October 26, 2014
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Lagging economy adds up to good news for Kent Water Authority customers

The economy has been blamed for lots of things, but in the case of the Kent County Water Authority, and the 4,800 Warwick homeowners and businesses that depend on the service, it looks to be adding up to some good news.

Taking advantage of low interest rates, the authority refinanced $17.3 million of its debt for a projected savings of $5.4 million over the next 12 years. That’s part of the story. The economy is also seen as playing a major role in why demand has declined, thereby reducing pressure to expand the system that would require capital projects and the associated costs of additional borrowing. And, because the authority is in an improved position, Moody’s Investors Service rated the bonds at Aa3. Standard & Poor’s gave the bonds an A+ rating.

In its report, Moody’s said its rating “reflects the bond’s satisfactory security features, manageable debt position with additional borrowing plans, strong coverage rations…and a mature and diverse customer base.”

The demand for the bonds was strong and the offering was over subscribed, which resulted in lower interest rates and ultimately the $5.4 million savings.

Such changes are not likely to mean water rates will go down, although General Manger Timothy Brown says, “We hope it will have a positive effect on rates.”

As the projected debt payments are part of the authority’s budget as approved by Public Utilities Commission, the $450,000 savings produced by the refinancing will flow into a restricted account. How the funds are then used must gain commission approval.

The refinanced bonds will be used to complete a treatment plant and a 4,000-foot transmission line on Route 3 and Mishnock Road in West Greenwich. The treatment plant carries an $11.2 million price tag while the transmission line is $2 million. Both projects should be finalized by the end of this year, although some repaving may not be completed until next year.

While they are all within the same municipality, those Warwick residents with Kent County Water, predominately in the western part of the city, pay considerably more for service than those with service from the Warwick Water Division.

A residential customer in Warwick using 10,000 cubic feet of water in a year would pay $305. A Kent County Water Authority customer would pay $585.44 for the same 10,000 cubic feet over a year.

Warwick buys its water from the Providence Water Supply Board. Kent County also buys some of its water from Providence, but it is heavily dependent upon its own wells. The cost of developing additional water resources and upgrading the system, not only to replace an aging infrastructure but also to meet demand from new construction in the last 15 years, has impacted rates. The authority implemented an odd/even system on outdoor watering to reduce demand and ensure adequate line pressure.

Brown said users are abiding by the system – odd numbered homes and businesses are permitted to use outdoor watering on odd calendar dates and, alternately, even numbers. Demand this summer is running between 10 million and 11 million gallons daily as compared to about 15 million before implementation of the system, with an all-time high of 19 million gallons. The system has 26,000 customers.

Further reducing the demand has been the shutdown of several large users and the number of vacant homes resulting from foreclosures. Brown estimates those two factors have resulted in a daily 1.5 million to 2 million gallon reduction in usage.

The pharmaceutical manufacturer, Amgen, which the authority was legislatively required to provide 850,000 gallons of water daily, has also cut its usage. Brown said the company is now using between 400,000 and 500,000 gallons a day.

With the pressure for additional service down, and with savings resulting from reduced interest rates, the authority is in a good position to plan for the future.

“We’re all concerned about the economy and we need to be vigilant,” Brown said.

In addition to the reserves the authority will generate from lower debt costs, it also has an IFR (infrastructure replacement reserve) account that is about $5 million.

Looking ahead, Brown questions if the authority is approaching the point where it can fund future system enhancements on a cash basis, without borrowing. He put those costs in the range of $30 million to $40 million.

In addition to the $17.3 million just refinanced, Brown said the authority is carrying another $10.4 million in debt that will be paid off in December.


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