Rate Realities (extended)

(extended article)

General Facilities Charges

General Facilities Charges (GFC’s) for both water and sewer are fees paid for connecting to the system. GFC’s are typically collected from builders or developers through Developer Extension Agreements (DEA’s) who then recoup the expense from the homebuyer at time of sale. They are separate from service rates. Neighborhoods can also form Utility Local Improvement Districts (U-LID’s) to petition the District to construct and connect sewer conveyance to the system, paying an assessment at time of connection. These are the primary ways we implement our “growth pays for growth” policy.

Water Rates

There are two components of water service rates. The base rate for single family residential ratepayers is the customers’ share of the cost to maintain and provide the facilities – pumps, pipes, reservoirs, etc. – required to deliver water to the meter. This rate is fixed and appears as a separate line item on the bi-monthly billing statement. It includes maintenance and operations expense, debt service on capital construction financing and administrative expenses. The consumption charge is for actual water usage computed in units of hundred cubic feet (HCF on your statement). A hundred cubic feet is equivalent to 748 gallons and the average bi-monthly residential consumption is approximately 8-10 HCF. Per unit rates are higher in summer months because consumption is significantly higher. You may see two consumption line items on your statement for the billing cycle during which seasonal rates transition. We hope to encourage conservation since the price we pay for water from our supplier – the city of Everett – is dependent upon a formula based on our peak usage (summer consumption is much higher) compared to average usage. It benefits us all to minimize summertime spikes.

Purchased water is a major expense component. We have recently concluded a lengthy contract negotiation with Everett for a 50 year water supply agreement. This new contract ensures stability for many years to come. The favorable result of the negotiations combined with lower than expected rates we obtained for construction financing enabled us to reduce planned water rate increases for 2011 and 2012 from 14% to 5%.

Sewer Rates

Our sewer rates are driven by flat fees established in contracts with King County METRO and the City of Everett. Our contract with King County expires in 2036 and the agreement with Everett expires early in 2020. Approximately 74% of the sewer charge appearing on your statement is a flat fee ‘passed through’ directly from the treatment processor. The balance covers overhead specific to Alderwood operations. Sewage treatment is our major expense component. It represents 30% of our total operating budget.

I have frequently lamented our participation in this arrangement, but the roots of our current wastewater treatment situation germinated nearly 50 years ago. For more on this subject, please see “Perspective”.

Some Historical Perspective

Alderwood Water District was established in 1931. We have grown over the years to be the largest special purpose water and sewer district in Washington State. We are responsible for over 1000 miles of pipe, dozens of pumps and lift stations, several reservoirs, a secondary sewer treatment facility and the attendant accoutrements for all of them. Our annual operating budget has reached $60M and the Capital Improvement Plan has identified projects valued at over $150M. Every asset has a finite life cycle and many of our assets are aging and near or past the end of their service lives. In this challenging economy sensitivity to rising costs is heightened. Many of us are struggling to make ends meet. Our Board does a comprehensive rate analysis every 3 years. In addition to the lousy economy a complicating factor in recent years has been our awareness of the neglect that has occurred in years past. Some agencies make a habit of deferring necessary capital replacement projects in order to keep rates artificially low. This practice creates a false sense of rate stability and increases probability of catastrophic service failure. Unfortunately deferral was Alderwood policy throughout the 1980’s and into the 1990’s. The reality is that continuing to delay necessary upgrades/replacements is an increasingly risky proposition. We have been playing “catch-up” and we are making headway but it is a large, complex challenge that will require time and resources, including all the attendant rate impacts, well into the future. The rate increases in recent years are largely attributable to the current costs of overcoming the neglect of the past.

One factor affecting Alderwood activities is the challenges posed by Mother Nature’s strongest force – gravity. In a topographically diverse area like ours, gravity is not always our friend. Moving water and sewage uphill requires pumps and pipes that are more expensive to construct and that are more expensive to keep operational. Pumps and lift stations have moving parts that fail or wear out and pressurized mains are more prone to failure. We attempt to take advantage of gravity but sometimes circumstances demand more costly solutions.

I think we need to maintain policy that encourages effective application of resources to sustaining critical water and sewer infrastructure. I believe responsible stewardship demands a balance between low rates and necessary infrastructure integrity. I have worked diligently to keep rates low while ensuring that critical infrastructure maintenance is performed effectively. Early in my tenure as Commissioner, we were evaluating the Sewer Comprehensive Plan (review and update required by statute every 5 years) preliminary report. Four options were outlined in the report for how to handle our wastewater services. I have philosophical concerns about hitching our metaphorical wagon to another agency’s horse – especially one based outside our county and without electoral accountability. At my request, the report was revised to include analysis and presentation of the possibility of Alderwood constructing and operating a facility capable of treating all of our own waste. It turned out to be cost-prohibitive, greatly outstripping our ability to finance it, but we now have documented evidence to support the conclusions that our Board ultimately – and reluctantly – arrived at.

Can you say,”Brightwater?” More on the sewer situation.

The genesis of Alderwood’s relationship with King County occurred decades ago.

The District was originally incorporated as only a water district. In the 1960’s as the area began to transition from a rural, farming community into the growing suburban and commercial region it is today, the Washington State Department of Health (DOH) encouraged the District to add wastewater services to its operation. The Commissioners during that era were reluctant (maybe even resistant) to expand into sanitary sewer processing, sparking elevating pressure from DOH. Eventually, the Picnic Point Wastewater Treatment Facility was constructed in the early 1970’s and enlarged a few years later. Picnic Point was never intended to treat all or even most of the wastewater generated in the District even though the District was not nearly as large as it is today. The original WWTF was a minimal effort to mollify DOH and it was constructed with virtually no consideration for future requirements. Today, we treat roughly 20% of the District’s daily wastewater flow at Picnic point. We are currently constructing a state-of-the-art secondary treatment facility that will treat 4 million gallons of sewage per day – a 33% increase in capacity over the facility replaced – when complete next year. And we kept our promise to future ratepayers by designing in capability for expansion to 6 MGD when needed.

About 10% of AWWD wastewater is conveyed to the city of Everett for treatment. The remaining 70% is treated by King County. Because of the prevailing attitude toward the sewer business in the 1960’s, Alderwood entered into a long-term arrangement with METRO, now King County Department of Natural Resources and Parks (KCDNR), for wastewater treatment by King County. As a result, we are paying the price today for shortsighted policy-making that occurred decades ago. And – like it or not – the new Brightwater plant will be treating our wastewater.

One option appearing attractive at first glance would be to renegotiate the existing agreements. There are ticklish political issues associated with renegotiation. Expensive legal counsel, the near absence of bargaining leverage and the potential for unintended adverse consequences it is difficult to devote valuable ratepayer resources to activities unlikely to yield significant benefit.

Reality Check

Now, let’s talk numbers. Rates have risen. However, a look at a chart comparing Alderwood rates to other agencies in the area reveals that Alderwood rates are very competitive. They are generally at or below the regional average. I/we have labored to minimize the effects of increased operational costs on rates. Our practice has been to balance adjustments over several years to eliminate large spikes in the hopes of mitigating impact on ratepayer wallets. A realistic expectation is that like everything else, rates ought to rise at about the same rate as inflation. Since 2001, the Consumer Price Index (CPI) for the Seattle area has gone up roughly 27% (Source: Bureau of Labor Statistics Consumer Price Index [CPI-U] updated June 15, 2011). The difference between the CPI and the rate of increase in Alderwood rates is directly attributable to the costs associated with playing catch-up, both here in Alderwood and at King County.

During periods of no rate growth, the costs of maintaining operations continue to accumulate. Failure to address ongoing requirements does not eliminate expense or rate increases. It only delays the inevitable and makes the fix more expensive and the decision to act much more painful.

Summary

I believe we are better off in control of our own destiny. In a perfect world, I believe we would be sourcing all of our own water and treating all of our own wastewater. And I am very confident in our organization. Sensitivity to and responding to customer concerns is a high priority.  Recent improvements to our billing processes, website access and content, the GIS system (computerized records critical to construction activities), and many others are directly the result of input from customers. Customer input is a crucial aspect of our Strategic Planning process.

I think it is important to recognize that while rates are a critical aspect of District operation, rates are only part of the picture. AWWD is essentially a Maintenance and Operations (the ‘pumps & pipes’ guys you meet in the field) organization with Engineering, Admin and Finance providing vital support. Our object is to meet the highest service standards while keeping rates moderate and competitive. We must generate enough revenue to sustain the operation and rates are one source of revenue necessary to fund activities.

I am not a politician. I am not adept at spinning facts for political advantage. I have no political aspirations beyond my service to Alderwood ratepayers and I do not regard my service as a Commissioner as a stepping stone to higher office. I seek no contributions from special interests. I have tried to never lose sight of my commitment to excellent service and high standards of performance nor do I take our responsibilities to future ratepayers lightly. I prefer to focus on real issues and the whole picture. I believe the whole truth here is that Alderwood Water and Wastewater District is well run and I am proud of my contribution to our success. I very much appreciate the opportunity to serve granted to me. There is much work in progress that I wish to complete. I hope I have earned trust from ratepayers to accomplish that goal.

Larey McLaren
Alderwood Water Commissioner, 1999 to 2001; 2005 to present

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