Archive for Friday, November 9, 2012

Council approves extension of Lawrence water contract

Baldwin City Hall

Baldwin City Hall

November 9, 2012

After the Baldwin City Council approved Monday a 40-year extension of the city’s contract to purchase water from Lawrence at a much lower price, one councilman said he wanted to pass the savings on to customers.

The contract, which the Lawrence City Commission already approved, immediately reduces Baldwin City’s wholesale water rate to $2.91 per 1,000 gallons, a decrease of about 25 percent.

It also ties future water rate increases to those passed on to the city of Lawrence’s larger water customers.

That later provision was a condition the Baldwin City Council demanded be part of any extension of the contract that was set to expire in 2017. It was the view of Baldwin City officials and council members that past steep Lawrence water rate increases were arbitrary and helped pay for infrastructure not associated with producing or delivering water to Baldwin City.

After the 5-0 vote to approve the contract extension, Councilman Tom Farmer suggested customers’ water rates should reflect the city’s lower cost of water.

“That’s a big decrease,” he said. “I would like to see some of that go back to customers.”

Mayor Ken Wagner said he and City Administrator Chris Lowe had talked about that issue and promised there would be further discussion about water rates in soon.

That discussion would consider the health of the water utility fund, which had to be supplemented last year with money from the city’s reserve, and such things as the amount of reserve the council would like to have in the fund, Lowe said.

Whatever happens with that issue, Baldwin City customers can be confident the new agreement would end rate hikes necessitated by steep increases in the wholesale water rate Lawrence charges, Wagner said. That was at the core of the city’s search for other water sources, including membership in a wholesale water district supplied by the water treatment plant as the closed Sunflower Army Ammunition Plant near De Soto.

“I said all along, the quality of water (from Lawrence) was exceptional,” Wagner told an audience that included Lawrence City Manager Dave Corliss. “The quantity of water was never an issue. The problem we had was the rate of the rate increases coming from the city of Lawrence.”

Lowe said the discussions with Lawrence were “collegial.” The negotiation produced an agreement that gave Baldwin City a fair water rate and gave Lawrence the assurance its second-largest customer would continue to help it pay for infrastructure improvements.

Corliss said the fact that much of water production and delivery infrastructure improvements needed to supply Baldwin City “were in the rearview mirror” would help stabilize rates. He noted the contract didn’t prevent Baldwin City from getting water elsewhere, but the goal was to keep rates low enough to discourage any such move.

In 2011, Baldwin City joined the Sunflower Public Water Utility Authority with Douglas County Rural Water District No. 4 and the cities of De Soto and Wellsville. After they formed a board, the four jurisdictions each anted up $11,400 for a feasibility study on using the Sunflower treatment plant to supply all with water.

That study concluded: “It appears that we can expect the cost of water to be in the neighborhood of $4 per 1,000 gallons once the SPWUA begins paying debt service on the financing in 2015.”

Lowe said Monday some of the factors that would determine the wholesale district’s final rate were still being studied, and Baldwin City would continue to be a part of those discussions. But he added that, realistically, the much cheaper purchase price of wholesale water from Lawrence appeared to make it the better option.

Wagner hinted at the same conclusion, noting the new contract with Lawrence came without the need for an expensive water line the Sunflower option required.

Comments

Goldie 1 year, 9 months ago

"That’s a big decrease,” he said. “I would like to see some of that go back to customers.”

Some ?

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hyperinflate 1 year, 9 months ago

Yeah, Brainiac. The water district has debt service for this magic thing called "infrastructure". It also should have some money in savings to pay for those things that happen unexpectedly, like water main breaks through the wetlands.

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solo 1 year, 9 months ago

Agreed. Holding back for unforeseen expenses is the prudent thing to do but a little reduction would be nice. However the fact that we won't be facing more of those double digit increases is in itself something to celebrate.

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Highstreet 1 year, 9 months ago

We're sitting on top of the Tonganxie sand aquifer just south of town with water rights and options and cold, pure water. Instead, they go for this snake-oil deal with Lawrence. Shucks, build a little water processing plant (NOT for a water district) and give us truly good water.

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1776attorney 1 year, 9 months ago

The costs involved in maintaining the water delivery infrastructure is a fixed cost. The commodity (water) has flexible costs.

As an example, out of the 100% cost of providing water "service" to Baldwin City residents, 40% is a fixed infrastructure cost (pipes, pumps, repairs, improvements, rainy day funds). Sixty percent is the commodity (water) cost.

No matter if the wholesale commodity (water) costs decrease from $4.00 to $2.91 per 1000 gallons, the "fixed" costs (40%) remain essentially the same.

Out of the 60% flexible commodity (water) costs there is plenty of opportunity to reduce the rate paid by city residents. The spread between $4.00 and $2.91 is a 27% reduction in cost that could easily support a 20-25% savings to consumers while still allowing some flexibility.

Water rates in Baldwin City should be designed to always be the 40% fixed costs plus the wholesale ($2.91 per 1000 gallons) rate paid for the commodity (water). Out of that 40% there should be allocations for future water system improvements, growth, innovations and emergencies.

The City of Baldwin City should be in the water delivery business (the 40% fixed costs) and deliver the commodity (water) at what we are paying Lawrence for the water wholesale. The City is not a private, profit generating enterprise.

(My 40% and 60% are estimates and although I believe them to be adequate for illustration purposes, they are not precise percentages.)

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hyperinflate 1 year, 9 months ago

Your logic and reasoning are spot-on. The problem is that the 40/60 split you mention is probably closer to 60/40, weighted toward debt service for infrastructure. This can be chalked up to the skinflints of the prior generation who invested NOTHING in infrastructure (not surprisingly that's what's got the electric utility in an upside-down situation also). So this creates a perverse economic circumstance where the district cannot sell enough water at a "reasonable" margin to make the debt payment. That's why the water is retail-priced comparatively high to other surrounding areas yet they still had to dip into reserve funds last year to make everything balance.

How about settling for what might only be a token reduction and pay down the debt? Isn't that the mantra for all things politic these days anyhow?

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1776attorney 1 year, 9 months ago

Thanks for your comments.

I might also add that water rates should not be used as an under-the-table tax to support other city projects and budgets.

As an example, keeping water rates high to siphon off the "extra profits' to fund other special or general fund obligations unrelated to utilities or water service costs.

Water rates have historically been far too high in Baldwin City for a variety of reasons, including Lawrence's wholesale rates, infrastructure improvements, etc. But water delivery (as with electricity) should stand on its on- meaning that rates should be set based only on water delivery costs and pass-through to consumers without using excess water rates for unrelated city projects or expenditures. This is a tax masquerading as water rates.

It used to be that the sewage component of the water rates was set to be exactly 50% of water usage. But I look back on my city billing statements and I discover that my sewage rates for a few years are now almost 80% of my water usage rate. I don't see any new sewage or water run-off projects currently under planning or construction in the city.

We hire a city manager to manage our city services and expenditures in a manner that benefits the citizens and keeps the tax base and utilities affordable and services innovative.

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b8es 1 year, 9 months ago

Oops! Looks like Corliss jobbed us again.. http://www2.ljworld.com/news/2012/nov/23/dispute-epa-plays-possible-water-and-sewer-rate-in/#comments $2.91 x 1.28 = 3.72. Add the $0.28 cost for taking water out of Clinton and we get $4.00 - Does that number look familiar?

Fear not - at least with Lawrence we don't have to appoint anyone to a board of directors to run the water production and make all those pesky decisions they have to make. We can just sit back and let big brother Lawrence make all the decisions for us, and take whatever bulls@!t excuses they have to offer about their 25 - 30% rate increases. Business as usual.

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