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

Following a period of significant restructuring that included slashing its budget and a 23% reduction in workforce, Central Alabama Water is beginning to see signs of financial stabilization. While the utility has already realized modest savings, officials anticipate more substantial financial improvements in the months ahead.

Financial Outlook Improves

During a May 12 financial update, Chief Financial Officer Lester Smith reported that the utility has generated $51.2 million in revenue this year. Although this figure represents a 7% dip compared to the $54.9 million budget, the organization has effectively tightened its belt on the operational side. Central Alabama Water spent $32 million on maintenance and operations, coming in under the $34 million budget.

Much of this fiscal tightening followed the March 13 decision to lay off 135 workers across the system. Smith noted that while severance packages added costs to the bottom line through mid-May, the utility expects to see greater savings as those obligations conclude by June.

Credit Rating Boost

The strategic shift has paid off with external recognition. S&P Global recently removed Central Alabama Water from its negative watch list, restoring a stable outlook and affirming an AA- bond rating. This is a critical development for the utility, as credit ratings directly impact its ability to borrow funds for essential capital projects.

“Difficult decisions were required to move the system in the right direction operationally and we still have a long road ahead to become the system our community and customers deserve,” 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 Capital Challenges

Despite the improved credit outlook, S&P Global noted that the utility faces “slightly elevated” risks related to environmental and governance factors, specifically pointing to the Lake Purdy Dam. The dam, which serves suburbs including Homewood, Hoover, Mountain Brook, and Vestavia Hills, has been the subject of long-standing repair debates. Previous plans estimated repair costs at $28 million.

CEO Jeffrey Thompson has moved to dismiss plans to strengthen the dam, labeling previous engineering assumptions as questionable.

Addressing these capital needs remains a priority for the organization. Board member Phillp Wiedmeyer praised the progress during the board meeting, stating, “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. Let’s keep up the good work. Don’t relent.”