Order 25615 - Providence Water Supply Board: Authority to Borrow Funds

The Division has jurisdiction over this matter pursuant to R.I. Gen. Laws § 39-3-15.

A.                Cheryl A. McCreight - Finance Director for the PWSB

Ms. McCreight explained that PWSB intends to utilize the borrowing proceeds to replace public and private services which utilize lead piping.  Ms. McCreight advised that rate revenues would be used as payment for the debt service of this borrowing.  However, because PWSB anticipated similar borrowing needs in its two-step rate filing approved by the Public Utilities Commission (“PUC”) in Docket No. 24-51-WW on August 1, 2025, no new rate increase is required for the initial debt repayments.  

At the commencement of her testimony, Ms. McCreight corrected a date reference included within her pre-filed testimony.[1] Ms. McCreight confirmed that in response to an Advocacy Section data request, Providence Water provided the Division an updated pro forma capital structure showing the effects of the bond issuance as required by Section 1.14 (1)(a)(5) of the Division’s Rules.[2]  She explained that the PWSB intends to borrow $26,200,000 from the RIIB, with proceeds utilized for the improvements to the PWSB distribution system, including, but not limited to,  the replacement of public and private-side lead services. She clarified that the proposed lead line replacements are new, and do not duplicate prior replacement projects funded by similar borrowing. Ms. McCreight stated the bonds would be funded through the DWSRF with a 20-year term. Ms. McCreight specified that RIIB’s program contractually obligates PWSB to pay interest at the market rate, although PWSB expects to only be charged a subsidized zero percent (0%) interest rate. She explained that, based on market conditions as of January 12, 2026, the anticipated market interest rate on the loan is 3.60%.

Ms. McCreight confirmed that the bonds would be secured with a revenue pledge by Providence Water Enterprise Fund revenues. She stated that the PWSB “debt-to-plant” percentage following this borrowing proposal would be 37.72%, which remains under the 40% or under debt-to-plant threshold described within the RIIB commitment letter.  Ms. McCreight noted that RIIB’s financing commitment, and a Certificate of Approval from the Rhode Island Department of Health (“RIDOH”) were provided within PWSB’s application.[3] Similarly, Ms. McCreight confirmed that copies of required approvals from both the Providence City Council and the Providence Water Supply Board were included with the application.

Ms. McCreight explained that the PWSB’s debt service coverage ratio is expected to be 2.11(x) inclusive of the proposed borrowing. She stated that this debt service coverage ratio is well above the PWSB’s minimum 1.25(x) ratio.

B.                 Katherine Mello - Deputy General Manager of Operations for the PWSB

Ms. Mello explained that the federal 2021 Infrastructure Investment and Jobs Act (“IIJA”) provided significant funding for public and private-side lead service-line replacements. She explained that the PWSB took advantage of this funding opportunity to address ongoing lead replacement needs throughout the PWSB system. Ms. Mello stated that the PWSB will utilize the loan portion of the borrowing to replace the public-side lead services, and the principal forgiveness portion to replace private-side lead services. Ms. Mello stated that the PWSB has identified approximately 6,300 known public-side lead services, 22,000 known private-side lead services, and 6,400 services for which the material has not yet been verified.

Ms. Mello briefly described the distinction between the public-side and private-side lead service lines.  She explained that the public-side service line consists of the stretch of PWSB-owned service line from the roadway, up to the “curb stop.”  The private-side lead services consist of the service line that then extends from the curb stop to the building or residence owned by the customer.  Ms. Mello stated that, based on recent projects, the average cost for public-side lead service replacement is approximately $7,000, and for private-side the average cost of replacement is approximately $5,500. She explained that the estimated average total cost to replace all known public-side lead services is approximately $49,000,000, and for private-side the average total cost to replace all known services is approximately $110,000,000.

            Ms. Mello stated that the PWSB has replaced approximately 4,000 lead service lines to date. She explained that the PWSB is on track to achieve its goal of replacing lead service lines within the distribution system by 2033. Ms. Mello noted that the PWSB has remained in compliance with the “lead and copper rule” since 2021, and that the most recent 2025 testing results are the lowest figures that the PWSB has seen since tracking began in 1997.

C.                Matthew J. Blais - Vice President at Hilltop Securities Inc.

As a Vice President at Hilltop Securities Inc., Mr. Blais provides municipal advisory services to municipalities and various regional agencies.  Mr. Blais began by correcting a numerical reference included within his pre-filed testimony.[4] Mr. Blais described PWSB’s broad financing plan to support the contemplated lead-service line replacements and noted that the requested borrowing authority is similar to previous PWSB loans funded by RIIB.  Mr. Blais explained that these funds utilize federal capitalization grants and state matching funds to provide subsidized loans to water suppliers such as the PWSB for qualifying projects listed on the Project Priority List maintained by RIDOH.  Mr. Blais confirmed that the PWSB lead replacement service has been listed on RIDOH’s project priority list which qualifies the replacement service project for a subsidized DWSRF loan.

Mr. Blais stated that the IIJA will provide approximately $150,000,000 to the RIIB for lead service replacement projects over a five (5) year period. He explained that in order to access these funds, water utilities such as the PWSB must replace the private-side of any lead service that receives public-side replacement. Mr. Blais noted that this requirement was adopted by the RIIB following the recent publication of a United States Environmental Protection Agency guidance document.

Mr. Blais explained that RIIB’s loan program requires both the PWSB and the City of Providence to be contractually committed to pay interest on the borrowing at the market rate, despite RIIB, in practice, only charging the subsidized zero percent (0%) interest rate.  For the purposes of Division approval, Mr. Blais included a not-to-exceed market rate of 5.00% in his analysis of the application.  He added that based upon market conditions as of January 12, 2025, it was anticipated that the interest on the PWSB would not exceed 3.60%. Mr. Blais explained that a default could lead to the PWSB paying a “step-up” market rate, but that there would also be a cure period afforded and that there is no history of such default on similar loans.

Ms. Corbin referred to the PWSB’s response to the Advocacy Section’s data request 1-3, which incorporated a July 15, 2022 S&P Credit Report. Ms. Corbin asked Mr. Blais if the PWSB anticipated obtaining an updated version of the S&P Credit Report, inclusive of the proposed borrowing. Mr. Blais stated that although S&P is aware of the proposed borrowing, an updated Credit Report is not being contemplated at this time. Mr. Blais explained that ratings agencies such as S&P maintain ongoing surveillance and will provide an updated Credit Report if there is a large event that materially affects debt or other financial ratios. He concluded that based on the PWSB projected debt ratios inclusive of the proposed borrowing, he did not expect the PWSB credit rating to change.