Hoover sewer rates fail to sustain system
The city of Hoover’s sewer system for the past 10 years has not been taking in enough revenue to provide long-term support for the system’s future, city officials say.
Sewer rates for the Hoover system’s roughly 4,500 residential and 200 commercial customers in Riverchase, Inverness and Southlake haven’t gone up since fiscal 2004, said Hoover Chief Financial Officer Melinda Lopez.
But rates need to be raised in order to keep the system functioning properly, City Administrator Allan Rice said.
City officials must decide whether the City Council should raise rates itself, sell the system to another public utility that would raise rates or form a separate sewer board that could raise rates or sell to a private company that would do so, Rice said. A fifth option would be to do nothing, but that is not advisable, Rice said.
“Unfortunately, we’ve been on a glide path of option five for many years,” he said. “That is no longer sustainable. … We see the storm cloud coming.”
Revenues are strong enough to pay for current operations, pay off debt obligations and provide positive cash flow, but the sewer system has had negative retained earnings since 2008, Lopez said. The system has not been able to cover all of its depreciation expenses on its assets, so it had negative retained earnings of $10.8 million at the end of 2017, she said.
An engineering study by Goodwyn Mills Cawood determined the system has $7.23 million in capital projects needed in the next five years. Those include replacing major mechanical components at the Inverness and Riverchase plants, installing an additional filtration system at the Riverchase plant, replacing the administration building at Inverness, upgrading and replacing sewer pump stations and replacing the communication system.
Additionally, the Environmental Protection Agency is considering more stringent rules that would require more upgrades, Rice said.
The Hoover system is paying off a total of $23.7 million borrowed in 2013 and 2014, Lopez said. There will be a point where it can’t afford to borrow more without raising rates.
The average residential customer on the Hoover system creates 6,000 gallons of sewage to process per month and is charged $36.66, said Chief Operations Officer Tim Westhoven.
Customers with similar usage are charged $32.50 in Helena, $39.71 in Alabaster, $42.30 in Pelham, $45.40 in Calera and $78.48 on the Jefferson County system, Westhoven said. Greystone residents pay a flat monthly fee of $112.68 to Southwest Water, a private company that bought the northern portion of Shelby County’s sewer system in 2005, he said.
Hoover residents pay three substantially different sewer rates based on their sewer provider.
Jackson Thornton, a utility consultant, told the City Council in November that the Hoover system needs about $6.5 million in revenue per year to get back on track and is currently about $2.3 million short of that.
If the sewer system switched to flat rates to make up for that shortfall, the monthly rate would be $64.12 for residents and $1,206.17 for commercial customers, Thornton said.
Another option is charging a monthly fixed fee to cover fixed expenses and keep the current volume rate in place. If implemented gradually over three years, residents’ sewer bills could go up $30.53 a month the first year, $15.27 a month the second year and $10.18 a month the third year, the consultant said.
For commercial customers, volume rates could be increased by $1.60 per 100 cubic feet the first year, 80 cents per 100 cubic feet the second year and 53 cents per 100 cubic feet the third year, the consultant said.
The current rate for commercial customers is $5.39 per 100 cubic feet, while the residential rate is $4.58 per 100 cubic feet.
Hoover Mayor Frank Brocato declined to answer questions about the sewer system and directed questions to Rice, who said city officials haven’t made official recommendations to raise rates or to sell the system.
However, Rice said the mayor’s office likely this spring or summer will recommend forming a government utility service corporation (also known as a GUSC or sewer board) to make decisions about the system’s future.
Giving control to a sewer board would take the system’s debt off the city’s financial books, Rice said. The sewer board then could raise rates or sell the system to a private company.
Creating the board isolates the process from the politicians and allows a choice to be solely based on optimal funding of the system, he said.
Selling to a private company could expose residents to unchecked rate increases, which Rice called “a very serious consideration.” The board could set rate controls for a private operator, but that affects the selling price and could reduce the pool of interested buyers, Rice said.
Rice said the City Council can make the decision itself to sell the system to another public utility but would need to work through a sewer board to sell to a private company.
Jefferson County offered to buy Hoover’s sewer system for $18.8 million during former Mayor Tony Petelos’ administration, but a consultant told Hoover the system was worth $45 million to $65 million, Rice said.
Hoover City Council President Gene Smith said he’s not sure of the best course of action. He’s waiting on a report from the mayor’s office but said communication between the mayor’s office and council is not great right now.
“I haven’t heard anything about that in months,” Smith said of the sewer system status.
He’s not sure how much the sewer system is worth, but Smith doesn’t think it will be worth as much as some people think it is.
This article was updated at 11:34 a.m. on March 29 to correct the amount that Greystone residents pay for sewer to $112.68, following a rate increase early this year.
Comparing rates
Monthly bill for residential customer, based on average usage of 6,000 gallons:
► Helena: $32.50
► Hoover: $36.66
► Alabaster: $39.71
► Pelham: $42.30
► Calera: $45.40
► Jefferson County: $78.48
► Greystone (Southwest Water): $112.68 (flat fee, not based on usage)
Source: City of Hoover