UAC to push for water rate respite
August 12, 2011 · 11:43 AM
City water ratepayers may find some extra cash in their pockets within the next several weeks.
At the city’s request the Utility Advisory Committee has unanimously agreed that the city should reduce water utility rates and/or issue a refund to ratepayers to provide an immediate relief while the city wrestles over the future of the water fund.
The council asked for the UAC to come forward with a proposal on an intermediate rate reduction.
In its initial report, the consulting team, GHD, stated in May that the city could drop rates by 34 percent immediately, without compromising service. The UAC wants more information - including the consultants final report, and staff recommendations - but it believes the city owes the ratepayers a lower water rate, and even a refund in the form of the cash they paid to build an unnecessarily high reserve.
“The rates are generating revenues in excess of what the [city] needs,” said UAC member Dave Ward. “There is some level of money that can definitely go back to ratepayers. What we are conveying to council is that we will consider both reducing the rates, and refunding a portion of utility reserve funds.”
The UAC said in a statement that it is prepared to provide council with a recommendation by early September if the staff can provide a list of supplemental documents and information. The recommendation is not in place of a decision regarding the ultimate future of the water utility, but instead a placeholder and interim relief for ratepayers while the council deliberates on the utility’s future home.
The UAC wants a copy of the consultant’s final report, a staff briefing on projected capital needs for the next five years, staff response to the consultant’s “optimized” scenario and a staff recommendation on a rate reduction and/or a refund.
The consultants May report said it could “optimize” the city’s water utility by eliminating another 2.5 full-time equivalent employees worth $230,000 in salaries and benefits, and reduce customer service activities to drop rates by 45 percent.
According to a 2010 study by the Association of Washington Cities, the average monthly residential water rate for a single family was about $35. City ratepayers dish out about $64.
The water fund is estimated to end the year with $4.4 million in unrestricted cash, which more than doubles the 2010 year-end balance of $1.8 million, according to the mid-year financial report. That figure includes the $3 million sewer fund repayment for the temporary loan the water utility provided for the sewer treatment plant project.
Katy Isaksan, from the consultant team, estimated the reserves target should actually hover around $980,000. That figure provides a cash flow reserve of $310,000, an emergency reserve of $435,000 and a rate stability reserve of $235,000.
Ward estimates that the city could return something like $1.7 million to the ratepayers, though other UAC members argued that was too much. Ward said that excess of $1.7 million still leaves around $2 million for capital projects and a reserve of $800,000.
Before those decisions are made Ward said the UAC wants more information, including a city response on how it can drop rates by 45 percent in the “optimized” solution.
“[COBI] is looking at operating costs twice what KPUD is proposing with twice as many staff, yet talking about rates that are somewhat competitive with KPUD,” said Ward.
Ward, a central ward council candidate, has said he is a proponent of having the water utility transferred to the Kitsap Public Utility District (KPUD).
“There is a lot of work to be done to figure out what the real revenue requirement is for the water utility going forward,” said UAC member Arlene Buetow. “We don’t want to make any changes going forward to the rates and reserves that will hinder the job the city has going forward. We will make sure we make a conservative decision.”
Buetow said that about half the advisory committee agreed that the historical ratepayers who built up the reserves deserve a refund, and the other half said a compromise is to reduce rates going forward.
Eric Turloff, who works on the island as an independent financial advisor and a CPA, said the mathematics are simple.
By looking at financial statements the city can determine its total income, subtract operating costs and determine its “gross profit.” Turloff said it could then subtract out depreciation, or the reduction in value caused by wear and tear, and the difference would reveal what the city overcharged. Turloff’s estimate concluded that amount was 43 percent in 2010.
“In a business world refunds are a relatively easy task,” said Turloff. “The city might be challenged in that respect because they might not have competent people, but I have offered to help them do it for free because it would be good for the community. In my world I can’t hire a consultant every time I have a problem or I would go broke.”
City Manager Brenda Bauer said the city has not been tasked with looking at the implications of issuing a refund.
“Issuing refunds is fully possible,” said Turloff. “But the big question you have to ask yourself is why the city never cut the rates in 2009? Now they say they can drop staff from 10 to 3.9 FTE. Why did ratepayers have to pay for those six extra people for all those years?”
Water employees dropped from 10.2 employees full-time employees (FTE) in 2009 to 6.5 in 2011, but the consultant said that number can go down to 3.9 FTE in its “optimized solution.”