Editor's note: This story has been updated with the following correction. It incorrectly identified CIP as Customer Identification Program. It should have been identified as Capital Improvement Program.
Chief Financial Officer Rhonda Haskins on Wednesday presented a strategic priorities update on the financial health of the Fayetteville PWC to the governing Public Works Commission during a virtual meeting.
The utility's objective "is maintaining PWC's financial health; to keep the cost of borrowing low, customers’ bills affordable; maintaining safe and reliable utility services; and providing dependable financial support to the city of Fayetteville.’’
Commissioners learned that Fayetteville PWC stands two notches from the highest bond rating that a utility can receive and is rated AA by three credit rating agencies. Those are nationally recognized as the “Big Three:” Fitch, Moody’s, and Standard and Poor.
Three categories of AA exist in the credit rating. There is an AA-, AA and an AA+.
“We are right in the middle of AA,” Haskins said. “So getting to AA+ would be the next notch and then the next step would be AAA. We’re two notches from the highest rating that we can receive. I don’t believe there are any electric utilities that own power generation that are AAA."
Owning power generation is a huge beneficial financial hitch, she said, but it is also an operating risk. That is a key item to recognize relative to going to the next step.
“There are no utilities in the United States that are AAA and own (power) generation,” said Elaina Ball, the Fayetteville PWC general manager and CEO.
This was a continued discussion that the commission has had involving PWC’s seven strategic priorities. It was the first briefing related to financial health, with a second part of financial health to be discussed later.
Previously, commissioners received updates on customer satisfaction and employee engagement.
Dennis M. Pidherny, who is senior director at Fitch Ratings Inc., also presented and fielded questions from the board. Pidherny discussed PWC’s current rating and the pros and cons of whether PWC should try to achieve higher ratings.
Bond ratings are a business’s credit score: It measures the utility's financial position and the likelihood that money the PWC wants to borrow for projects can be repaid.
The higher the bond rating, the lower interest rate you can get when borrowing money.
Fitch has assessed PWC’s financial profile as very strong, supported by strong operating cash flow, very low leverage and sound liquidity. PWC maintains ample liquidity with 238 days cash on hand at fiscal 2020. Leverage, which remained very low in fiscal 2020, is expected to climb during the next five years as the utility partially debt finances its extended capital improvement plan.
Debt financing and equity financing are the two primary forms of attaining capital.
Having a strong rating is important for PWC, Haskins said, and there’s a lot that goes into it. Part of the discussion focused on what a rating entails and what it means.
Board Chairwoman Evelyn Shaw said while AAA is the best, it isn’t the goal to seek the best rating at the expense of risking PWC’s current AA rating. She said PWC should continue to focus on balancing and maintaining its current ratings.
Maintaining healthy reserves of 120 days is an important factor in maintaining the current bond rating.
“It was really informational for the commission as it moves forward,” Haskins said following the meeting. “Approving the budget, approving our CIP (Capital Improvement Program). There’s a lot of investment in our infrastructure. You have to pay attention to the financial considerations in order to be able to obtain financing at low interest rates so we can keep our rates competitive for customers.
“It’s a forward look for investors to be able to rely on credit worthiness for our ability to repay debt,” she said. “The stronger we are, we get lower credit rates. We’re continually investing in our system.”
Data for the presentation was culled from a 2021 PWC at a glance summary.
According to those figures, PWC conducts business on an annual operating budget of $405.2 million and with total assets of $1.44 billion.
“The benefit to the city with our financial help is our payment in lieu of taxes,” Haskins said.
Ball again joined the conversation. “We get a lot of questions about our transfer to the city,” she said. “Are we giving enough? How much do we give the city? We’re looking at almost $25 million.”
By comparison, she said, PWC’s peer – or, cousin, as Ball called it – in North Carolina is the Greenville Utilities Commission. “They’re about two-thirds of our size,” said Ball, “but they’re the second-largest-type utility commission in North Carolina. They give about $4 million, and we give $25 (million). I just want to highlight that. Not to say that we’re resting on our laurels. There’s more that we can do.”
Because PWC is tax-exempt, Haskins said, there are a lot of rules the utility must follow.
In other business, the PWC approved a bid recommendation to award a contract for the re-advertisement of Annexation Phase V, Project XV, construction area 32 East, Section 1 to T.A. Loving Company of Goldsboro. The company, which maintains local offices in Fayetteville, provided what the PWC called "the lowest, responsive, responsible bid" of approximately $14.7 million.
Bids were received on Dec. 8.
The annexed locations include the subdivisions Wendover Place, Hickory Run, Pinecrest Park and Pine Ridge Acres off Stoney Point Road and in the Jack Britt area in west Fayetteville. The area was annexed in 2005, and 138 properties are impacted.
"We had to move up several of (the) areas in project 32 because of state Department of Transportation road projects," PWC spokeswoman Carolyn Justice-Hinson said.
The Fayetteville City Council will now consider the bid recommendation for approval.
The project will provide sewer service to the area. The service will consist of about 15,992 linear feet of gravity sewer, 12,555 linear feet of water main, associated well abandonments and sanitary sewer improvements.
The funding will come from the Phase V Annexation Reserve Fund.
Michael Futch covers Fayetteville and education for CityView TODAY. He can be reached at email@example.com. Have a news tip? Email news@CityViewTODAY.com.