Fountain utilities report shows water fund progress but warns of revenue pressure from falling consumption

Dan Blankenship, the city's utilities director, told the Fountain City Council on Oct. 14 that the electric and water enterprise funds together now meet the O&M reserve test used by bond lenders, but the water fund remains short on its own.

"By the state's methodology our water fund O&M reserve for 2024 was about negative $3.2 million," Blankenship said. He explained the state calculation treats the reserve as current assets less current liabilities and that combining water and electric reserves is a customary way lenders judge overall utility financial health. "The electric fund has assets of about $19.7 million, and that combined position puts us back into compliance with our bond covenants for the first time since 2017," he said.

Blankenship said the city has reduced an interfund payable from the water fund to the electric fund from about $8.7 million at its peak to roughly $1.5 million today through a multi-year Water Fund Stabilization Plan and operational changes. "At our current trends we expect to eliminate the interfund payable by 2027 and to establish a three-month operating cash reserve in the water fund by 2030," he said.

But Blankenship warned the water fund faces continuing revenue pressure because metered consumption has fallen. He said city staff projects 2025 water consumption to be about 14% below the 2020 baseline. "We budgeted $10.3 million in water rate revenue for 2025; current projections put that nearer $9.5 million, about an $830,000 shortfall," he said, adding that a 9% rate increase adopted earlier this year is expected to yield roughly $760,000.

Blankenship also said the city received two PFAS settlement payments totaling about $750,000; staff had hoped to apply those funds to reduce the interfund payable but now expects to use the payments to stabilize the water fund's year-end cash position.

On debt, Blankenship said the water fund carried about $44.9 million in principal outstanding at the end of 2024 with annual debt service around $3.5 million; the electric fund's outstanding principal was about $7.8 million with annual payments near $817,000. He urged continuing expense controls and said staff will return to the council with a simplified stabilization-plan resolution to prioritize eliminating the interfund payable and building reserves.

Council members and residents asked how the rate increase and the PFAS payments would be applied; Blankenship said the 9% rate increase does generate revenue but that the combined effects of declining consumption and timing of reimbursements remain the key risks.

Blankenship also outlined possible rate-design work for the electric fund to address a small number of high-demand residential customers and to develop charging rates for commercial EV chargers; he said any changes would go through a public process.

Blankenship concluded by saying the utilities continue to provide reliable service while staff works to improve the water fund's financial position.