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The finances of Alabama’s largest water utility appear murky with a shortfall in required reserves that could threaten its credit rating and an upcoming $63 million debt payment due in September.
Central Alabama Water currently has a AA bond rating, but that gold standard could tarnish.
To maintain that rating, the utility is required to have enough cash on hand to cover 150 days of operation, but by August, Central Alabama Water is projected to have just $2.8 million in reserves, which would cover only 62 days of operation. The deficiency could result in a warning from agencies or a downgrade of the utility’s credit rating.
Central Alabama Water executives did not respond to specific questions from AL.com regarding its financial condition, but instead said the utility was reviewing its current finances.
“As part of this process, we are evaluating financial controls for both efficiency and effectiveness and to make sure they are fiscally responsible,” CAW spokesman John Matson said in a statement. “The utility’s leadership is evaluating its current operations and capital budgets to ensure funds are used responsibly and for the benefit of customers.”
The board also did not respond when asked if there was a plan to reach the mandated cash-on-hand threshold.
The status of the utility’s line of credit from the EPA’s Water Infrastructure Finance and Innovation Act program is also unknown following the cancellation of major work to repair and strengthen the Lake Purdy Dam in Shelby County earlier this month.
Patrick Flannelly, a senior vice president at ARCADIS North America, the engineering firm for the utility at the time, said earlier that portions of the four-year project could be delayed or modified but stressed the need to reinforce the structure now.
The board on Dec. 15 voted to replace Arcadis as its longtime independent engineering firm, opting instead for Jacobs Engineering Group.
Thompson said the utility has an employee at the dam daily who performs visual inspections and reports any concerns to management.
More than $44 million in WIFIA funds were allocated to pay for the first phase of dam rehabilitation and other infrastructure improvements.
Under the program, CAW would advance the money for those projects, then be reimbursed with WIFIA dollars.
Of that amount, $22 million was in the budget for Lake Purdy Dam rehabilitation. Questions from AL.com about how much had already been spent on the dam project by the time CEO Jeffrey Thompson ended work on it, went unanswered.
It is also unknown if finances played a role in ceasing work on the Lake Purdy Dam.
Neither Thompson nor board members publicly discussed the reasons for ending the project independent engineers agreed was needed to stabilize the century-old dam. Lake Purdy provides water to Birmingham’s suburban areas.
“Central Alabama Water is working to determine the best path forward and expects to make a recommendation to the board in due time,” Thompson told AL.com in a statement Wednesday.
Repair plans had already been curtailed by leaders of the current board who questioned the scope, price and engineering advice surrounding the massive project.
Thompson also did not answer specific questions about costs associated with ending the stabilization project or how the major initiative was paused without a board vote.
The end of the year could also bring further challenges to the utility. The $62.7 million bond anticipation loan is due in September.
AL.com questions about the utility’s ability to meet the obligations were not answered.
“We’re going to come back with some very significant amendments probably in March,” he said at the time.
The end of their budget presentation also hinted at a strategy to finance the balloon payment by making cuts in the spending plan.
Their presentation identified their budget as a “stop-gap measure to avoid letting the 2025 budget roll over,” with a goal to amend the spending plan in the first quarter of the fiscal year.
Meanwhile, the utility is operating without a financial advisor. Board members declined to renew the contract of Terminus Municipal Advisors, the utility’s longtime advisor, and instead proposed hiring Porter White & Company.
The board governing the utility used Terminus for 13 years before officials placed Porter White on the Jan. 5 agenda.
The vote however, was delayed when board members Jarvis Patton, Sheila Tyson and Phillip Wiedmeyer pressed for details and asked that CEO Thompson seek proposals from other firms for consideration.
“I offered to continue working with them through the interim period, but my offer was met with silence,” said Terminus President Matthew Arrington. “Multiple emails and calls to both the CEO and CFO were unanswered.”