Monday’s revelation that Columbus Light & Water is considering a request from the city for a $650,000 loan to purchase property on Main Street has prompted an obvious question: If CL&W can afford to get in the loan business, why did it raise its rates twice in the past six months?
It seems like a logical question, at least on the surface.
But when viewed in context, the situation is not as outrageous as it might appear.
First, let’s start with the rate increases.
In May, the CL&W board voted to raise rates on residential customers by $1.77. This was a flat rate — no home-owner pays more or less because it is not linked to usage.
The Board justified this by citing increased operation costs — CL&W replaced almost 11,000 aging water meters over the previous two years at a cost of $3.5 million — and the loss of commercial revenues. Most of that lost revenue came from the demise of OMNOVA, Sanderson Plumbing and, most recently, KiOR. Together those three companies reduced commercial revenue by more than 10 percent.
In August, CL&W electricity rates increased by 1.5 percent, passing along to customers the increase in rates from TVA, which sells electricity to providers throughout Mississippi.
Even with the rate increases, CL&W officials say the rates in Columbus remain among the lowest in the state.
The question may become, why raise the rates at all, given the fact that CL&W has roughly $2 million of disposable income in its general fund, along with a healthy reserve fund.
Again, it’s worth noting that utility companies, much like school districts, need to have operating cash in the event of an emergency. Natural disasters such as tornadoes cost utility companies hundreds of thousands of dollars in equipment and overtime. Even if that money is reimbursed by the federal government, it can take months before that money is returned. Given the unpredictability of our weather, it would be foolish for any utility company not to hold a substantial amount of cash in reserve.
As for the loan itself, the risk does not appear great. In the highly unlikely event that the city defaulted on the loan, CL&W holds its monthly fees to the city as collateral — $166,000 per month. It would take less than five months for CL&W to recoup the loan, should the city fail to make a single payment.
Finally, it should be noted that loans such as this are not uncommon and are often viewed as a reasonable investment by utility companies. Every new home or business represents new customers, after all.
TVA doesn’t provide loans, typically, but it does dole out millions of dollars in grants to promote growth, including here in our county. Rarely do those grants produce even a vague murmur of dissent among TVA customers. Why residents would oppose a loan, but have no issue with a grant is a difficult thing to grasp.
If the propriety of the loan is subject to question, it hinges on whether it is appropriate for the city to ask for a loan from an entity whose board members are appointed by the city.
The Dispatch Editorial Board is made up of publisher Peter Imes, columnist Slim Smith, managing editor Zack Plair and senior newsroom staff.
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