Monday, April 26, 2010

North Canton Should Rethink City’s Water Policy and Restructure Water Rates

Prepared Comments Made to
April 26, 2010

North Canton’s current water rate structure has become outmoded and is counterproductive in serving the needs of its customer base and in generating needed revenue to pay down the indebtedness of the water fund. I say this because there are some puzzling questions that arise as one studies the city’s water rate structure.

First, why do water rates increase as consumption levels increase for all water users except Aqua Ohio? Wouldn’t this tend to discourage water consumption by these water users who are paying higher water rates than Aqua? If anyone is unfamiliar with the city’s water rates, I should refresh your memory. Residential users, inside the city, pay $4.60 and outside $8.66 per thousand gallons for the first 15,000 gallons of water. Water usage above 15,000 up to 30,000 gallons rises to $5.27 inside and $9.28 outside.

Why does the city discourage higher levels of consumption for residential users who are already paying considerably more than any rate you ever expect to charge Aqua Ohio or any other bulk user? If your goal is to sell more water and bring in more revenue, the current rate structure is counter-productive and limits revenue for the water fund.

Inside and outside residential and business water rates need to be restructured to facilitate greater revenue to the water fund.

Before the city expanded its raw water capacity and its processing production, I surmised that the rate structure was designed to discourage water consumption and stretch limited water resources. The present water agreement with Aqua Ohio seems to indicate that raw water capacity and processing capacity are now of no concern to the city. If that is entirely true, water rates need to reflect that change in policy.

What is the goal of the city’s water policy? Do we want to encourage consumption or discourage consumption? Are you trying to ration limited resources? Water rates affect people’s behavior and thus consumption.

In regards to the Aqua Ohio water agreement, I must ask why the city wants to exhaust the newly added capacity of our water system? To promise two-thirds of the city’s newly added capacity in one gulp could find the city over-committed on water sales when it least expects it and long before the indebtedness of the water treatment plant is paid down?

My second concern regarding the city’s water rate structure is the bulk rate charged to Aqua Ohio of $1.52 per thousand gallons. This water rate defies logic when looking at water rates for all other businesses.

Prior to water sales outside the city, a bulk water rate applied only to bulk sales in the city. The bulk water rate charged to a high-volume business in the city supported jobs in the city from which the city received added income to the general fund in the way of income taxes. Selling water outside the city at a hugely discounted rate in bulk returns nothing to the city’s general fund. There is no added benefit for the city.

The city is not supporting jobs by selling water in bulk to Aqua Ohio. Why is the city interested in such an arrangement?

Clearly, bulk water rates outside the city should be looked at and priced much differently than bulk water rates inside the city.

At last weeks Council of the Whole meeting, the latest draft of the new water agreement with Aqua Ohio limited annual rate increases for Aqua to 3 percent per year for the ten-year term of the agreement. That proposed commitment to Aqua is just as fiscally imprudent as promising all remaining rate payers that same promise.

If you cannot make that same commitment to your constituents who vote for you and the citizens who are responsible for the indebtedness of the bonds on the water treatment plant, why would you make a commitment to Aqua Ohio, a public utility whose only interests are its water customers and its stockholders?

Whose well-being and interests are you putting first?

I would urge this council to table any further action on the Aqua Ohio water agreement until a complete assessment of the city’s water rates is completed and new rates are implemented.

Further, I would like to encourage the city to look closely at the city’s water production costs on page two of the Arcadis Water Study. The city’s water production costs are all over the board, ranging from a low of $5.55 per thousand gallons to $10.45 per thousand gallons. Wide fluctuations in water production costs as detailed by Arcadis are not reality. If these figures are true, practically all water being sold by North Canton is being sold at a loss.

It is common knowledge that water funds must be kept separate from all other fund accounts as water is an enterprise fund. In order to have accurate information on water production costs, only actual expenses directly related to water production should be allocated to water costs.

Rumors abound from several sources that the current administration is using creative budgeting and bookkeeping to charge the water fund a percentage employees payroll expenses to the city’s water fund. I fear something is going on as water production costs in the water study vary wildly and are clearly excessive.

Drinking city water out of a city water fountain does not warrant charging that employee’s expenses to the water fund. I have heard these reports from several reliable sources. If these reports are true it is very unfortunate. Fiscal crisis is apparently leading to desperate actions on the part of the administration.

Creative accounting is simply going to lead to confusion and disaster and put the water fund in the same fiscal crisis that we now are facing with the city’s general fund.

I would urge that an independent auditing agency, preferably, the state auditor audit the entire water fund to give city officials and the public reliable data from which future decisions can be made with confidence on how best to set water rates and water policy.

Thank you,
Chuck Osborne
Resident, City of North Canton

Monday, April 12, 2010

Economy Provides North Canton Opportunity to Undo Inequities of Aqua Ohio Water Agreement

Prepared Comments Made to
April 12, 2010

The City of North Canton has negotiated many agreements in the course of conducting the public’s business but, unfortunately, many of those agreements have resulted in financial loss for the taxpayers of North Canton. Some of these agreements that have lead to financial loss are the agreement to lease Arrowhead Golf course to Kevin Larizza and the option agreement to purchase twenty plus acres of swamp land on the east side of town from the Crowder family.

The Cooperative Economic Development Agreement (CEDA) agreement for the Sanctuary is another negotiated agreement that has resulted in financial loss for the City of North Canton. In that agreement, no one in the city bothered to negotiate any concessions on behalf of the City. There were three signers to the agreement, Plain Township, City of North Canton, and McKinley Development Company. In the CEDA, Plain received assurances that North Canton would not pursue further annexations for a period of three years. McKinley Development received a less cumbersome annexation process.

But what did North Canton negotiate for itself in its 2003 CEDA agreement? Nothing!

North Canton could have negotiated the water distribution rights to the Sanctuary if city
leaders had negotiated a CEDA that benefited all parties to the agreement but the city did not do so.

The present water agreement with Aqua Ohio allowing Aqua to serve the Sanctuary is another agreement that has cost the city dearly. Rushed through city council in 2005 on an emergency, the water agreement has led to the sale of water at below cost for five years, resulting in millions of dollars in revenue losses.

Luckily, for the City of North Canton, the unforeseen downturn in the economy has a silver lining for North Canton. The build out of the Sanctuary of nearly 206 homes as well as other planned development has not happened and is not likely to happen in the foreseeable future.

Aqua does not want to be committed to a required minimum purchase of 500,000 gallons per day which increases to 600,000 gallons per day beginning May 1, 2010. Paying for water, even when North Canton has discounted the water price at less than North Canton’s production costs, is an expense to Aqua when it does not take delivery of the water. Aqua does not want to continue in this fashion.

North Canton may not be accountable to its citizens for financial losses resulting from water sales but Aqua Ohio is accountable to its shareholders for operational expenses and the bottom line.

Any renegotiated water agreement with Aqua needs to be handled with due diligence and a study lest this city find itself again on the losing end of another agreement.

Aqua Ohio is Ohio’s largest investor owned water utility. Their parent company, Aqua America, Inc., is the nation’s largest U. S. based publicly traded water company. Neither company is responsible for the millions in debt owed by North Canton’s water fund. The rate payers and citizens of North Canton are responsible for these bonds on the water treatment plant.

The citizens of North Canton should not be enriching public corporations as has been the case with the current water agreement with Aqua Ohio.

Regarding the draft of the new water agreement, I have the following remarks:

One: Water rates charged to Aqua should be handled as any other BULK WATER user and subject to rate increases as any other water customer the city serves. Restricting rate increases to Aqua will add inequities to the city’s water rate structure as other water user’s rates are increased at a higher rate over time and create greater problems in the future.

Two: The water rate charged to Aqua should take effect as soon as the contract is ratified. Given that the Arcadis Water Utility Rate Study has documented that the city is selling water to Aqua below the city’s production cost, it is not financially prudent to agree not to raise Aqua water rates in the first year of the new water agreement.

Three: The ten-year term for the new agreement is not prudent and exposes the city to a great deal of uncertainty and financial risks. There is no benefit to the city for a long term agreement. A two or three year term would be much better and allow the city to weather an unforeseen financial downturn arising from water sales.

Four: Reserving 2.0 million gallons per day (mgd) for possible sale to Aqua is an unfair provision in the agreement. In effect, Aqua is asking that North Canton provide the basis for Aqua’s future growth of water sales at the expense of the citizens of North Canton.

Five: Monthly billing, late payments, and penalties for late payments should be brought in line with North Canton’s policies that are presently in effect for all water users.

I ask city leaders to look closely at all aspects of any agreement and understand the agreement you ratify. North Canton must negotiate agreements in the future with a keener mind. The city cannot weather too many more financial boondoggles and giveaways.

You must negotiate agreements like it is your money. The city does not have the funds to pour down the drain as has been the case in the past.

North Canton must do better.

Thank you,
Chuck Osborne
Resident, City of North Canton