CU unveils $700M budget, long-range plan

Utility officials gave the Board of Public Utilities a sneak peak during an Aug. 6 budget meeting, and City Council got its first look in an Aug. 14 joint session with the board.

Officials expect City Council to approve the budget Sept. 24, a week before CU’s new fiscal year begins.

“I don’t think there’s any fluff in this budget,” said board chairwoman Virginia Fry after the Aug. 6 briefing. Fry is a managing partner for law firm Blackwell Sanders Peper Martin LLP.

Total receipts in 2008 are projected to be $467.1 million, down from a revised 2007 projection of $558 million in receipts. The 2007 budget originally called for $490 million in revenues.

Officials say the lower 2008 budgeted revenues are attributed to anticipated lower fuel costs and reduced proceeds from lease financing. Some of the decrease, though, is offset by higher interest earnings on bond-related funds for Southwest 2, the 300-megawatt coal-fired electric plant under construction at CU’s Southwest Power Station.

Southwest 2 also is the reason why 2008 total appropriations are well above projected revenues. The $701.7 million in appropriations covers $222.5 million for Southwest 2 work during the year and $479.2 million for normal operations.

That leaves a $12 million gap between spending and revenues, but Gina McClure, manager of forecasting in CU’s finance department, said that amount is for capital projects that were paid for in 2007.

While CU is not bound by law to maintain a balanced budget, CU officials say they strive to balance it each year. McClure said planning begins in January or February for the fiscal years that begin Oct. 1. Other top factors in the planning process include cash balances, operating earnings and debt service coverage.

While January’s ice storm cost CU an unexpected $35 million in repairs and cleanup, that didn’t factor into the 2008 budget, according to Chief Financial Officer Jim Schuler. The Federal Emergency Management Agency is covering all but $5 million of that expense, Schuler said.

Beyond 2008, CU officials project the utility will spend $3 billion through 2012. That figure includes Southwest 2 construction, which should be complete in 2010, and $275 million in other capital expenditures, including adding emissions controls and replacing city buses.

To help pay for Southwest 2 and other system upgrades, CU will institute an electric rate increase in 2011, natural gas rate increases in 2009 and 2010, and water rate increases in 2008, 2009 and 2010. Primary funding for Southwest 2 comes from $650 million in bonds approved by voters in June 2006.

Even with the increases, General Manager John Twitty said CU customers would pay less than utility customers in other cities. CU officials pointed to a Memphis Light, Gas and Water survey released this year that showed Springfield’s utilities were the lowest priced of 25 participating cities, including Memphis, Tenn.; St. Louis; and Little Rock, Ark. The survey showed average monthly residential utility bills in Springfield at $287, while No. 2 Omaha, Neb., was $292.

Twitty also said business customers should take comfort that CU is financially sound and dependably operated.

Financially, CU has an AA rating from all three national rating agencies – Fitch Ratings, Standard & Poor’s and Moody’s – according to Mark Viguet, director of marketing and communications for CU. That’s the highest rating obtained by a retail utility, he said.

On the dependability front, last year the average duration of an outage for a CU electric customer was 114 minutes, compared with a national average range of 107 minutes to 120 minutes, Viguet said.

“Our customers have their own businesses,” Twitty said. “Their business isn’t a utility business, (and) they don’t want to have to worry about that.”