Central Alabama Water shows cost-cutting progress, but revenue shortfall and infrastructure backlog loom

CLEVELAND, Ala. (WBRC) - Central Alabama Water (CAW), the state’s largest water utility opened 2026 with a mixed financial picture: expenses are being cut faster than planned, but revenue is falling even faster according to a new budget update presented to the CAW board Tuesday.

The utility’s first-quarter financial review covers operations through March 31, 2026, and comes just one day after S&P Global Ratings removed CAW from its “CreditWatch Negative” designation and affirmed the utility’s AA- bond rating with a stable outlook.

“That’s a testament to all the hard work that was done on the budget in order to demonstrate to those credit agencies that we’re taking the steps to get our financial house in order,” said CAW board member Phillip Wiedmeyer.

Revenue falls short across nearly every category

CAW generated $51.27 million in operating revenue during the first quarter of 2026, a figure that landed $3.65 million — or 7.1% — below its budgeted target of $54.93 million.

The shortfall was driven almost entirely by the utility’s two largest customer classes. Residential revenue, which accounts for more than half of total operating income, came in at $26.3 million — $3.37 million, or 12.8%, below budget. Commercial revenue also missed its mark by $797,921, or 5.2%.

Compared to the same period in 2025, total operating revenue fell by $593,772, or 1.2%.

Industrial, raw water, municipal, and private fire protection revenues all came in modestly above budget, and other operating revenue was essentially flat year-over-year.

Expense cuts are real — and significant

If revenue is the bad news, expenses are the good news — at least in the short term.

Total operations and maintenance expenses for the first quarter came in at $32 million, which was $2.11 million, or 6.6%, below the budgeted $34.1 million. That figure is $3.93 million — 12.3% — below what the utility spent during the same period in 2025, reflecting the aggressive cost-cutting measures implemented by CAW’s new management team since late 2025.

Administrative and general expenses, the utility’s single largest cost center at $10.65 million for the quarter, came in $656,125 below budget and $955,512 below the prior year — a 9% year-over-year reduction.

Power and pumping costs rose 18.3% year-over-year to $3.5 million, the largest single operating cost increase in the quarter.

A workforce in transition

The utility’s staffing data tells its own story of transformation. As of March 31, 2026, CAW employed 440 full-time workers — but is budgeted for 463 positions, dramatically lower than the 729 employees on the payroll as recently as 2023.

The workforce reduction — a decline of more than 36% in roughly three years — reflects both the hiring freeze implemented under new management and the layoffs in March of more than 100 employees.

Capital spending slashed amid financial pressure

The utility’s revised capital expenditure budget is $35 million for 2026, a 70% reduction from the original 2026 capital budget.

Maintenance spending on transmission and distribution — the pipes and infrastructure that move water to customers — fell 66.3% year-over-year in the first quarter, from $4.96 million to $2.98 million.

Cash position: Stable for now, with conditions

As of March 31, 2026, CAW held $135.55 million in total trusteed funds and cash...with an unrestricted cash position of $60.45 million.

That translates to 175 days of cash on hand, a metric that falls within the range Moody’s considers consistent with an Aa credit rating — which the agency defines as 150 to 250 days. The figure represents a significant improvement from the dire projections made earlier in the year, when CAW’s accountant warned that reserves could fall to just 62 days of cash on hand by August 2026.

The credit rating: A crisis averted, for now

The financial review was presented against the backdrop of a credit rating saga that has played out in public view over the past three months.

In February 2026, S&P Global Ratings downgraded CAW’s long-term bond rating from AA to AA- and placed the utility on CreditWatch Negative — a designation signaling at least a 50% probability of another downgrade within 90 days. The agency cited “the system’s weakening liquidity position and aging assets, coupled with a substantial reorganization of management.” The utility had held an AA rating since 2013.

On May 11, 2026 — the day before the board meeting — S&P removed CAW from CreditWatch Negative and affirmed the AA- rating, revising the outlook to stable. The agency credited updated financial information, discussions with current leadership, and the revised 2026 operating and capital budgets.

But S&P’s statement was not without caveats. The agency noted that CAW continues to face significant capital demands, including unresolved work on the Lake Purdy Dam project, persistent water loss concerns, and long-term infrastructure funding challenges. S&P also flagged slightly elevated environmental, social, and governance risk factors, pointing to potential affordability concerns if future rate increases outpace local income growth.

The agency said it could lower the rating again if financial performance weakens further, particularly if cash and coverage levels decline — and that an upgrade would require consistently improved financial metrics over time.

What it means for customers

The financial pressures facing CAW have direct implications for the hundreds of thousands of customers who depend on the utility for drinking water across Jefferson, Shelby, St. Clair, Blount, and Walker counties.

A lower bond rating means higher borrowing costs when the utility issues debt to fund infrastructure projects — costs that are ultimately passed on to ratepayers.

The utility’s new management team, led by CEO Jeffrey F. Thompson, who was hired in November 2025, has argued that the cost-cutting measures are necessary to put CAW on a sustainable financial footing. The first-quarter data suggests those efforts are producing results on the expense side. Whether revenue can be stabilized — and whether the capital investment needed to modernize the system can be funded — remains the central question facing the utility and its board.

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