How would a utility cash out a billion-dollar lottery jackpot?
I asked our CFO how we’d spend a sudden billion-dollar windfall. Hypothetically. He had ideas.
What could a utility do with a billion dollars of lottery winnings?
First of all, it would never happen. We don’t play the lottery. Of course we do take risks since every one of our capital projects that breaks ground comes with manageable risks that affect our planning decisions and cost estimates.
But every so often, nationwide lottery totals approach a billion-dollars-or-more potential payout, and when they do, I’ve wondered how a utility that relies on customer payments would spend a lottery-like 10-digit payday if it could be used in any way for the customers’ benefit.
So I asked our CFO.
Ken Duplay is our Chief Financial Officer, a long-time employee whose first days at the Sewer District were as an intern. He knows how my social-media mind works.
“The shortest answer is we would likely either pay off old bonds or pay that cash for current capital improvement projects,” Ken said.
With a bit more context, he added, “we would analyze our options and likely use an influx like this the same way we are looking at our cash now,” Ken said. A utility always operates with cash on hand. When a utility draws down that cash, for capital projects specifically, it lessens the need to borrow and repay long-term interest-bearing debt.
Debt service is a major component of budget planning, $115 million to be exact in our 2023 budget. The less we borrow into the future, the less interest payments we need to make over time.
“We do know we need to spend $2 billion over the next 10 years,” he explained, based on our long-term financial plan and Project Clean Lake obligations, “so we would compare the costs of our outstanding debt, potential new debt, and our Capital Improvement Plan and look for the most efficient uses.”
Does it always make sense to spend cash instead of borrow? Ken says no.
Low-interest loans and our strong ability to refinance at favorable terms often make borrowing an attractive option. Still, we are always actively seeking project-specific financial support at the state and federal level, and every grant helps, like the $5 million project grant we recently received from the Ohio BUILDS program.
The lottery comes down to luck. With the odds of winning a Powerball jackpot 1 in 292 million, the dollars you pay into infrastructure bills may be your best bet.
And clean water is always a favorable return.