Bainbridge may transfer utilities to KPUD, save customers 50 percent

The city has received an offer from Kitsap Public Utility District to take over its water utility, a move that could save as much as 50 percent for Bainbridge’s 2,300 water customers.

The plan also includes potentially assuming control of the sewer utility, but KPUD has never operated a sewer system, so it would embark on a one-year “operational optimization” period, where sewer rates remain at current levels and are reassessed after the trial period. KPUD Assistant General Manager Bob Hunter said the period is necessary to study the fairest rate levels.

“Until we operate a sewer, we don’t know what the rate adjustment should be,” he said. Hunter and the proposal predicted it will be able to decrease sewer rates after that period.

Under state law, KPUD is not currently authorized to operate wastewater facilities, but it can acquire that authority through legal means or seek special legislation to do so. While KPUD works to gain that authorization, the city could continue to operate the sewer or it could bring in a third party to manage it in the interim. Once KPUD obtains authority to control wastewater treatment facilities it can begin the optimization period.

The council authorized interim City Manager Lee Walton three months ago to reach out to KPUD about possibly transferring the ownership of utilities. Since then the two sides have been ironing out details. The proposal is expected to be discussed at next week’s study session and referred to the Utility Advisory Committee, a citizen group that evaluates rates, projects and policies.

Limited by a small customer base, and the need to constantly update its infrastructure, Bainbridge charges significantly more for utilities than other municipalities.

The potential change in utilities could affect city government as well as utility ratepayers. The water and sewer funds pay for the salaries and benefits of 20 combined employees, city Finance Director Elray Konkel said. Walton said the changeover in utilities could affect staffing.

“There would probably have to be fewer employees,” Walton said. “We would have to reduce staff commensurate with that transfer.”

Arlene Beutow, a member of the city’s Utility Advisory Committee, said the UAC has yet to receive a copy of the proposal, but the group was briefed on it. As part of its review of city utilities, Beutow said, the UAC recommended transferring operations or even full ownership of the utilities out of the city.

Beutow dealt with KPUD previously, when she participated in the sale of North Bainbridge Water Co., for which she served as president. In 2005, she and the two other people in charge shopped the utility to the city, but couldn’t come to an agreement.

When Beutow and her colleagues decided to go with KPUD, they noticed little issue with the utility changeover.

“The level of service was instant, without hiccups,” she said.

With the transition, KPUD will assume responsibility for capital improvements needed after 2014, according to the proposal. The city identifies $5.4 million in improvements between 2011 and 2014, much of which is for a $2.6 million improvement to the High School Reservoir scheduled for next year. Those improvements will need to be paid for by the city, either through money in its water fund or through a surcharge to water customers.

The water utility is the healthiest of the three owned by the city. According to the Finance Department, as of April 14, it has more than $400,000 and is owed an additional $3 million from an interfund loan taken out last year.

It remains unclear how long the process of changing ownership may take. The council and UAC both have to review the offer, and KPUD must go through two more fact-finding steps (due diligence evaluation and summary of system assets and liabilities) before the change of ownership can occur.

It is also unknown whether or not the transition will involve any monetary exchange for the utilities.

But once the change is completed, customers should see instant savings.

According to the proposal, a typical monthly bill (800 cubic feet of usage on a 5/8-inch meter) would cost a resident $31.47 under KPUD and $62.89 under the city’s water systems with 2011 rates.

Decreased rates have the potential to relieve some of the tension around the utilities, a point of conflict at City Hall for several years.

In an attempt to perform improvements on its facilities, the city sought more than $6 million in bond funding in 2009. That year, the Bainbridge Ratepayers Alliance sued the city on the grounds that it had misused ratepayer funds and rates were unreasonably high.

That lawsuit held up plans to upgrade the Winslow Waste Water Treatment Plant and a Winslow Way reconstruction project. The city eventually secured funds for the treatment plant and discussion over Winslow Way is ongoing after it was delayed last year.

Sally Adams, secretary for the alliance, said a potential changeover would simplify things and put ratepayers in the hands of experts in the field.

“We suspect it would be a good thing for the ratepayers because the utility would be run by a professional,” she said. “That would be their sole task, to use ratepayer fees to run the utility.

Beutow, the UAC member, volunteered for the committee because she thought the utility rates charged by the city were far too high, and she wanted to understand why. She didn’t feel as though the costs were being allocated fairly, which forced the ratepayers to shoulder the load.

She joined the committee, which is tasked with examining all city utilities and recommending changes to how they are run, rates and anything else, because she wanted to examine alternatives to such high costs, specifically in an economic time that is hurting a lot of individuals.

“It costs a heck of lot more to run Bainbridge Island water utilities than it should, and they should be looking at every option during this fiscal crisis,” she said.

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