Monday, May 10, 2010

Aqua Water Agreement Exposes North Canton to Risks and Is Unfair to Citizens

Prepared Comments Made to
May 10, 2010

Two weeks ago, I remarked to this council that if the water production costs detailed in the Arcadis Water Utility Rate Study were accurate then practically all the water being sold by North Canton is being sold at a loss.

The Chairman of Water, Sewer & Rubbish responded that water sold in the city at $4.60 per thousand gallons did not cover all the costs of water production. The Arcadis water study shows that in 2008 water consumption inside the city amounted to nearly 57 % of the city’s annual water sales.

Is it a fiscally prudent policy to sell more than half the city’s water below production costs? Shouldn’t all water customers be paying their fair share to ensure the water fund is financially sound?

Per the Arcadis study, in 2009 the city sold water to Aqua Ohio 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 yielding a net loss of $0.68 per thousand gallons or more than $124, 000.

A look at table 2 of the water study presents a graphic picture of the outcome of the city’s current water agreement with Aqua. In 2008, with nearly identical quantities of water sold to Aqua and to outside residential and business water customers, Aqua paid $280,388 as opposed to the $3,242,067 paid by outside residential and business water customers.

Why was Aqua allowed to pay nearly $3.0 million dollars less than other water users for nearly the same quantity of water in 2008? What were the revenue shortfalls in the other four years that the present agreement has been in force? No one in the city has offered those figures for review. This is not a pretty picture for the North Canton water fund.

Under the renegotiated water agreement that is to be voted on tonight, Ordinance No. 33-10, water rates charged to Aqua will be increased to $3.60 per thousand gallons.

This raises the following question: If water rates of $4.60 per thousand gallons to city residents, admittedly, do not cover the cost of water production, why would you want to enter into an agreement to sell water at a lower water rate of $3.60 to Aqua?

Water sales to Aqua Ohio accounted for slightly over 21 % of the city’s annual water sales in 2008. If city water sales amounting to 57 % of total water sales are sold, at $4.60, admittedly below costs, and 21 % of water sales to Aqua are sold at $3.60 per thousand gallons, couldn’t one conclude that the city is selling as much as 78 % of its water at a loss?

What are the city’s water production costs?

According to the Arcadis study, total water production costs per thousand gallons vary widely from year to year for North Canton. The study shows that the city’s actual total water production costs per thousand gallons in 2006 was $9.38; in 2007 $10.45; in 2008 $5.55. The study shows budgeted water production costs for 2009 were $7.28 and projects water production costs for 2010 at $5.74.

What are the city’s water production costs for water sold to Aqua? Should there be any difference in water production costs between water sold to Aqua and water sold to any other water customer of North Canton?

All of the water is processed at North Canton’s water treatment plant. The water is all treated the same.

The Arcadis water study, dated January 2010, notes that water production costs to Aqua are $2.20 per thousand gallons. A subsequent e-mail from Bob McNutt to council, dated April 21, 2010, titled Aqua Agreement Review, now states that water production costs for Aqua are $1.15 per thousand gallons.

As the water production cost figures seem to change for political reasons to justify the planned political agenda to ratify the new agreement tonight, I again ask for an independent auditing agency, preferably, the state auditor, to audit the entire water fund to give city officials and the public reliable data from which decisions can be made with confidence on how best to set water rates and water policy for the North Canton water system.

As for the renegotiated agreement that is about to be hastily voted on tonight, I believe the 3 % rate cap and ten-year term in the renegotiated agreement present great risks for problems for the city in the future.

The renegotiated agreement with a rate cap of 3% only benefits Aqua. Further, any rate cap, especially with a ten-year term presents great risks for the city. Economic forces are already in play in the United States and globally that could bring about inflationary pressure within the term of the agreement and burden the city.

What is highly illogical about the new rate cap is that your very own consultant, Arcadis, has recommended a higher rate cap of 4 % and the present agreement with Aqua has a rate cap of 5 %. Why are you subjecting the city to such a low rate cap?

At the very least, why can you not continue with the same rate cap of 5 % as is in the present agreement?

A rate cap of 3 % for Aqua will not even keep pace with the historical rate of inflation which is 3.2 %.

Lastly, I would like to say how disheartening it is to see elected officials show more concern for Aqua than the very citizens they are sworn to represent. I am talking about the residents of the Sanctuary who are served by Aqua for their water.

In recent weeks, Aqua has announced rate increases of 20 percent for its water customers which will include North Canton residents in the Sanctuary.

The renegotiated water agreement limits rate increases to Aqua to a cap of 3 % yet Sanctuary water customers have no such protection on rate increases from Aqua.

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.

I would ask that before ratifying the renegotiated water agreement that equal protection from rate increases as afforded to Aqua be included in the water agreement for Sanctuary residents.

If that cannot be done, then I would urge you to not proceed with passage of the water agreement as the water agreement exposes North Canton to risks and is unfair to citizens.

Thank you,
Chuck Osborne
Resident, City of North Canton