CU takes next step for $2.5M SRF loan
by RICK NORTON Associate Editor
Sep 01, 2014 | 835 views | 0 0 comments | 14 14 recommendations | email to a friend | print

Looking ahead to the potential approval of a low-interest $2.5 million commitment from the State Revolving Loan Program for the opening phase of an automated water meter conversion initiative, Cleveland Utilities has taken the project’s next step.

On a unanimous 5-0 vote of the Cleveland Board of Public Utilities during a recent formal session, CU President and CEO Ken Webb has been authorized to sign SRF documentation that advances the application process; and, if the loan is approved by SRF, the utility board resolution authorizes a contract with J.R. Wauford & Company Inc. to prepare project specifications, advertising, bid coordination and engineering services.

The Wauford contract is set at $41,500; however, it will be considered null and void if SRF fails to approve the CU application for the loan whose interest rate is being estimated at about 1 to 1.5 percent. In addition, the SRF loan — if eventually approved — would include a principal forgiveness of $500,000, meaning CU would not be required to pay back this amount.

“The contract approved [Thursday] with Wauford & Company relates to the project, provided that it is approved by SRF,” Webb told the Cleveland Daily Banner. “Should approval not be granted, the contract will not be needed.”

He added, “However, it needed to be in place before final [SRF] approval is granted. I hope we will soon know that funding has been secured through SRF under very favorable terms. If approved, the project will continue on an accelerated pace, and we will begin making plans on the funding to complete the Phase 2 installation of the remaining meters.”

The opening phase of Advanced Metering Infrastructure (AMI/AMR) installation is expected to include about 15,000 water meters. Before the project is completed, some 34,000 water meters will have been converted by CU.

This is the second time this summer the CU board has acted on steps necessary for applying for the SRF funds which are actually leftover monies from the state program’s 2012 fiscal year. CU board members in May approved a resolution authorizing the utility to pursue an SRF loan amounting to $2,260,317 and which included $430,800 in loan forgiveness.

However, since that vote, SRF informed the local utility that as much as $2.5 million would be available if CU was interested in pursuing the larger amount. The higher sum would also include the low-interest rate and a 20 percent loan forgiveness.

Term of the loan is 20 years.

“At the May 29, 2014, meeting [of the CU board] this was presented to the board and permission was granted to take the first step in exploring the potential [for securing the original loan amount],” Webb explained. “The first step to determine the feasibility of this becoming a reality involved the submission of financial information to SRF to determine if revenues were sufficient to fund the debt service on this project.”

The board’s action in May also allowed an original contract with the Wauford company to complete a required environmental review and to prepare and submit a facilities plan for the project.

As the summer progressed, SRF officials notified CU that the available amount of loan funding had increased to $2.5 million, and this prompted the board’s most recent actions.

As he did at the recent CU board meeting, and again in an interview with the Banner, Webb pointed to the advantages of pursuing the higher SRF loan amount. One, it increases the amount of loan forgiveness (from $431,000 to $500,000); two, it comes with the same low interest rate of about 1 to 1.5 percent; and three, it will expedite the water meter conversion project.

“In the Fiscal Year 2015 budget, there is a provision over a five-year period for the installation of AMI meters in the Water Division,” Webb explained. “From 2015 to 2019, the project was estimated to cost $4.2 million. It was being spread out over a number of years due to the cost.”

Without the availability of an SRF loan, CU’s remaining option to finance the costly project would have been municipal bond issues that carried an estimated 4 percent interest rate. Comparing that to the SRF’s lower interest rate and the half-a-million dollars in loan forgiveness made the decision a lot easier, Webb cited.

“... We can take this four-to-five-year project and hopefully condense it down to two to three years, [thereby allowing us] to get this project behind us,” Webb said. “This will allow us to start getting the benefits [sooner] of having AMI meters in the water system.”

Similar to the AMI/AMR meters that have been installed in CU’s Electric Division, this same type of technology is expected to better streamline the local utility’s operations in the Water Division, the CU president explained. It will get more CU vehicles off the road (meter-reading routes) and that qualifies it as a “Green Project” which makes it eligible for SRF’s Green Project Reserves support, according to Craig T. Mullinax, vice president of CU’s Water Division, and Philip Luce, CU water and wastewater engineering manager.

“... That’s all good, and it’s why in our opinion it’s worthwhile to go after these SRF loans,” Mullinax said.

Mullinax pointed out the state’s SRF board will meet on Oct. 1. If the CU loan application is approved on this date, the most recent Wauford contract will be enacted officially. Subsequently, the company would proceed to submit project plans and specifications by Jan. 1, 2015, take bids on March 1, 2015, and launch construction on May 1, 2015, Mullinax explained.

In the May session of the CU board, Luce explained the Green Project Reserves program.

GPR funding is for projects related to the environment, he said. Automated meter reading qualifies because the whole concept of AMI technology is that meters — electric or water — can be read automatically without the use of meter readers who rely on gas-burning vehicles to run their routes. AMI technology supports the reduction of vehicle exhaust into the air because fewer are on the roads.

SRF is a state loan program operated through the Tennessee Department of Environment and Conservation in partnership with the U.S. Environmental Protection Agency. SRF provides low-interest loans, and partial loan forgiveness, to utility companies across the state in support of water and wastewater projects.

Loans are repaid by utility companies over a designated term and the money is returned to the SRF fund. The money is then recycled into additional loans for other public utilities to support their water and wastewater improvement projects.

If approved by the SRF board, CU’s $2.5 million loan application would become the local utility’s second SRF contract. CU is in the early stages of a $10 million SRF loan that is being used to advance the expansive SCOPE 10 project, a sewer rehabilitation initiative expected to span a decade and whose estimated price tag is about $30 million.

SCOPE 10 is an acronym for Strategic Commitment to Protect the Environment.