Council Shuts Off Water Rate Increases

The City Council, responding to charges of “artificially inflated” rates and soaring profits in the city’s water division, Monday took the first step toward sharply lowering prices for consumers.

The council directed city staff members to draft a resolution imposing sweeping changes on the city’s water rate structure. The revisions, which require council approval, would slash profits of the water division by nearly $200,000 this fiscal year.

Beginning March 1, rates of the division’s 8,064 customers would be reduced by from 3.2% to 32%.

The changes were a victory for the council-appointed citizens committee that studied the water system and last week issued a report sharply criticizing rate-setting methods.

The committee recommended across-the-board cuts and the elimination of the city’s four-zone system, in which residents at higher elevations pay more for their water. The council unanimously agreed on both points. Residents living at higher elevations would get the biggest rate cuts.

“We’ve cut through a whole bunch of bureaucratic mumbo jumbo,” said Councilman Gary Coffey, describing Monday’s action as a milestone for the city. “The pricing structure before was (not understandable).”

Mayor Bob Low, who has called the rates “blind price gouging,” said the water division’s profits last year were unreasonable. In 1988-89, the division posted profits of $510,090, up from $52,083 the previous year and $8,014 the year before that.

The council had approved rate increases in September. But members said Monday that they were unaware of the water division’s skyrocketing profits until the council-appointed committee released its report last week.

“We were told of increases in water and electricity rates,” said Mayor Pro Tem Tom O’Leary. “If I had been advised of (the profits) I would have had more serious thoughts about raising the rates.”

Under the revised system, the division’s profits this year would be $327,766, based on average annual sales of 7,100 acre-feet of water, committee member Don Chadwick said. One acre-foot equals about 326,000 gallons of water.

Elimination of the four zones, coupled with reductions in the commodity rate charged for water and the cost of pumping it, will result in savings for the average consumer of $1.31 to $31.98 per two-month billing, according to the report.

Currently, water bills are partly based on a commodity rate that varies from 75 cents to $1.20 per 100 cubic feet of water used. The new flat rate approved by the council Monday would be 68 cents per 100 cubic feet. One hundred cubic feet equals 750 gallons of water.

Although Councilman Henry Morgan voted for the changes, he later expressed reservations.

“To reduce our earning power by that much doesn’t make good business sense,” he said. “We can use all the money we can get legitimately. Some main (water) line will blow and we won’t have a major reserve” to fix it.

As of June last year the water division had cash reserves of about $736,000, city Finance Director Stan McCartney said.

O’Leary countered that because the city’s water customers have no choice in selecting a utility, the city should not seek huge profits. “I have a problem with making money off an essential city service,” he said.

The council also said it would assume direct responsibility for all water-rate adjustments under a 1987 rate-setting resolution. Such power now rests with the city manager, who recommends rate increases or decreases, which then usually are routinely approved by the council.

However, the council steered clear of discussing one of the biggest complaints in the citizens committee report: that city officials were “artificially inflating” water rates by improperly using both the consumer price index and water-electricity costs to justify increases.

The 1987 resolution passed by the council said officials could use one or the other: “The city manager is authorized to automatically increase the rates based on the annual increase in the consumer price index or the periodic increase in water or electricity costs.”

The city acted “contrary to the resolution’s specific language” by considering both factors in calculating rate increases in 1988 and 1989, the report said.

Low and O’Leary said officials in the future will follow the letter of the law.

“Even though the language could have been misinterpreted, it was not intentional,” said O’Leary, who joined the council in 1988. “Certainly it will be or from now on.”

But others, including Morgan and City Atty. Charles Vose, said the council’s original intent in passing the law was to allow the city manager to use both factors.

The council is scheduled to vote on the package of rate changes when the resolution is presented Feb. 12.