CU discusses water rate increase

Members of the public have questioned the necessity of a water rate increase, but City Utilities representatives state that it is a necessary evil.

Water utility numbers

CU's financial statement for the water department shows it has received more than $16 million in operating revenue for the year through June 30, which is more than half a million dollars over budget.

The same statement lists the water utility's net income to date at $3.3 million, or $1.7 million over budget, but the financial year doesn't end until September, according to Elaine McDonald, CU's chief financial officer. She said the water utility started with about a half million dollars left over from last year, too, "and we build on what we have to start with."

The need for the $1.5 million asked for by CU is to help pay for "certain kinds of capital spending. You have to pay the debt back out of net income." She said CU customers are lucky they can borrow so cheaply, because another utility, like Empire District Electric, has to pay more for money, so its construction costs are higher than CU's.

Stand-alone business

The water company operates as a stand-alone business, apart from the public utility which includes electric, gas, telecommunication and transit operations. The water utility operates pumping stations, provides pipelines, and stores and cleans water.

The water utility was purchased as a separate entity in 1957, McDonald said. The bonds that were offered for sale back then required the separation of the entities, but the last of the bonds that funded the purchase of the old Springfield Water Company will be paid off Sept. 1, so that will no longer be an issue, she said.

Whether to combine the water utility with the rest of the public utility is a question that may come up before the CU board after that, CU Board Chairman Chris Nattinger said.

But he doesn't think current members will vote to add the water utility to the public utility. Such a proposal would cause "great debate," because of the unknown effects of potential future deregulation.

Deregulation issues

The specter of deregulation hangs over the heads of those who plan for the future of the municipal utility monopoly. In fact, the utility has a whole department devoted to that the Restructuring and Competition Task Force, established in 1997. Kyle McClure directs the task force.

Nattinger, board chairman for five and a half years, said he thinks if the state or federal government ends the city's monopoly on utility services and allows competition for electric rates, then the electric utility can't carry its weaker sister utilities such as the public transit system anymore.

So instead of bringing the water utility on board, the other utilities may be "unbundled" from the electric utility to float along on their own merits, like the water utility already does.

Nattinger said he thinks the transit system will have to continue to be carried, not just by CU but also by the city. That's something he wants council to think about. Currently, the money-losing transit system still has to pay 4 percent of its gross receipts to the city as payment in lieu of taxes.

The only truly marketable utility is the electric one.

"That's what someone would buy or would come here to compete with," Nattinger said. Power generation and distribution are the moneymakers within the electric utility.

"To the extent that one commodity subsidizes the other, (that) can make you not competitive on your rates," Mc-Donald said, especially if CU has to go "head to head with Utilicorp, which isn't absorbing transit or water costs. All they have to do is provide electric service," she said.

The public utility has carried the transit system for about 50 years, she said, as rider numbers have decreased.

CU reserves

Council might think the utility has plenty of reserves, a fact CU Board member Dan Manna addressed at a recent board meeting. He suggested a "white paper" be prepared explaining the reserves held by the utility, so when CU General Manager Robert Roundtree responded to questions posed by Neal Ethridge, a local businessman, he addressed the reserves.

McDonald said that CU holds $176 million in combined reserve funds for the water and public utility. "This is a summation of funds held for a number of different purposes," she said. About $30 million belongs to the water utility.

The (joint) funds are all invested in government securities in a laddered fashioned, so some of them mature every year. The average investment matures in five or six years, McDonald said.

The investment portfolio mix is held this way as of May 2001, she said: 33.9 percent in mortgage-backed securities in the Government National Mortgage Association.

Another 18.6 percent is in U.S. Treasury notes and bonds; 10.2 percent is in repurchase agreements or bank account sweep investments held in cash; 9 percent is invested in the Federal National Mortgage Association; 7.5 percent is in the Federal Home Loan Mortgage Corporation; 4.9 percent is in Federal Home Loan Board funds; and 15.9 percent is in mortgage-backed securities in other agencies.

Some of the reserves are required by the entities that fund the outstanding bonds of the utilities, McDonald said. "Our outstanding debts require that we hold some various monies on hand so that if you've got tough times, you are able to make your payments to them."

There is $121 million in outstanding bonds for the public utility and $41 million for the water utility. "There's $7.5 million due next year that has to be paid off," McDonald said.