Monday, March 22, 2010

North Canton Water Study Highlights Failures of City’s Water Agreement with Aqua Ohio

Prepared Comments Made to
March 22, 2010

On July 10, 2006, I presented concerns in public to city council regarding a water agreement with Aqua Ohio that had been ratified in legislation by North Canton City Council. The ratification of the agreement had been approved unanimously by city council on an emergency on February 28, 2005, as Ordinance No. 49-05.

Four current members of this council, Jon Snyder, Jeff Peters, Marcia Kiesling, and Doug Foltz, were members of that council in 2005 when the Aqua Water agreement was ratified. For reference, I have a copy of my 2006 comments for you today.

In that presentation I stated, “The Aqua Ohio water agreement, to put it mildly, is grossly unfair to the City of North Canton….”

The recent Water Utility Rate Study completed by Arcadis, dated January, 2010, comes to the very same conclusion that I came to nearly four years ago. Unfortunately, no one in city government took me seriously when I presented my concerns in the summer of 2006.

For you present members of council who voted to ratify the water agreement with Aqua Ohio, I think it is fair to ask why you didn’t ask for a water study before ratifying the water agreement?

In those remarks of nearly four years ago, I noted that former City Administrator Michael Miller negotiated the Aqua water agreement without input from the City’s water superintendent and did not ask the City’s finance director for her thoughts on the agreement. Was Mr. Miller qualified to negotiate an agreement such as this?

The Arcadis Study would indicate that Former Administrator Miller was not qualified to negotiate the agreement.

How much did it cost the North Canton to have Arcadis tell you the very same thing I told you nearly four years ago? Finance Director Alex Zumbar has advised me that the Arcadis Water Utility Rate Study cost $18,500.

My study of the Aqua Water Agreement and public presentation of my concerns came at no cost to the City of North Canton.

My 2006 presentation was lengthy as I took great pains to detail the overwhelming shortcomings of the agreement. A few of the concerns I presented were:

Under the Aqua Ohio Water Agreement:
1) Water rate increases for Aqua Ohio were limited to a maximum of five percent yet future water rate increases for residential customers were as high as 7.1 percent.

2) Aqua was allowed until the thirtieth day of the month to pay their monthly bill and was subject to a late penalty of one percent (1%) per month if payment was late. At the same time, North Canton’s policy for residents regarding payment of water bills required payment by the fifteenth of the month and a five percent penalty for late payments.

3) There was a stipulation in the agreement stating, “If during the agreement, additional facilities are necessary for sale of water hereunder, such facilities will be constructed by the city.”

I never heard anyone ever ask what possible expenditures and at what cost to the City these expenditures would entail. I would like to know what additional expenditures the city has been required to spend in order to facilitate water sales to Aqua Ohio? Does anyone even know? Has this been tracked and how does this stack up against the pittance the city has received in water revenue from Aqua Ohio?

4) Aqua Ohio could tap North Canton water lines and extend water lines to service areas outside the city. There is nothing more devastating than a clause such as this for ending the growth and expansion of the North Canton water distribution water system.

The shortcomings of the water agreement with Aqua Ohio cover every aspect of the agreement. Four years I stated, “The Aqua Ohio water agreement is so patently unfair as to be nearly criminal.” The Arcadis Water Utility Rate Study validates my remarks in “spades.”

The very sad part of this situation is that this agreement has continued in effect for five years at great cost to the City and without any concern of Mayor David Held or City Administrator Earl Wise.

The losses to the North Canton water fund are quantified on page 2 of the Arcadis Water Utility Rate Study. In table 2, water sales in 2008 to residential and business customers total 22.3 percent of the total water sales for the year and resulted in revenue of $3,247,067. Water sales in the same time period (2008) to Aqua Ohio total 21.2 percent of total water sales for the year and resulted in revenue of $280, 388.

Nearly identical volume of water sales and yet the resulting revenue to the City is nearly $3.0 million less from sales to Aqua Ohio. These are not my figures but your very own consultant’s figures.

On page 6 of the Arcadis Study, the report cites the fact that the City of North Canton has sold water to Aqua Ohio in 2009 at a net effective sales rate of $1.52 per thousand gallons while at the same time, the total cost to collect and treat the water and pump the water into the distribution system was $2.20 per thousand gallons. The report concludes, “This would yield a net loss of $0.68 per thousand gallons.”

Is this an oversight? Is this ineptness? Who is in command of the city?

Mayor Held, I did attend your State of the City presentation. Why did I not see any commentary from you on the conclusions of the Arcadis Study presented in your State of the City speech?

Four years ago I noted, “The Aqua Ohio water agreement appears to totally ignore the City of North Canton’s production costs and how they are allocated.” The 2010 Arcadis Water Utility Rate Study remarks are similar.

Why did city leaders not look more closely into all of the concerns I presented in 2006?

Basing water rates on known water production costs for North Canton water users while at the same time ignoring those production costs when setting water rates for Aqua Ohio is unfair and financially perilous.

In addition, water users in North Canton have been subsidizing the profits of the nation’s largest U. S. based publicly-traded water company for the last five years.

In my 2006 presentation, I calculated that the City of North Canton was losing $7,254.57 per day in revenue as a result of the artificially low price of water sold to Aqua Ohio. In a year’s time, that equates to more than $2.6 million dollars in uncollected revenue under the Aqua water agreement.

Why is the bulk water rate charged to all other bulk water users not good enough for Aqua Ohio?

I believe it is safe to say that the City of North Canton has lost between $2.6 million per year (my projection in 2006), and $3.0 million per year, (using figures from the Arcadis 2010 Study) since the Aqua Ohio agreement has been in effect.

Factoring in the five years that have elapsed since the contract was ratified results in a loss to the North Canton water fund of between $13.0 and $15.0 million.

Again I ask, why has this agreement not been challenged before now?

Where are our investigative journalists who truly report on the actions of our elected officials instead of parroting their propaganda?

The Arcadis Study states on page 6: “…the City may realize benefits by renegotiating agreements with Outside City Users, with specific emphasis on the Bulk Water Sales agreement with AQUA.”

The Arcadis Study continues “…the City is selling its water capacity at a rate of $1.65 per thousand gallons to AQUA while the current rate schedule for Outside City Business Accounts sells at a rate of $9.72 per 1,000 gallons.” An $8.07 per thousand gallon discount over other Outside City Business Accounts is unfair to those users and undermines the fairness and integrity of the rate structure set by the city for all waters customers of the city.

The argument in the past has been that the reduced water rate to Aqua brings in added revenue. Generating added revenue by selling a product below cost just to say we are bringing in added revenue to the city is not only illogical, it is also financially unsound.

The Aqua Ohio Water Agreement is a total failure. I urge this council to void this Aqua Ohio water agreement in its entirety without further delay and adhere to bulk water rates that apply equally to all.

Thank you,
Chuck Osborne
Resident, City of North Canton