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Final water report in, future of utility undetermined

The future of the city’s water utility remains in limbo, but Winslow ratepayers will soon have some extra cash in their pockets while they wait.

The GHD consultants presented the results of their $85,000 contract to the council  and Utility Advisory Committee (UAC) on Wednesday.

The next step in the decision process is a major policy decision that could have a dramatic impact on the 2011-2012 operating budget if the council decides to spin-off the utility. The high stakes have delayed the decision, which will most likely result in staff reductions regardless of whether the utility remains in city control or ownership is transferred.

The ordinance that passed Wednesday issues an immediate 34 percent reduction of the rates. At a study session to be held later this month, councilors will debate paying a refund to water customers who were overcharged, according to most council members, which allowed the utility’s reserve fund to increase to an unusually high amount.

The final report closely resembled the consultants’ initial findings in May. Overall, the consultants found the cheapest rates would come from the city if it can “optimize” the utility by cutting staff from 6.5 full-time equivalent (FTE) employees to 3.9 FTE.

Citing a better savings for customers, the consultants recommended going with Kitsap Public Utility District (KPUD) over the private Washington Water Service Company if the city decides to rid itself of the utility.

With only a very small difference between the KPUD rates and the city’s fees in its “optimized” scenario, the policy question at hand will ask the council to weigh the importance of maintaining government control.

Some council and UAC members believe trust between the city as a water provider and its customers has been stretched thin among those who feel they have been overcharged on their water bills. On the other side, there is a reluctance to let an outside entity take over such an important community asset as water.

The consultants used two scenarios to determine rate estimates: one rate was calculated assuming the reserves – year-end estimates are about $4.4 million in unrestricted cash –  for capital improvements; and the other set of rates assumed the rates would pay for capital improvements.

If the reserves were used, the city could drop rates by 50 percent to around $32, in the optimized scenario, the city could keep its current level of service without cutting employees and still cut rates by 39 percent to about $40. KPUD could drop the rate to $35 for a 45 percent savings, while WWSC’s rates would be about $48 for a 27 percent savings.

If the reserves are not used, the comparative percentage savings in order of highest to lowest are: COBI-optimized 45 percent, KPUD 35 percent, COBI-current 34 percent and WWSC with a rate savings of 27 percent.

The consultants advised the council to consider that transferring ownership will cost the general fund around $150,000 to $300,000, and to consider how the city would be able to mitigate that financial loss.

City water customers are the only island water ratepayers currently assessed a 6 percent utility tax. Those monies go directly into the general fund, and the consultants’ report said its unclear if it’s legal for the city to tax an outside entity or government, such as KPUD, that same tax.

The city does have an option to charge a franchise fee to mitigate the utility tax loss. UAC member Andy Maron, an attorney, said cities frequently charge a franchise fee on a percentage of revenues that can range anywhere from zero to 10.5 percent. Thomas Keown of the consultant team estimated the city could generate between $100,000 to $120,000 by charging such a fee.

Transferring ownership will also impact the city sewer and storm utility funds by approximately $90,000 per year, and may impact operational efficiency and effectiveness of the remaining utilities should cross-trained staff positions be eliminated, according to the consultants.

The city will also have to consider “whether the impact of transferring the water utility to another purveyor would significantly impair its ability to provide effective service and communication with citizens, as well as to manage land use decisions and ensure the long-term sustainability of Bainbridge Island‚ and its limited water resources,” the report stated.

UAC member Dave Ward said that he was disappointed by the substance of the report.

“My expectation was a very thorough and objective analysis of the three alternatives,” Ward said, “but really this is more of a justification from public works to keep the utility.”

Ward said that the $85,000 used to pay the consultants wasn’t a wise use of city funds. He also suggested that council permanently attach the letter from KPUD General Manager Bob Hunter, who responded to the GHD final report with several complaints of factual misrepresentations made by the consultants.

The letter states that “these corrections are as much for our existing customers – many of whom live on the island (and for whom your report may raise questions) – as for any potential future customers.”

Included in a two-page list of factual clarifications is information on the KPUD maintenance and repair schedule, including details on hydrant maintenance, meters, treatment plant and wells. Some of which are details that were provided for the city system, but not for KPUD or WWSC, the letter states.

The consultants didn’t respond to Hunter’s letter, but City Manager Brenda Bauer and Public Works Director Lance Newkirk said the confusion about the KPUD system information was the result of the wrong KPUD employee providing information to the consultants. The consultants did not comment on how the wrong employee filled out the questionnaire that was given to both KPUD and the WWSC.

At the meeting, Councilor Barry Peters stated that there is a possibility of constructing an intertie between the city water system and the North Bainbridge system, which is operated by KPUD. Both Ward and UAC member Arlene Buetow said that statement is incorrect and that KPUD has not offered to do the intertie independent of taking over the system.

Buetow also questioned whether the city can actually work within the optimized scenario created by the consultants. In order to cut FTE employees from 6.5 to 3.9, the consultants shaved off various small percentages of staff time, she said. For example, the consultants reduced the executive staff time spent on the water utility down by 0.4, using the city’s cost-allocation system.

“I don’t know how we could reduce [staff time] other than subsidize from the general fund,” said Bauer. “My analysis is that we are definitely spending 0.4 on the water utility.”

Bauer said council could choose to pay for the executive department’s water utility time from the general fund, or choose to disagree with her analysis, but she doesn’t believe the consultants’ figure of 3.9 is achievable as presented in their final report.

Bauer stated at the meeting that though she will be presenting the 2011-2012 endorsed budget without changes to the status quo of the water utility, the council can make a policy decision about its future at any time. If the council chose to spin-off the utility then budget amendments would be submitted by staff.

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