Utility seeks $10M loan
by RICK NORTON, Associate Editor
Feb 05, 2013 | 727 views | 0 0 comments | 5 5 recommendations | email to a friend | print
Sewer rate hike
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Tom Wheeler
Cleveland Utilities wastewater rates will increase 5 percent effective July 1 — instead of 4.5 percent as originally planned — in order to take advantage of a $10 million Clean Water State Revolving Fund Loan from the Tennessee Department of Environment & Conservation that includes a $451,022 principal forgiveness.

The money will go toward financing part of the decade-long SCOPE 10 sewer rehabilitation initiative whose total costs are estimated at $30 million.

SCOPE 10 is an acronym for Strategic Commitment to Protect the Environment. The encompassing sewer rehab work includes reducing inflow and infiltration (I/I) into the sewer system during heavy periods of rainfall. I/I is a direct contributor to sewer overflows which can contaminate nearby bodies of water.

In the words of Tom Wheeler, CU president and CEO, SCOPE 10 is all about protecting the environment.

During a called session Monday of the Cleveland Board of Public Utilities, members approved a resolution authorizing the 5 percent rate increase on a motion by Chari Buckner and second by Eddie Cartwright. Others approving the measure were Joe Cate, Mayor Tom Rowland and Aubrey Ector, board chairman.

A companion resolution will now go before the Cleveland City Council, probably at the governing body’s formal session on Feb. 11.

SCOPE 10 is already in its second year of operation, and was the subject of discussion last fall at a joint meeting of the utility board and City Council. Utility leaders updated Council members on the project, its short and longterm goals and the need for wastewater rate increases in order to pay for improvements. At that time, the plan was to impose 4.5 percent rate hikes in 2014, 2015, 2016 and 2017.

After reviewing CU’s loan application through the Tennessee State Revolving Loan Fund, TDEC required a 5 percent hike in local wastewater rates in order to assure the utility is capable of repaying the financing packaging, according to Ken Webb, CU senior vice president and CFO.

Webb said CU’s funding sources for SCOPE 10 have always included revenue, loans and bond issues. The SRF is one such loan, but TDEC’s inclusion of the $451,022 in principal forgiveness (the equivalent of a $450,000 grant, according to Wheeler and Webb) prompted local utility leaders to recommend accepting TDEC’s required 5 percent increase in order to remain eligible for the financing.

“This is a significant amount of up-front loan forgiveness,” Webb told the board. He said TDEC’s tentative approval for CU funding through the SRF includes the full $10 million amount which may be paid back over a 20-year period and carries a fixed rate interest of approximately 1 percent.

Wheeler and Webb agreed the SRF loan is an attractive option, and approving the 5 percent wastewater rate hike now — instead of waiting for the City Council’s traditional budget request process — will assure that the local utility company keeps “our place in line” for the competitive funding source.

“In order to keep this process moving forward and to protect our ‘place in line’ for these funds under [the] generous terms we have been offered, we are asking for your consideration and approval of [these] resolutions,” Webb told the board. “In essence, [these resolutions] commit to the state that as a result of their rate review, sewer rates will be raised 5 percent, effective July 1, 2013.”

Webb added, “As a result of the Year 1 increase being one-half of 1 percent greater than what was presented to you in the fall, it is likely the projected increases for 2015, 2016 and 2017 will be adjusted. This will be determined through the actual budget process.”

Webb stressed the importance of getting the board’s and Council’s blessings on the rate increase now instead of waiting for the city’s conventional budget process.

“We fully understand asking you to approve this rate increase outside of the normal budget process is unusual,” Webb noted. “However, we believe waiting on the process could have a negative impact on our ability to take advantage of the extremely attractive terms of this program and [could] jeopardize the receipt of the debt forgiveness amount.”

In his board report, Webb pointed to the impact the 5 percent rate hike will have on residential billings. In Fiscal Year 2012, the average residential usage was 6.25 units per month. Under the current CU rate, this amounts to $26.41 per month. The 5 percent increase will nudge the amount up to $27.73.

Other residential billing comparisons include 0-2 Units, from the current amount of $13.25 to $13.91; for three units, from $16.54 to $17.37; for four units, from $19.83 to $20.82; and for five units, from $23.12 to $24.28.

The CU board last year opted for the series of smaller rate increases in order to comply with the Federal Clean Water Act. CU’s rationale is to launch the SCOPE 10 initiative to greatly reduce I/I instead of waiting for the Environmental Protection Agency to hand down mandates like those imposed in several other Tennessee municipalities such as Chattanooga, Nashville, Knoxville and others. In those cities, public utility companies are being required to raise wastewater rates from 50 to 300 percent in order to pay for sewer system improvements.