Birmingham water utility touts improved credit rating, modest savings with more coming

Following a period of severe belt-tightening that included laying off 23% of its workforce, Alabama's largest water utility is beginning to see the first signs of fiscal stabilization. Central Alabama Water has reported modest savings so far this year, with leadership anticipating more robust financial improvements in the coming months.

Financial Outlook Brightens

During a May 12 update to the water board, Chief Financial Officer Lester Smith revealed that the utility has generated $51.2 million in revenue. While this figure sits 7% below the original $54.9 million budget, the utility has successfully curbed spending, reporting $32 million in operation and maintenance expenses against a budgeted $34 million.

Smith noted that the financial picture is currently impacted by severance packages for the 135 employees laid off on March 13. These severance costs are expected to conclude by mid-May, paving the way for more significant savings to take hold by June.

Credit Rating Restored

The utility’s aggressive cost-cutting measures have paid off with external observers. S&P Global has officially removed Central Alabama Water from its negative watch list and restored its AA- bond rating, signaling a newfound confidence in the organization's trajectory.

"Difficult decisions were required to move the system in the right direction operationally," said CEO Jeffrey Thompson. "S&P Global’s validation of the actions taken so far is an indication that we are headed in the right direction."

Ongoing Infrastructure Challenges

Despite the improved financial outlook, S&P Global warned of "slightly elevated" risks related to environmental and governance factors, specifically pointing to the contentious Lake Purdy Dam project. The dam, which serves several Birmingham suburbs, has been the subject of years of debate regarding necessary repairs.

While past engineering reports suggested a $28 million overhaul was needed, CEO Thompson has dismissed those plans, citing questionable assumptions by previous leadership. Moving forward, the utility must balance significant capital needs with its debt obligations.

Board member Phillip Wiedmeyer emphasized the importance of these recent successes for the utility's customers. "This S&P rating action is huge for our customers and it’s a testament to hard decisions that have had to be made to get our financial accounts in order," Wiedmeyer said. "Let’s keep up the good work."