Columbus City Utilities (CCU) board members heard about alternatives to proposed sewer rate increases and the accompanying sewer bond ordinance that had hit a snag in deliberations with city council members.
In their discussion on Thursday, board members and CCU Director Roger Kelso indicated they preferred what they had already proposed to council members, saying it balances the impact on the customer, while also giving CCU the capacity to take on additional projects if needed.
Columbus City Council members during their meeting on Oct. 2 approved water rate increases of 18% in 2026 and 15% in 2027, but tabled a proposed increase in sewer rates until November to change the parameters of the accompanying bond.
The vote to table the sewer rates was 7-2 with council members Tom Dell, D-At-large, and Josh Burnett, R-At-large voting no. The motion to table the sewer rate bond ordinance was 8-1 with Dell voting against.
A few council members expressed interest in paying off the principal on the sewer bonds sooner in order to save money on gross interest in the long-run, even if it would increase sewer rates even more than originally proposed for consumers.
The proposed rates were recommended by outside firm Baker Tilly and based on in-depth cost of service studies done for both utilities. Cost of service rate adjustments ultimately will vary based on customer class.
The two alternatives Baker Tilly presented to CCU board members would save between $6 and $7 million in gross interest over 20 years, but would hamper CCU’s capacity to take on new projects and would likely mean more frequent rate increases for CCU customers.
“If you do start immediate principal payments, it does save on gross interest costs,” Baker Tilly’s Courtney Holliday said. “… But when you look at net present value, the benefits kind of go away.”
The reasons for the rate increases are planned capital projects over the next few years to critical CCU infrastructure that had been deferred in years past going back decades, CCU officials have said.
The new rates would help fund work to CCU’s two water treatment plants, various water distribution projects and modifications to both of their water tanks.
In terms of sewer collection system projects the rates would help fund, the biggest is a $20 million westside interceptor that would eliminate the need for a lift station on State Road 46 and generally allow for continued growth in the area. There would also be upgrades to some of the city’s lift stations and wastewater treatment plants.
The originally proposed sewer rates included a 9% increase during phase 1 in 2025, a 9% increase during phase 2 in 2026 and a 5% increase during phase 3 in 2027.
The accompanying bond ordinance would involve $50.6 million in principal paid and $36.8 million in total gross interest paid over 20 years.
“What we had originally proposed was delayed principal repayment,” Holliday told board members. “What that meant was we had assumed that principal payments wouldn’t start until Feb.15, 2028. And then from there, there would be three years of very minimal principal payments annually.”
It’s industry practice, Baker Tilly representatives said, to structure these bonds so that utilities don’t have to pay principal during the construction period of their projects. The principal payments hadn’t started until 2028 because CCU had indicated they expected there to be an immediate construction period of about 18 months.
“The way this was structured was — knowing how much capital improvements you have coming— to allow capacity in future years, so that you can issue debt, (and) do your projects with minimal rate increases in the future,” Baker Tilly’s Doug Baldessari said.
Some council members also were concerned about the maximum interest rate of 6% outlined in the sewer bond ordinance.
Holliday called the 6% figure“just a parameter” to “provide some cushion in the unlikely event that market interest rates do rise above where they currently are — 3% to 4%. It also allows for, in this market right now, if they’re premium bonds, coupons in the open market.”
The first alternative Baker Tilly presented was a 9% increase during phase 1 in 2025, a 14% increase during phase 2 in 2026 and a 6% increase during phase 3 in 2027.
It would involve immediate principal repayment and does assume some additional rate increases in the near future, but saves about $7 million in gross interest payments, according to Baker Tilly. This option would mean $50.6 million in principal paid and $29.8 million in gross interest paid over 20 years.
“When we think about where our system is and where the potential failure points would be — essentially option two puts us in a position where we have less of an insurance policy to say, I’m going to be able to make those improvements without issuing additional bonds or increasing rates,” CCU Board Member Patrick Andrews pointed out.
The second alternative has the same rate increases as what has already been proposed to the council, but with more of an immediate principal repayment comparatively, although Baker Tilly noted it wouldn’t be quite as soon as the first alternative.
The sewer bond ordinance for the second alternative would be set up so that there would be $50.6 million in principal paid and $30.9 million in gross interest paid over 20 years.
“Between the first and the third, either one’s a good option, it’s just what the city’s looking for,” Baldessari said. ”Do you want that future capacity (in order to) not have rate increases in the future? Or do you want to use up some of that capacity to pay less interest?”
The difference between what was already proposed to council and the second alternative is a net present value difference of about $1.5 million over the next 20 years, Baldessari said.
“This third one, if the council really pushes it, is a plausible option that makes sense,” Baldessari went on. “It keeps your rates the same as they are and reduces that interest, but knowing that you may likely have to raise the rates sooner than you would have.”
“It’s not like the rate increase that we’re currently considering is going to end all issues,” CCU Director Kelso said. “We’ll still have need for additional bond issuances over the next, say, seven to eight years. So my thing would be the compromise that we originally submitted, which still gives you a reasonable amount of bonding capacity without additional rate increases.”
“If I maybe put words in your mouth here, you’re really, truly saying that from your perspective, the first option that we proposed initially is the best option for the utility,” Andrews responded.
Kelso agreed with that assessment.
“I would concur,” Clayton Force, CCU board president said. “With the study that we have and the infrastructure we know we need and the nimbleness and flexibility that as a utility and community we need to maintain, (not) building in some conservative headroom, as is standard in our industry and as the history of this utility has proven itself, will make additional rate cases almost a certainty.”
“I think some information about the regulatory compliance that we’re subjected to as a utility and the variability of those regulations needs to be understood and the cost impacts of some of those —PFAS is a perfect example,” Force added. “… It’s different than just running a business, we’re subject to a lot of environmental regulations and variability.”
Board members did agree that they appreciated the fact that council members took such effort considering and evaluating the proposal.
“We appreciate it, but there’s a responsibility that comes with this suggestion, I think that needs to be shared,” Force said. “And it is in our customers best interest to allow our utility to be run as it needs to be run, and we need to justify why that supports the rate case we submitted.”
Kelso said he will meet with council members individually to discuss the alternatives in the lead up to when the alternatives will be considered in November.
