FUD earns rare Triple-A from Standard & Poor’s

Local utility grabs designation ‘less than 1 percent in U.S. have’

Recently earning the rare “AAA” rating for both its water and sewer operations serving Farragut and West Knox County, the industry’s highest level, First Utility District of Knox County is one of only four of the state’s 17 largest water and sewer utilities to have earned AAA status.

“Less than 1 percent of the systems in the United States have that,” said Bruce Giles, FUD general manager since November 2010.

Moreover, among the four AAA-rated state utilities listed, FUD — which serves the entire Town of Farragut — was one of only two to earn AAA distinction in two service areas (water, serving 36,000 customers, and sewer, serving 33,000).

“It’s very rare. It’s the highest that you can get,” said Kena Hyers, FUD chief financial officer who has been at the utility for 19 years. “We had been at AA-plus since 2009.”

“It’s almost impossible to get there,” Giles said. “… To have a sewer system as large and be AAA is just unheard of.”

To obtain this distinction, which was announced March 8, “We had to go through a whole process with Standard & Poor’s, the ratings agency,” which uses “a national panel of analysts, national experts on financial liability,” Hyers said.

“They were amazed. We’ve not borrowed any money in five years. … We’ve gone to a cash-based operating plan. To be cash-based is unheard of,” said Giles, adding FUD has trimmed its debt from $77 million “when I walked in the door” in late 2010 to $48 million currently. “Our plan is to be completely debt-free by the year 2025.”

Meanwhile, “Our rates are still significantly cheaper than everybody else’s — and will be when we finish this (debt reduction) process,” he said. “… About 50 percent lower than anybody else’s. And the cheapest in Knox County by far.

“At the same time, we don’t have any regulatory orders against us from EPA or (Tennessee Department of Environmental Conservation),” Giles added. “Most everyone else has some kind of controls put on them because of compliance issues.”

Looking back, “When I got here, we were borrowing (money),” said Giles, a member of Utility Management Review Board, one of seven appointed by the governor and one of just three from a utility district. “The previous administration’s philosophy was to borrow. That’s the normal philosophy in the industry.”

The plan Giles set from the time he arrived at FUD “was to keep basically one year’s worth of operating capacity in the bank at all times, I wanted zero debt and I wanted a 3 percent a year increase in our operations expenses,” he said.

About eight-and-a-half years after taking over, “We’re in great shape for growth,” Giles said.

Beginning in mid-January, “We went through a two-to-three-week process to provide (S & P) all the information,” said Giles, also a board member of Tennessee Association of Utility Districts.

“They really try to find a way not to give it to you,” he added.

After submitting that information to Standard & Poor’s, “They call us and they want to discuss your business plan, your succession plan, your operations plan, your capital plan — it’s not just based on everything financial,” Hyers said. “It envelopes everything, every aspect.”

With 100 employees, FUD is located at 122 Durwood Road near Kingston Pike, just east of Farragut.

Beginning service in 1954, FUD now serves west to the Loudon County line, north to the Interstate (with some pockets of service north of the Interstate), east to Gallaher View Road and south to Fort Loudoun Lake.

“And we wholesale water into Loudon County,” Giles said.