Archive for Thursday, November 15, 2007

Water rate increase panned

November 15, 2007

An almost $275,000 rate increase proposed by Basehor-based Suburban Water Inc., has customers outraged.

The small, privately owned public utility that serves about 1,408 customers in areas around Basehor and Tonganoxie made the request for the rate increase to the Kansas Corporation Commission back in May.

In its application, Suburban said the increase would help recover depreciation costs and interest on debt from funding the newly constructed $1.2 million water tank south of Tonganoxie. The rate increase also would cover normal operating and maintenance expenses, employee salaries and the contract the company has to purchase water from the Board of Public Utilities in Kansas City, Kan., which all have increased in past couple of years.

This is the second rate increase the company has requested in 20 years. A $60,000 increase was approved in 2005.

This increase, if approved, will provide an annual 37.3 percent increase in revenue for the company. Customers can expect the cost of a minimum monthly bill of 1,000 gallons to increase from $13 to $20, with the typical monthly bill of 7,000 gallons to increase from $46.78 to $63.98.

While the KCC staff already has recommended approval of the rate increase, Suburban Water customers were given the opportunity to ask questions and express their concerns at a public hearing Thursday evening in Basehor. Questions asked of KCC and Suburban Water staff ranged from water quality and pressure to details about how the need for the increase was determined. Suburban Water's auditor Greg Wilson explained that the need for an increase was determined by examining expenses and revenues in a test year. In this case, it was April 1, 2006 to March 31, 2007.

"The rate application was based upon cost the company has developed in a test year," Wilson said. "There are adjustments made in the test year, then that is compared to the revenue and the difference is what we need to make our expenses."

Commissioner Joseph Harkins stepped in during the second half of the public hearing to listen to customer testimony. Several of those in attendance agreed with and praised Basehor resident Jim Washington's testimony, which included a PowerPoint presentation, extensive research and spreadsheets created by Basehor resident John Flower.

"Water is absolutely essential for both physical and economic life and growth," Washington said. "The rates contemplated in this increase have the potential to cause significant hardship for some and to totally stunt the growth of Basehor and southeastern Leavenworth County."

The presentation showed several examples of how the rate increase would affect current residents and the area's ability to attract new residents and businesses. Two photos, one of Stranger Creek and one of the Mojave Desert were displayed with two different cost figures. Washington said water customers in Barstow, Calif., located in the Mojave Desert would be paying about half as much as Suburban Water customers at $31.67 compared to $63.98 if the increase were to be approved.

The proposed new water rates for Suburban Water puts combined rates in the Basehor area more than 30 percent higher than Seattle's combined rates and significantly higher than any other utility in the Kansas City metropolitan area, including the BPU, WaterOne and Kansas City, Mo.

Suburban Water has two water sources, water wells and water purchased from the BPU. The company pays approximately $1.80 per 1,000 gallons of water from the BPU. Current rates per 1,000 gallons after the initial 1,000 gallons is $5.63. Washington showed Suburban Water paying $1.78 per 1,000 gallons to the BPU making product mark up $3.85 for a gross margin of 68.4 percent. He said with his extensive business background, he has never seen a company with such a huge margin and one that does should be doing just fine.

"Any company in any business that can't make huge profits at 68.4 percent gross doesn't need a rate increase," he said. "They may need some other kinds of changes, but not a rate increase."

Washington said that Suburban Water claimed to be requesting the rate increase to recover only the depreciation and interest on the debt from the new water storage tank, not the cost. But, a spreadsheet created by Flower showed that they would generate much more than that.

"Mr. Flower's spreadsheet tells us that over the next several years, this rate increase will recover the cost of the facility, the interest on their note, and oh, about another $15 million on top of that."

Other customers also raised suspicions that the water storage tank was built with hopes to sell water to the city of Tonganoxie. Since that plan failed, their theory went, current Suburban Water customers are now paying for that mistake.

Suburban Water officials denied this claim, stating that the tank was built because the old one was inadequate due to rapid growth and was supposed to improve water quality and pressure.

Sabrina Valenta said the rate increase would be felt financially in her household, and with gas prices skyrocketing and the recent school bond issue passed, it would create an even bigger strain on the elderly and others who are on fixed incomes.

Washington echoed the thoughts of several customers when urged Harkins:

"Please deny this application," he said. "Leave us competitive with the development that is going to occur here so we don't get jumped over and so people on fixed incomes can afford to water their lawn more than once a year."

Washington also encouraged customers to contact the Citizens' Utility Ratepayer Board and ask that they represent the customers at the technical hearing next week, when the commission staff and Suburban Water will present their testimony to the KCC. While the hearing is open to the public, members of the public will not be permitted to testify.

Since Thursday's hearing, Washington has written a letter to CURB asking it to intervene in the case, but CURB staff attorney Niki Christopher stated in a return letter that CURB would not get involved due to time restraints, limited resources and the fact that the rate increase was much smaller compared to other cases they are currently dealing with in the state.

The Commission will make its decision some time after the technical hearing at 10 a.m. Tuesday, Nov. 20, in the first-floor hearing room at the KCC Topeka office. Officials said the commission was not bound to the staff recommendations and all testimony would be taken into account when making a decision.

Suburban Water customers are encouraged to send written comments referencing docket number 07-SUBW-1352-RTS to the KCC, Office of Public Affairs and Consumer Protection, 1500 SW Arrowhead Road, Topeka, KS 66604 or public.affairs@kcc.ks.gov. They will be accepted through Nov. 21.

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