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King George Service Authority looking to revise rate structure

The King George Service Authority Board of Directors met last week on April 18 for a work session to review suggestions for revising the rate structure for water and sewer customers.

Another special meeting is scheduled this week (following our press time) on April 24, to talk some more on the same issue, with the need looming for decisions to be made.

The King George Service Authority board is composed of the members of the Board of Supervisors, with Cedell Brooks the chairman, along with Dale Sisson, Joe Grzeika, John LoBuglio and Ruby Brabo.  Chris Thomas is the PSA General Manager, Travis Quesenberry is the County Administrator, and Donita Harper is

Deputy County Administrator/Director of Finance.

Also present at last week’s special meeting was Kyle Laux of Davenport & Associates, LLC, along with Ed Donahue and Eric Callocchia from Municipal & Financial Services Group (MFSG).

Davenport had previously devised a five-year plan that has been in effect to gradually raise water and sewer rates to make the Service Authority self sufficient, and to no longer need money transfers from the county general fund. The plan has also included restructuring of Service Authority debt to save money on interest payments.  

The recommendation for a rate study by experts was made to the Service Authority board at a budget work session on Feb. 15 by Laux and David Rose from Davenport.

CUSTOMER COMPLAINTS
But the current rate structure has spawned numerous customer complaints by those with both sewer and water service about being charged for the same amount of usage for sewer as for water. Only water usage is metered, with sewer usage based on water metering.

Brabo has helped lead the charge to restructure rates, first as a resident and now as part of her agenda as an elected member of the Board of Supervisors, who also sits on the Service Authority.

The current rate structure is viewed by some as unfair. That’s because customer sewer charges include the water used for such things as washing cars and watering lawns and gardens.

There are also some customer complaints that those with high water usage should be charged higher rates.

MFSG was called in earlier this year by Davenport with the board’s concurrence to provide an in-depth rate study with options to restructure rates so customers will view them as more fair and equitable, while still keeping them in line with industry standards for best practices.

USER FEES MUST MATCH COST OF OPERATIONS
No matter what rate structure is used, enough money must be raised through user fees to support the costs of operations.

One thing is clear - rates must be raised to bring in more money beginning with the July billing.

Raising rates requires an advertisement at least 60 days prior to the increase, that provides for a public hearing. That means a decision must be made soon on what to advertise.

The board discussed whether it was ready to make a decision to restructure rates for the coming year, wait six months, or wait until July 2013. A decision must be made soon.  

RATE RESTRUCTURING COULD COME LATER
At last week’s meeting, the board discussed the idea of raising rates as originally planned, with a proposed increase of five percent for water and 10 percent for and sewer.

That would allow whatever new rate proposal model is selected to be run and studied concurrently with the existing usage fees and costs that occur over the next several months or longer, to ensure that the model fits the King George Service Authority system and would generate enough money to cover expenditures, if put into place.
Various rate options were discussed that would be more fair to customers. MFSG took into account current and future forecasts for operations and maintenance costs, with an eye to comparisons with rates for nearby localities.

That included an in-depth look at actual 2010-11 customer usage and charges, current year budgeted operating and maintenance expenses, the existing debt repayment schedule, five-year Capital Improvement Plan, along with projections for personnel expenses based on a variety of indices.

PERCEPTION PROBLEM WITH BI-MONTHLY BILLING
One problem is that Service Authority customers often compare average bills with nearby localities that bill on a monthly basis, forgetting that the Service Authority billings are bi-monthly, coming only six times per year, not 12.
That perception is hard to overcome with some customers. But the Service Authority board does not appear to want to increase costs by going to monthly meter reading, billing and mailings.

There likewise seemed to be no desire to cause customer confusion and incur only the costs for monthly billings and mailings that are possible with estimated usage billing every other month.

VARIOUS OPTIONS FOR RATE RESTRUCTURING
Various options to restructure rates were put on the table. Those include a tiered structure, which involves charging higher rates for those with higher water usage. Usage blocks would need to be decided and set by the board.

One method might be to charge one amount until 6,000 gallons is used, then a higher rate over that amount of water usage. That could result in some low-end water users seeing smaller bills than now, with those using more water paying a premium for higher consumption.

Concurrent with a tiered water rate, there was discussion about restructuring the rates for sewer usage, such as capping each household’s sewer rate at its winter usage rate for water.

The board needs to also consider whether to change and/or cap its current fixed fee for debt service.

POLICY CHANGES AND FUTURE RATE ADJUSTMENTS
MFSG also recommended that board decisions to be made in future years should include policy changes in regard to the amounts needed to have on hand for operating and maintenance reserves.

It was recommended that reserves should not be too large, but large enough to cover routine repair costs and some upgrades.

Once rate restructuring takes place, whether sooner or later, the rates should still be expected to continue to go up two to three percent each year to cover the likely increasing costs for electricity, chemicals, gasoline, and future salary increases.

It’s a delicate balance. The idea is for the Service Authority to have enough revenue to operate and break even, including amounts for reserves for maintenance and future upgrades.

BACKGROUND
For the last several years, the Service Authority has had steady annual increases in user fees and charges for new connections. Up until 2009-10, the hikes matched the inflation rate as measured by the composite index.

But beginning that fiscal year, the usage fees were bumped a little higher than the composite index and the charges for debt service were restructured to a flat fee arrangement. Also that year, Davenport offered a five-year plan with recommendations that included specific annual rate increases designed to hopefully get the Service Authority on track to self-sufficiency.

Prior to that time, a portion of connection fees went toward funding the operating budget, as needed. That is not a sustainable way of doing business and that fact was really brought home when it became apparent in 2009 that the housing bubble had burst, when new connections fell drastically.

While the locality was growing, all revenue sources were on the rise, both for the county and the Service Authority with new utility connections. But when growth slowed to a snail’s pace and the number of utility connections dropped dramatically, Davenport was called in.

The idea is to inch up rates to where enough revenue is coming in from user fees to cover the day-to-day costs of doing business. That would eventually allow the Service Authority to set aside connection fees solely to fund upgrades, system expansion, and large maintenance emergencies, instead of that revenue going toward the operating budget.  

SERVICE AUTHORITY FACTS
The King George Service Authority is a small enterprise without the advantages of economies of scale provided to larger systems. It owns and operates 12 water systems and five wastewater systems.  It has about 3,600 customers, including both residential and commercial. About half the customers have both water and sewer service, with the bulk of the remaining being water-only accounts and only a few sewer-only customers.

The Service Authority board is composed of the members of the Board of Supervisors with that arrangement expected to continue at least until it is a operating on its own and in the black on an annual basis.

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