Prichard water rates will rise regardless of how debt crisis plays out, utility says

Published: Aug. 16, 2023 at 5:32 PM CDT
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PRICHARD, Ala. (WALA) - The top supervisor of the Prichard and Chickasaw water system delivered a sobering message to customers on Wednesday: Rates are going up.

Mac Underwood, the utility’s director, said rate hikes are unavoidable if lenders succeed in getting a court-ordered receiver to oversee operations. And he acknowledged that will be the case if the Prichard Waters Works & Sewer Board successfully negotiates a long-term agreement for a private investment group to lease and operate the system. He said the water board has an obligation to meet its debt requirements and maintain service.

“And that will mean water rates will go up,” he said. “We don’t know how much, but citizens and customers will have to pay a higher water rate.”

Customers in the system already pay some of the highest water rates in the state.

Two board members and board attorney Jay Ross held preliminary discussion Wednesday with representatives of the companies that expressed interest in an investment deal. Those companies are Kohlberg Kravis Roberts & Co., a global investment firm, and Inframark LLC., a leading provider of public and private infrastructure services. Oppenheimer & Co. and Water Capital Partners are serving as project advisers.

The companies would form Prichard Water Partners LLC and put up tens of millions of dollars to pay Synovus Bank, the bond servicer for $55.8 million that the water system borrowed in 2019.

The companies would invest additional money on repairing and replacing aging and crumbling pipes and equipment. Underwood said the plan also includes automating certain functions at the wastewater treatment plants. In addition, he said, the utility has verbal agreements for $5 million from the Mobile County Commission and a dollar-for-dollar match from the Alabama Department of Environmental Management.

The financial details are under negotiation, but Underwood estimated that the total private investment would be in the range of $50 million to $100 million.

In return for that investment, the private consortium would be paid an annual return for 30 to 40 years.

Some residents call for change in leadership

Severia Campbell Morris, president United Concerned Citizens of Prichard, said she recognizes that customers will have to pay more to make long-delayed upgrades. But she said the long-term outlook will not improve without a wholesale change of the board’s leadership.

“We were prepared to pay higher rates. … Our concern is we do not want Prichard Water and Sewer Board to be over the management of this company any longer. We’d rather see it in receivership.”

Charles Young said he already pays about $66 a month for water.

“Of course, I don’t like that,” he said. “I don’t for my like for my rates to go up. I already pay too much. Nobody home but me and my wife.”

Negotiating the details of a long-term agreement would be just the first step on a potentially obstacle-laden road. The water board would have to approve the deal, and the city councils of both Prichard and Chickasaw would have to sign off, as well. It also would have to be acceptable to Synovus, which has a pending lawsuit alleging the water system is in default of the loan.

Underwood said the lenders have been paid to this point. He said the system made the first of two annual payments in May by dipping into a reserve fund and will make the November payment in the same manner. The system is in technical default because it has not made all of the required monthly payments into an account that is supposed to be used to make the distributions.

The utility used $25 million that it borrowed to pay off existing debt. Underwood said the system used part of the bond money to install an automated meter reading system and to dig a well. He said almost $23.5 million remains unspent.

Utility considering buying out Alabama Village

Underwood said the utility will continue to seek outside funding sources. But he said the private up-front funding would be a good start.

“The pipes are old. A lot of them need to be replaced,” he said. “A lot of the water main and sewer main need to be replaced. A lot of service lines need to be replaced. So they would come in and actually invest quite a bit of money into the area and improve the system.”

Another option under consideration is to force the remaining roughly two dozen residents of the Alabama Village area to sell their homes under eminent domain, a process that allows government entities to get a court order to force property sales. The law requires property owners to be paid fair market value.

Typically, it is for things like putting in a highway or constructing a public building. But board attorney Jay Ross told FOX10 News that he is confident it could be used for this purpose, as well.

The board several months ago got an appraisal to determine how much it would cost. Ross declined to say how much that would be, but he said the only available source of funds is money the system borrowed in 2019.Ross said the bank has blocked the utility from using the bond funds for condemnation through eminent domain.

Underwood says the decades-old pipes in Alabama Village are in such bad shape that the system loses a disproportionate share of water serving the roughly two dozen remaining residents.

“Eighteen percent of the water loss is in Alabama Village,” he said. “There is actually a manhole in Alabama Village where Prichard Water Works maintains pumps on a daily basis that’s pumping out of that manhole every day. Alabama Village is a major cause of the water loss.”