RMWD discusses rate hike options

The Rainbow Municipal Water District (RMWD) board of directors discussed increasing water rates on December 1 to fully fund the construction projects needed to comply with the Department of Health Long Term 2 Enhanced Surface Water Treatment Rule for the district’s four open reservoirs.

According to a board presentation by RMWD general manager Dave Seymour, the water district has divided its reservoir projects into two sections: projects that can be finished within three years and a six year project.

Seymour demonstrated that the three year projects, which are the construction of reservoir covers to comply with the Department of Health’s rule, will cost approximately $27.2 million. A state revolving fund loan for $6.7 million has been applied to this cost, as has $15 million that was on hand. For these projects, an additional $5.5 million is needed, which breaks down to over $1.83 million per year.

The six year project involves construction on the Beck reservoir, which will cost approximately $15 million to repair for continued use. The funding required per year for this project would equate to approximately $2.5 million.

According to Seymour, the total funding spread over the next six years would be approximately $20.5 million, or $3.4 million per year. In order to cover the costs of the projects as listed without taking further loans, RMWD would have to increase the meter surcharge its customers pay monthly. According to Seymour’s presentation, the average price for individuals with a one-inch meter and smaller would be a $30 surcharge, with the surcharge increasing dramatically with the meter size. The monthly revenue with the increase would be approximately $284,861. That would provide the district with annual revenue of over $3.4 million.

The RMWD board of directors had requested that the Readiness to Serve Charge (RTS) be evaluated for increase, which could lower the monthly meter surcharge customers would have to pay.

Currently, the district charges a RTS of $10.54 per acre, or per parcel if it is less than one acre. Seymour stated there are 46,288 billable parcels within the water district, which currently generate $462,880 in annual revenue. By charging the maximum amount of RTS possible, which is $19.46 per parcel, it would generate $900,000 per year, said Seymour.

“This would substantially lower the meter cost,” said Seymour. “But we would still need to charge customers.”

If the $900,000 was brought in by the RTS, the meter surcharge would be approximately eight dollars for meters one inch and smaller. The monthly meter surcharge income for the first three years would be $75,963 with the annual income being $933,333 - the amount of funding that would still needed to be covered annually.

However, in years four through six, the meter surcharge prices will increase dramatically. Meters one inch and smaller would be charged $36 monthly, with all the meter surcharges bringing in $341,833 monthly and $4,102,001 annually.

“We are concerned about the jump in meter charge,” said Seymour. “We could average out the RTS over the six year period in order to fulfill our needs.”

An average price for the meter surcharge with the additional RTS increase would be approximately $22 for every meter one inch or smaller, bringing in $208,898 monthly and $2,506,778 annually.

A concern with increasing the RTS for customers brought up by Seymour is that the final cost for the Beck reservoir is still unknown.

“The reservoir construction could cost anywhere from $10,000 to $40 million, but could actually be closer to $15 million realistically,” said Seymour. “We just don’t know.”

In order to increase the RTS, RMWD would have to perform a benefit assessment in order to determine the benefit for every parcel in the district. Some differentiation between customer classes impacted by the Beck reservoir would be required, depending on if the parcel has direct benefit, emergency benefit or future benefit from the reservoir.

“I wouldn’t be surprised if the initial study cost somewhere in the low six figures,” said Seymour. “Once the study is done, we would simply need to update the study every year. However, we would need to get the voters’ approval.”

Without the RTS increase, the meter surcharge could be averaged to $22 per month for every meter one inch or smaller. This would come out to $208,898 monthly and $2.5 million annually.

“A lot is being dumped on [ratepayers’] plates right now,” said Director Jack Griffiths. “We had better be able to justify the rate increase, so we may want to defer the rate increase.”

According to the presentation, RMWD can begin the meter surcharge as soon as practical and defer the RTS increase until July 2011, which would allow for the Beck study to be finished and finalize the cost’s estimate.

Deferring the RTS increase would also lower the initial cost for ratepayers and leave the possibility open for an election to be held regarding loans or other funding options. However, the projects would not be fully funded in the first year, and would require a big increase in July 2011.

“We would have the facts to explain the reason for the increase,” said Seymour. “We could begin charging ratepayers the meter surcharge that would be charged to them if they had the RTS, but we would possibly run out of money in two years. I would rather under-collect from our ratepayers than over-collect.”

Not all of the RMWD directors agreed that would be the best option.

Director Gerald Walson said that by not using the six year averaged surcharge, the district “was digging a hole.”

“Charging the same amount would be doing nothing,” responded Seymour.

“We would be asking ratepayers to pay less than a hundred dollars’ difference,” said Walson. “[Ratepayers] can just not buy doughnuts for a year or something.”

“[RMWD directors] are not hurting financially,” said Griffiths “However, foreclosures are going up in the county. It is bad policy to take a depressed county and say we want more [money]. To hit people right now doesn’t hurt us, but we haven’t hit rock bottom yet. It may be two years before we start turning around. We shouldn’t hurt customers more than we have to.”

Griffiths also suggested that it would be less painful to ratepayers to put in UV treatment for the reservoirs, which would mean paying a smaller amount of money up front, with the gross cost spread out over the 50 year lifespan of the system.

The RMWD board asked Seymour to continue adjusting the surcharge amount ratepayers would pay to make the transition to paying RTS easier on the district. The new figures should be presented to the board before the board’s March 23 meeting.

“We are going to collect the cost from ratepayers one way or another,” said board president Rua Petty.

RMWD plans on holding an informational meeting regarding the possible rate increase. In order to meet the requirements of Proposition 218, RMWD would need to hold a public hearing. That requires a 45 day advance notice to all ratepayers.