Birmingham Water Works Board

Alabama

RFC has provided a broad set of financial services for the Birmingham Water Works Board (Board), which provides retail water service to over 200,000 accounts. RFC conducted cost of service studies for the Board in 2006 and 2011.

As part of these studies, RFC also reviewed the methodology used to develop miscellaneous fees such as tap connection fees, reconnection fees, and bad order plumbing, and provided recommendations for revising the fee calculations.  In addition, RFC examined potential affordability programs.  RFC has more recently developed system development charges for the Board.

RFC also developed a rate stabilization and equalization (RSE) process to enable compliance with a legal settlement with the City of Birmingham. Under that agreement, the Board agreed to come under regulation by the Alabama Public Service Commission (PSC).  Other utilities regulated by the Alabama PSC have developed RSE processes to simplify rate filing.  While the existing RSEs are based on rate of return metrics, the Board’s RSE had to be developed to ensure debt service coverage requirements are satisfied.  The RSE process defines when a rate increase or decrease is warranted.  Once the Alabama PSC accepts the RSE, the Board’s rates will increase without the Board being forced to enact the increase and, therefore, enabling rate issues to be depoliticized.

Since 2002, RFC has assisted the Board in preparing official statements for 7 bond offerings (5 new money and 2 refunding) of $1.02 billion in aggregate. RFC developed a program of rate increases necessary to pay the debt service and meet the bond requirements.  RFC personnel assisted in preparing a presentation for rating agencies and participated in meetings with the agencies.

RFC also prepared a financial feasibility study for the Board to determine the impact of selling two small systems.  In the 1980s, the Board had purchased two small wastewater systems to protect its water sources.  Combined, these systems had less than 5,000 customer accounts.  In an effort to focus solely on water issues, the Board wanted to sell these systems.  However, the systems provided a valuable revenue stream, so the Board needed to understand the impacts of the loss of this revenue, particularly related to debt service coverage and potential customer bill impacts.  RFC developed initial values for the systems.  These values were used as a starting point for the successful negotiation of the sale of the systems to two different utilities.  RFC also modeled the lost revenue and the impact on the Board’s water rates.

Letter of Recommendation