Sales and volume increases in two out of three major divisions made Fiscal Year 2012 a “good” year for Cleveland Utilities, but maintaining a positive margin will be necessary for the utility to continue to slice into its debt service which now hovers near $60 million, according to Ken Webb, senior vice president and chief financial officer.

Webb’s year-end analysis came during a recent session of the Cleveland Board of Public Utilities.

Of CU’s three major operations, the Electric Division from July 1, 2011, through June 30, 2012, saw a 4.1 percent decline in sales volume with a drop in sales revenue of 1.9 percent; however, the Water Division recorded a 1 percent hike in sales, and the Wastewater Division saw a slight rise in business of four-tenths of 1 percent.

“If you asked me to give a one-sentence answer to the question, ‘What kind of financial year did electric, water and sewer have for the 12 months ending June 30, 2012?’ I would answer ‘It was a good year,’” Webb told board members in his detailed report.

But he tempered the positive fiscal news with a note of reality — that revenue gains are necessary in order for the public utility to keep up with area growth and to pay the company’s monthly bills associated with capital improvements and other expenses. If revenue falls short in paying for such improvements, then adding to the existing debt is the only other option, he explained.

As of June 30, 2012, CU’s bond balance ledger showed a $13,710,000 debt in the Electric Division, a $20,425,898 debt in the Water Division, and a $25,507,368 debt in the Wastewater Division, Webb reported. Total debt at the close of the fiscal year was $59,643,266. The CFO stressed the public utility continues to chip away at its debt service in all three divisions, and the entire $60 million in bond balances is at a fixed rate as opposed to variable, meaning that it is not subject to fluctuations within the financing market.

“... It is necessary for the utility to operate in a sound fiscal manner and to report positive results,” Webb told board members in his analysis. “It is from the positive difference between revenue and expense that funds for debt service and funds for capital improvements are generated.”

In further defining the two, he pointed out, “Capital improvements range from new transformers, poles, wires and substations in the Electric Division to new water lines, water treatment equipment and water tanks in the Water Division, and new sewer lines, rehab costs and new equipment at the wastewater plant in the Sewer Division. There are two ways to fund these capital items with the first being the revenues in excess of expenses, and the other [is] new debt.”

Webb provided a detailed report for FY 2012 for each CU division.

Electric Division

For the year, the Electric Division sold $1,051,139,979 (about $1.1 billion) kilowatt-hours of electricity, producing $93,359,858 in sales revenue. In spite of these big numbers, the division’s volume was actually down 4.1 percent from the previous year and sales revenue was down 1.9 percent

Residential, commercial and industrial customers all had a decrease in volume for the year. The average retail price per kilowatt-hour was 8.9-cents for the year.

Purchased power, which refers to the amount CU pays to TVA for electricity, cost $77,939,334 for the year. This represented 83.5 percent of CU’s sales revenue.

“This means that for every $1 of electric sales, TVA was paid (by CU) 83.5-cents for wholesale power,” Webb explained.

Revenue from all other electric sources added another $1,476,248.

Operating expenses, including depreciation of $3,255,002, totaled $15,195,537 for the year.

“All of these combined resulted in a net income of $1,701,235 for the year,” Webb said. “This was down almost 23 percent from last year, but still a good number.”

The Electric Division finished the year with 29,673 customers, up eight-tenths of 1 percent over the prior year.

Water Division

The Water Division recorded sales of 2,860,478,250 (2.8 billion) gallons of water, an increase of 1 percent over the previous year. Residential, small commercial and irrigation customers showed increased volume, but large commercial and sales for resale recorded less volume, Webb said.

The average retail price for 1,000 gallons of water was $4.20. The Water Division completed the year with 29,966 customers, up nine-tenths of 1 percent from FY 2011.

Revenue from all sources in the Water Division for the year totaled $13,172,081.

Purchased water cost for the year was $2,371,208, depreciation was $1,594,905, interest was $779,495, and all other expenses were $7,502,105, for a total of $12,247,713. This left $924,368 in net operating income for the year.

Another positive within the Water Division came in access fees which is the amount paid by builders, developers and other customers to tap new and remodeled development into CU’s existing water lines.

“For the year ended June 30, access fees in water were $214,795,” Webb reported. “This was approximately the same as FY 2011, but better than the projected amount of $169,000. This is a good indicator growth in the area continues to occur and customers are being added to the system.”

Wastewater Division

“The Wastewater Division continued to reflect results in line with the projections made in the FY 2012 budget,” Webb said.

For the year, customers were billed for treating 1,813,133,250 (1.8 billion) gallons of wastewater.

“This represented a four-tenths [of 1 percent] increase over the previous year ... which was basically the same volume increase percentage applied to the long-term projections beyond the FY 2013 budget,” he noted.

The average retail rate for the year was $5.22 per 1,000 gallons and by the end of June some 17,709 customers were receiving CU’s wastewater service. Total division revenue for the year was $10,329,795 with expenses totaling $9,544,197. This left a net operating income of $785,598 for the full fiscal year.

“Access fees in sewer trailed behind last year’s total at $204,828 by about $9,000; however, the current amount did exceed the expectations in the budget for the year,” Webb said.