webb said CU believes its next scheduled power rate hike internally will come in the 2016-17 fiscal year. That rate hike, originally projected to be about 1 percent, could be increased to about 1.5 percent depending on future service needs and rising expenses, he pointed out.
The Electric Division’s biggest expense in the coming fiscal year will be purchased power from TVA. Stinnett projected approximately 83 percent of CU’s expenses in the Electric Division will come for purchased power. This amount could fluctuate depending on TVA monthly rates and CU’s sales volume.
Stinnett also reported the Water Division’s biggest expense for the coming year (July 1, 2014 through June 30, 2015) will be purchased water at about 17 percent of budget. In the Wastewater Division, the biggest expense will be depreciation at 30 percent of budget.
CU’s total budget document, which includes all line items beyond capital outlay projects, totals about $123 million for the coming year. This includes the Electric Division, $99,004,921; Water Division, $13,593,108; and Wastewater Division, $10,772,265.
Although much of the board’s attention was focused on the Electric Division, members also carefully reviewed plans within Water and Wastewater.
The Water Division document, as explained by Mullinax, includes a variety of water line projects. All are aimed at improving service and updating current infrastructure.
A big chunk of the Wastewater Division budget includes the ongoing SCOPE 10 sewer rehabilitation project, a decade-long initiative that could cost some $30 million, or more, before its completion.
An acronym standing for Strategic Commitment to Protect the Environment, SCOPE 10 is CU’s response to sewer overflows and isolated flooding that have plagued portions of the city for years. These overflows also create potential public hazards.
CU’s failure to begin a corrective action plan could have resulted in penalties and forced rate hikes by the U.S. Environmental Protection Agency and the Tennessee Department of Environment & Conservation.
EPA and TDEC have already imposed forced measures against several Tennessee cities, most of whom are now facing large rate hikes in order to pay for sewer rehab projects of their own. Such issues are being faced in Nashville, Knoxville and Chattanooga, among other Tennessee cities.
CU is currently benefiting from a $10 million State Revolving Fund loan that is helping to pay for the latest phases of SCOPE 10. The SRF grant is a low-interest, fixed-rate and includes a loan forgiveness clause for a portion of the amount.
Mullinax confirmed the utility is currently pursuing a $2.2 million SRF loan, also low-interest and fixed rates, and with a payback forgiveness plan for part of the amount, to help pay for the installation of AMR/AMI automated water meters for CU’s customer base.
The budget document proposal also details CU’s growing debt.
At the beginning of FY 2015 (July 1, 2014), the utility’s total debt will be almost $65 million. Another $10.7 million will be added in debt over the course of the year, and at year’s end (June 30, 2015) total debt, including all three divisions, will have climbed to more than $71 million.
During the coming budget year, CU plans to pay about $4.5 million on existing debt, according to the budget document.
Specifics for each division, as presented by Stinnett, include:
- Electric Division: Sales volume should be about 1.1 billion kilowatt hours; total revenue will be $99.6 million; total expenses will be slightly more than $99 million; net income will be $648,233; investment in new facilities (capital budget) will be $5.1 million; debt at the beginning of FY 2015 will be $14.6 million; new debt will add $3,644,000; payment on existing debt will tally $1.1 million; and debt at the end of the fiscal year will be $17.1 million.
- Water Division: Sales volume should be some 2.7 billion gallons of water; total revenue will be $14.4 million; expenses will be $13.6 million; net income will be $757,519; capital budget, $6.5 million; debt at the year’s start, $23.5 million; new debt incurred, $3 million; payment on existing debt, $1.45 million; and debt at year’s end, $25 million.
- Wastewater Division: Sales volume should be about 1.85 billion gallons of wastewater treated; total revenue, $11.7 million; expenses, $10.8 million; net income, $892,141; capital projects, $7 million; debt at the beginning of the fiscal year, $26.9 million; new debt incurred, $4 million; payment on existing debt, almost $2 million; and debt at year’s end, almost $29 million.
According to standard formulas used by established credit rating agencies, CU’s debt load — although it is growing — continues to be manageable, Stinnett reported.