Norwich - The 11.5 percent sewer rate increase approved Tuesday by the Sewer Authority was a necessary step in assuring the utility has at least the minimum amount of interest, principal and debt service funding in place by 2019 to close on an $80 million loan to pay for 80 percent of the plant upgrade project.

Norwich Public Utilities officials proposed the controversial 11.5 percent increase in November to recover a major loss of revenue when the Fusion Paperboard plant in Sprague closed suddenly last summer. The rate hike revenues would replace the paperboard plant's portion of the revenues NPU needs to pay for the bonds to finance the $100 million sewage treatment plant upgrade.

The 11.5 percent rate hike was approved 4-0 Tuesday and will take effect March 1. Speakers at a November public hearing strongly criticized the sharp rate increase, saying NPU should not rely solely on its customers to recover the loss of another customer. The new increase also came after two other large sewer rate increases in recent years, totaling a combined 60 percent.

The latest increase will raise an estimated $717,000 per year to replace revenues lost from Fusion and will be critical to closing on the $80 million project loan approved by the state Bond Commission last week, NPU General Manager John Bilda said.

In 2019, NPU will need to have between $11 million and $15 million on hand to secure the loan, Bilda said. The utility has been building up the reserve through a special sewer surcharge to cover sewage treatment plant upgrades. Without that gradually accumulated fund, Bilda said the utility would have to raise that amount suddenly in one year - a move that would require tripling the sewer rate in one year.

The Bond Commission last week approved a $20 million grant and $80 million loan to cover the entire projected cost of $100 million. But Sewer Authority Chairman James Sullivan said there is a public misconception that the state is footing the entire bill for the project. Sullivan urged NPU staff to improve public education and communication to correct the situation.

Bilda said he still hopes to persuade state officials to increase the grant total for the project to 30 percent.

Even with the sewer rate increase, the project still might have a funding gap of more than $3 million if none of the surrounding towns agree to hook into the system. Negotiations are ongoing between NPU and several surrounding towns, including Sprague, Franklin, Preston and Bozrah to expand sewer lines into those towns.

But Bilda said the best case scenario come 2019 would have the state funding 30 percent of the project and all the prospective towns hooking into the system. In that case, the utility would have a project surplus of about $6 million.

c.bessette@theday.com

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