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

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Proposed Water and Sewer Rate Changes and Increases May 8, 2007 Page 2 Much of our infrastructure is several decades old. To ensure reliable and high quality water and sewer service to all our customers, it is essential to continue our ongoing program of system rehabilitation and replacement. Without it, we will face more service interruptions, more leaks, greater expenses, and declining quality of service. As a matter of basic fairness to our present customers, we need 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, we therefore fmance a significant portion of our. capital program with long-term bonds. Our 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. We now need to take action to restore our 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 our favorable bond rating but, more importantly, as a measure of fiscal prudence. Our rates and fees must also ensure adequate funding for our operation and maintenance needs. Increasingly stringent treatment standards, escalating energy and material costs, and other factors are all contributing to upward pressure on our rates and fees. Although the combined increase in monthly water and sewer rates is proposed to be 9.5%, we want 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 (W WTP) improvements (now nearing completion) to improve the reliability and performance of our 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 our 1976 Agreements of Sale and Purchase with the Towns of Chapel Hill and Carrboro and the University, we base our 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 our water and sewer service availability fees are based on this concept as well as the corollary cost-of-service ratemaking requirement. We recognize that the increases in the sewer availability fees are significant, and we emphasize that these fees properly reflect the $50+ million of improvements at the WWTP and other sewer system improvements.