Agenda - 06-12-2007-3d - Laserfiche WebLink

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2 Much of OWASA's infrastructure is several decades old. To ensure reliable and high quality water and sewer service to all our customers, it is essential to continue the ongoing program of system rehabilitation and replacement. Without it, OWASA's customers will face more service interruptions, more leaks, greater expenses, and declining quality of service. As a matter of basic fairness to OWASA's present customers, it is necessary to spread the cost of capital improvements over many years so that future customers who will benefit from these long-lived assets bear part of the cost. Like cities and counties, OWASA therefore finances a significant portion of its capital program with long-term bonds. OWASA's customers' demand for water declined significantly after the drought of 2001-02, . and use has not returned to pre-drought long-term projections. The associated resulting decline in revenue has detrimentally affected OWASA's fiscal performance. OWASA now needs to take action to restore its debt service coverage ratio that has declined from the historic 2.0 level to 1.5 during Fiscal Year 2005-06; not only to sustain OWASA's favorable bond rating but, more importantly, as a measure of fiscal prudence. OWASA's rates and fees must also ensure adequate funding for its operation and maintenance needs. Increasingly stringent treatment standards, escalating energy and material costs, and other factors are all contributing to upward pressure on~OWASA's rates and fees. Although the combined increase in monthly water and sewer rates is proposed to be 9.5%, OWASA wants to emphasize that the proposed water rate increase is limited to 6.25%, (similar to adjustments in recent years), and the proposed monthly sewer rate increase is 13.75%. The latter reflects costs including debt service for the $50+ million Mason Farm Wastewater Treatment Plant (WWTP) improvements (now nearing completion) to improve the reliability and performance of the treatment processes and to eliminate odor. The WWTP upgrade also makes possible the reclaimed water project with the University, without which future water needs would require major investment. 2. How should OWASA raise funds to meet the community's water and wastewater needs OWASA's rates and fees are founded on three primary principles. First, in accord with OWASA's 1976 Agreements of Sale and Purchase with the Towns of Chapel Hill and Carrboro and the University, it bases rates, fees and charges on cost-of- service principles. Underlying this policy and contractual requirements is the basic concept that the people who benefit from a service should pay for its cost. Second, growth should pay for growth. The proposed increases in OWASA's water and sewer service availability fees are based on this concept as well as the corollary cost-of- service ratemaking requirement. OWASA recognizes that the increases in the sewer availability fees are significant, and emphasizes that these fees properly reflect the $50+ million of improvements at the WWTP and other sewer system improvements.