Columbia water and sewer customers will see rates that are higher and will stay higher because of the city’s years of neglect of its sewer system.
The only questions are how soon and how high.
The impact of a federally mandated $750 million commitment to upgrade the sewer system over the next 10 years, paired with the city’s pledges to maintain its more profitable water system are likely to combine to raise customers’ utility bills.
Key city staffers and members of City Council – a majority of whom are facing election challenges in November – say it’s too early to predict customer rates.
“We are looking at all the systems we have before we raise rates,” said assistant city manager Missy Gentry, who oversees the utilities department. As far as the size of rate increases, “None of us have that answer,” she said late last week.
But Moody’s Investors Service, a national bond-rating company for local governments, on Friday warned that the weight of the debt from the improvements required by the U.S. Environmental Protection Agency will apply pressure for more rate increases.
Moody’s expects the debt the city will have to take on will be “a significant increase in the already above-average debt ratio.” The city already has $372 million in debt, Moody’s noted, but still is expected to pay for 80 percent of the sewer upgrades with new debt.
The city can either cut back on its debt service – risking a downgrade of its credit rating and making borrowing money more expensive – or it can pass on “the full incremental cost of the new debt to customers through rate increases,” Moody’s said.
Moody deemed the $750 million expense “credit-negative.” But that does not mean the Capital City’s Aa1 credit rating is being downgraded, nor does it change the city’s credit outlook, David Jacobson of Moody’s said in a news release. A “credit-negative” assessment is one of many factors that affect credit ratings, Jacobson said.
The city’s utilities department is studying ways to get more revenue before turning to rate increases, Gentry said. One way is an upcoming analysis of customers’ bills to be sure water and sewer service users are paying what they should.
Councilwoman Leona Plaugh is a former Columbia city manager and a council member who grills staff about spending, more so than others on council. Asked if ratepayers can expect double-digit increases annually for several years, Plaugh last week said, “I pray not. I really don’t know.”
She said she has asked for an analysis of spending for water and sewer projects, including whether there is any surplus when projects come in under budget.
This summer, the city signed a 10-year agreement with the EPA reached after the agency berated the city for repeatedly allowing the release of raw, untreated sewage into area creeks and rivers.
The agreement commits Columbia to major improvements for about one-third of its 1,100 miles of sewer pipes as well as the sewage treatment plant and other equipment, said Gerry Benson, a vice president with consulting firm CDM Smith. The city hired the firm to guide it through the “consent decree,” the legal term for the agreement reached with the EPA.
Before that legally binding agreement, city utility officials had planned to spend about $60 million each of the next five years to upgrade the sewer system and $40 million annually to maintain water services, Gentry and utilities director Joey Jaco said.
That amounted to a total of $500 million over five years, with 60 percent going toward sewer improvements and 40 percent for the water system.
A rate study the city commissioned last year projected that, to raise enough money to meet that $500 million, five-year budget, rates would have to rise roughly 7 percent to 8 percent yearly, Jaco said.
But the EPA agreement might force the city to shift the proportion of money going to the sewer system to something near 75 percent, leaving 25 percent for the water side, Jaco said.
Further, the agreement is likely to raise annual spending on both systems to more than $100 million, Gentry said.
“Do I think we’ll probably end up spending more than $100 million a year?” she asked. “Probably not this coming year, but after that, yeah.”
That’s what Moody’s was alluding to.
“The city faces a choice of allowing debt service coverage to decline as a result of the new debt or passing on the full incremental cost of the new debt to customers through rate increases,” Jacobson said.
How much will rates be?
City leaders are turning to the same Florida consulting company, Utility Advisors’ Network, to conduct its second rate study in two years.
The company did the 2012 study that recommended not only rate increases but suggested the city drastically raise its base rate, a term that refers to the cost of providing water to customers’ meters.
Council adopted the base-rate change and soon was flooded with complaints from large-volume users about bills that doubled, tripled and quadrupled – even if they didn’t use a drop of water. Council backtracked earlier this year, which resulted in the city losing about $5 million in annual revenue.
Gentry said she expects to ask council next month or in November to approve an extended contract for the Jacksonville, Fla.-based company. She hopes the updated rate recommendations will be ready next spring when City Council is writing the budget for fiscal 2014-2015.
Benson, of CDM Smith, said the federally imposed investment in the sewer system is really an investment in Columbia’s growth and its capacity to attract business and industry.
“The whole thing is getting done because of the backlog of the maintenance that should have been done in the ’80s,” Benson said. “The consent decree is going to allow the city to bring its infrastructure up to the standard that will allow ... major projects.”
Utility Advisors projected last year that Columbia would add about 30,000 water customers by 2017 and about 8,000 sewer customers during that time.
For now, rate-setting is up to city
Jaco estimates the agreement will result in the city spending about $15 million more each year on maintenance of the sewer system, mostly because the EPA is requiring in-depth assessments of the 1,100 miles of sewer line.
The assessments include using television cameras to scope 180 miles of the largest lines, which are 15 inches in diameter or larger, Benson said. Less expensive methods will be used on smaller lines.
The assessment will direct the city to where repairs or replacements are most critical.
“Over the next 10 years, we’re planning to rehab (repair or replace) 25 to 30 miles per year,” Benson said.
Jaco said the agreement with federal officials does not mandate rate increases, just the goal of repairing the system within a decade.
“As long as we do those things (meet the goals), they’re not going to look at rates,” Jaco said. “But if we don’t, then they’re going to look at the rate study.”
Reach LeBlanc at (803) 771-8664.