The Board of Public Utilities got its first look at the City Utilities fiscal 2010 budget during a special Aug. 11 meeting, and the numbers highlight the utility's continued efforts to cut back on spending in the face of stagnant revenues.
The proposed budget includes $440.3 million in appropriations, down $68.5 million from the original fiscal 2009 budget; the drop is largely attributed to declining fuel costs, which are expected to be nearly $49 million less next year.
Keeping costs in check
Noncapital expenses are budgeted to be $193 million, $7.3 million lower than last year, based mostly on reduced employment numbers and a freeze on performance pay increases for nonunion employees. Base staff is expected to shrink by 20 to 1,026 employees.
Board member Tom Finnie said the utility's ability to hold the line on labor costs indicates that CU leadership is working to keep expenses in check.
"I think the staff has done a good job of recognizing that these are difficult times for a lot of people, getting on top of costs that aren't absolutely mandatory," Finnie said. "I think it's important to note that it's not just business as usual."
The emphasis on cost-cutting follows a 2007 state audit of CU that came down hard on the utility's salaries and nonessential expenditures.
Finnie also noted that the utility's return on equity - the ratio of net profit to total equity owned by the organization - is only budgeted at 1.7 percent.
"When you hear about millions in net income, it seems like we're making a lot of profit. But when you look at it as a percentage of the equity, it's grocery-store-level returns," he said. "It's not anywhere near what you would expect if you were making an investment."
CU Chief Financial Officer Jim Shuler noted that a comparably sized investor-owned utility would likely expect returns on equity of 12 percent or more.
Shuler said CU is helped by its strong credit rating. Fitch Ratings Group re-affirmed the utility's AA rating in July. Shuler said some were worried that when CU issued nearly $600 million in bonds in 2006 to finance the Southwest Power Station 2 project, it could negatively affect the credit rating.
"Fitch told us that had we only had an A rating, it would have cost us about $14 million (extra) over the 30-year term of the bonds," Shuler said, adding that if those bonds had been issued in today's tighter credit markets, the extra cost of a lower rating could have been $55 million or more.
Rising rates
Despite efforts to keep expenses in check, however, officials said CU would raise some rates in coming years.
The most notable increase is in water rates, which CU anticipates raising by 8 percent a year between 2011 and 2014. The increase would add $1.93 per month to the average residential customer's bill, according to CU Director of Pricing Ray Ross.
Ross said the increase is mostly due to a need to replace aging infrastructure; about 28 miles of the water system's 1,200 miles of pipe is more than 100 years old, and 200 miles of pipe is more than 50 years old.
"That doesn't mean that we're unable to provide quality water at the end of that pipe, but it does mean that we're probably going to lose some along the way, and any water that we lose is not going to help pay for the revenue requirements of the system," he said.
Additional costs also come from increasing compliance requirements and the necessity of pumping water, as all of Springfield's water sources require water be pumped uphill.
Board member Mike Chiles said that, while he understands the factual reasons behind the need for a rate increase, it would likely be a hard sell to customers.
"Everyone is pretty upset about the economy, and when you talk about 8 percent, even though it's less than $2 a month, it still sounds like a high percentage," he said.
Chiles suggested CU officials use a piece of 100-year-old pipe - perhaps from the road construction work on Jefferson Street - as a visual representation to give understanding of the issue.
After a public hearing and joint study with Springfield City Council on Aug. 19, the board is expected to vote on the budget during its Aug. 26 meeting.
If approved, the proposal would then go to council for a Sept. 8 first reading and Sept. 21 second reading, which would allow for passage before the beginning of the fiscal year on Oct. 1.[[In-content Ad]]
A relocation to Nixa from Republic and a rebranding occurred for Aspen Elevated Health; Kuick Noodles LLC opened; and Phelps County Bank launched a new southwest Springfield branch.
