Jump to main page   Jump to site map   Jump to the end of this page

District faces 100% water rate hike; share the frustration

Six years ago,  a majority of the members of the Board of Directors made a decision based upon bad advice from management and consultants.  The District entered into an agreement to buy "capacity" in a proposed transmission pipeline designed to bring water from Folsom Reservoir to the District.  A combination of events and choices led to that decision which required the District to borrow $4.9 million, over a million of which would be used to pay "closing costs" and the first three years interest payments. The assumptions that went into that decision included (1) that a development including a power plant and an ethanol plant would be built within two years in the District boundaries and (2) that a residential development in Elverta of 7,000+ homes would be built out within a relatively short period of time.  Neither of these large revenue-producing events occurred.  At the same time, the District paid $3.5 million of the borrowed funds towards pipeline construction based upon engineers’ estimates.  Subsequently, the District's share of the pipeline cost increased by an unaffordable $2 million, because those estimates were in error.

In late 1995, a frustrated but focused Board with several new members replaced the District's management.  In early 1996 that new Board and management engaged new legal counsel and began a long struggle to reduce the impact of the pipeline decision.  To date, the District has recovered $3.1 million of the monies paid on the pipeline from settlement of one lawsuit and has another lawsuit against the engineering firm that provided the estimates asking $2.1 million in damages.  That lawsuit is scheduled for trial in April.

Each year since 1995, the Board was forced to make the frustrating choice to meet debt payment and capital expenditure costs from our reserves knowing that our water system could barely meet peak demands in the summertime. A number of our wells were too old and were failing. During that period regional plans for water supplies were completed and this past year we completed (a) a Master Plan with a Capital Improvement Program and (b) a Financial Plan with a Rate Study. As customers of the District we all want a safe, reliable supply of water for drinking, sanitation, and fire suppression.  And we want it at the least cost possible. As shareholders of the District, each voter has an interest in the financial well-being of the District.  We know it must be operated in a manner that assures its reliability in producing the product of a safe, reliable supply of water.

The key facts regarding the rate increase proposal:
· The District's expenditures have exceeded income since 1994 because of the $4.9 million debt. It must now collect an additional $420,000 per year to make the payments, or $10 per month per customer. Whether we like it or not, that debt must be repaid with interest.
· Two-thirds of the District wells are over 20 years old; several have failing casings.  At a minimum, the District must construct four wells over the next ten years, two in the next two years.  With related main improvements, the cost will be $7.2 million.   At the present time, the District has trouble maintaining water pressure in the summer with its current wells.  Construction of these wells is not optional if we want a reliable water supply. After factoring in all other revenue, growth and the need for two of the wells in the first two years, the District must collect another $15 per customer per month.
· Our median residential customer currently pays an average of $22.50 every two months;  the proposal is to double the rates which would not cover the rate increase needed.  Additional rate increases in future years may be required, depending upon what new development occurs in Rio Linda and Elverta.

Within this framework, arguments over operating costs are not significant.  A 10% reduction in the operating budget would save less than $2 per month and most operating costs (i.e. electricity, insurance) are determined by outside factors, which makes such cuts unlikely. Nonetheless, the Board has evaluated and debated the District's operating costs carefully.

Options:
· Double the rates now and see what occurs in the next two years before increasing rates again.
· Spread the rate increase out over several years (perhaps as many as 5 years), using the funds set aside for the loan repayment to cover costs, an approach which will cause higher rate increases.

Proposal:
Faced with the facts outlined above, the Board is proposing to implement the option of doubling the rates now.

Comparison of Rates:
The critical question regarding the proposed rates is are they so excessive that the Board representing the “shareholders” needs to consider some more radical changes such as "selling" our District to another water purveyor. A rate survey was completed.  What we discovered is that our rates were currently at the low end of those charged by other water suppliers in the region and those suppliers are facing rate increases due to mandatory metering. When doubled the new rates would be about average. We do not believe any survey justifies any rate increase, but rather indicates whether we are doing something wrong. The table (below) is from our rate study, a complete copy of which is in the Financial Plan.

Summary:
We hope this outlines for you the situation as we see it.   The Executive Summaries of the Master Plan and the Financial Plan are attached for your review.  Copies of both plans are available at the District Office and on the District's web site. The proposal will be discussed at a special public hearing on January 22, 2001 at 7 p.m. in the Cafeteria located at the Orchard School at 1040 Q Street, Rio Linda, California.

The preceding information was prepared for the Board and Staff by Mike Phelan, General Manager of the Rio Linda/Elverta Community Water District and for public information.
 
 
 
 

                                                   RATE TABLE

               Average Monthly Water Bill Based on 5-Year Consumption History

Resi-    Rio Linda Arcade  North   Carmi-  Citi-   Citrus   Fair   San     Orange  City    Placer  City of
dential  /Elverta    WD    ridge   chael   zens    Hts      Oaks   Juan    Vale    of      County  of
Customer   CWD              WD      WD     Util.    WD       WD     WD      WC     Rose-     WA    Sacra-
Compared Proposed                                                                  ville           mento
-------- --------  ------  ------  ------  ------  ------  ------  ------  ------  ------  ------  ------
1st Quartile
No. 3    $20.54    $17.05  $22.63  $32.03  $16.97  $15.00  $24.83  $26.15  $14.00  $11.65  $22.89  $15.89
No. 4    $20.62    $17.81  $25.94  $32.03  $18.38  $15.00  $24.83  n/a     $14.00  $14.45  $24.17  $14.61
No. 5    $20.55    $20.64  $35.29  $38.16  $23.55  n/a     $24.83  n/a     $14.00  n/a     $22.96  $37.41
No. 6    $20.55    $16.61  $20.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $24.18  $15.89
No. 7    $20.55    $16.61  $20.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $24.23  $14.61
Median
No. 8    $22.50    $16.40  $19.34  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $27.94  $15.89
No. 9    $22.54    $16.39  $19.34  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $27.73  $15.89
No. 10   $22.51    $20.97  $35.69  $38.16  $24.02  n/a     $24.83  n/a     $14.00  n/a     $26.32  $39.69
No. 11   $22.51    $16.40  $19.34  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $27.49  $15.89
No. 12   $22.51    $16.59  $20.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $26.19  $15.89
No. 13   $22.51    $17.01  $22.63  $32.03  $16.97  $15.00  $24.83  $26.15  $14.00  $11.65  $27.52  n/a
No. 14   $22.51    $16.65  $20.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $26.91  $15.89
No. 15   $22.63    $16.40  $19.34  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $28.49  $14.61
No. 16   $22.51    $17.81  $25.94  $32.03  $18.38  $15.00  $24.83  n/a     $14.00  $14.45  $27.94  $14.61
No. 17   $22.52    $19.88  $33.75  $32.03  $22.14  $15.00  $24.83  n/a     $14.00  n/a     $27.79  $31.85
3rd Quartile
No. 18   $25.48    $16.29  $17.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $32.63  $15.89
No. 19   $25.29    $16.63  $20.36  $32.03  $16.50  $15.00  $24.83  $26.15  $14.00  $11.65  $32.64  $14.61
No. 20   $25.48    $18.46  $28.21  $32.03  $19.32  $15.00  $24.83  n/a     $14.00  $17.25  $32.09  n/a
No. 21   $25.31    $17.48  $24.92  $32.03  $17.91  $15.00  $24.83  n/a     $14.00  $14.45  $32.90  $14.61
No. 22   $25.31    $19.99  $34.49  $32.03  $22.61  $15.00  $24.83  n/a     $14.00  n/a     $32.58  $34.13
 

Jump to beginning of page