Prichard water board fires salvo at bank, draws closer to long-term agreement with private firm

MOBILE, Ala. (WALA) - The Prichard water board has fired a salvo at a bank that is accusing the utility of defaulting on a $55.8 million bond issue.

At the same time, the water system is drawing closer to a long-term contract with a private company that would invest money and take over day-to-day control of the utility.

Jay Ross, the attorney for the Prichard Water Works & Sewer Board, told FOX10 News that he expects the utility to hold a news conference Wednesday to provide more details about the plan. But that news conference will not include terms of a such a deal, because he said they have not bee negotiated.

Under the proposal, KKR & Co. and Oppenheimer Capital would form a limited liability corporation, through which the water system would receive badly needed funds to bring the system out of default on its bond debt, stabilize finances and repair leaky pipes.

In exchange, the company would run the system for 30 to 40 years with a guaranteed annual return – at a rate yet to be negotiated. Ross said the investment group is meeting with the utility’s management on Wednesday and Thursday. Any deal would have to be approved by the water board, as well as the city councils of both Prichard and Chickasaw.

“There’s a lot of hoops to jump. … Any agreements will be a matter of a public hearing and will require input from the city of Prichard City Council, as well as the city of Chickasaw City Council,” he said. “So things are moving.”

An agreement also would face another tall obstacle. It would have to win the backing of Synovus Bank, the loan servicer on the money that the utility borrowed. Ross said negotiations have continued but that little progress has been made.

“Synovus has not been particularly interested in reaching a settlement with the Prichard water board,” he said.

Instead, the bank filed a lawsuit asking a judge to declare the water system in default and to appoint a receiver who would have broad powers to ensure that the lenders get their money. Ross has said that likely would entail substantial rate hikes.

A hearing is set for October. But before Mobile County Circuit Judge Michael Youngpeter takes up that issue, he first will hear arguments about an effort made by water system lawyers this week to cut out large chunks of the civil complaint.

The court filing argues that the complaint should be limited only to whether the system has complied with the agreement with Synovus. That complaint makes allegations that the water board’s failures could be endangering public safety and that it has mismanaged the system. It also references criminal charges against former operations manager Nia Bradley.

All that, the utility argues, has no bearing on the contract and “are only included to be scandalous and to reflect badly” on the board.

Talk of a contract with a private company has raised alarm among some Prichard residents, like Carletta Davis, president of We Matter Community Association.

“I feel that the company should not be privatized,” she said. “The utility is there for the people of Prichard. It should remain a public entity. I believe that any company that comes in, in this situation would be coming in in an effort to try to make as much money as they can.”

To former Prichard City Councilwoman Severia Campbell Morris, the issue brings back memories of Severn Trent, a private company hired by the water board in 2009 to run the system. Critics said it was a maneuver to prevent a takeover of the system by the Mobile Water and Sewer System that voters had approved.

“If another company comes in, they are going to be under the direction and the restriction of the Prichard water and sewer board,” Morris said.

But Ross said having a long-term contract with an investment firm may be more palatable because it would come with clearer parameters than a court-ordered receiver, who would have broad powers. And with a receiver, “there’s not long-term investment,” he added.

Ross said Prichard and Chickasaw residents will have to pay more for water and sewer service. He said utilities rates are on the rise throughout the country. He pointed to a recent request by Huntsville Utilities for a 35 percent rate hike.

“Rates are going to have to be raised,” he said. “The only question is how much?”

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