Archive for Thursday, June 8, 2006

Water spigot

Significant revenue boost needed to pay for water utility upgrades

June 8, 2006

No matter what long-term water option the De Soto City Council chooses the city's water department will need a substantial revenue boost starting next year, a fact that almost certainly will require rate increases.

In the latest report from the water facilities master plan Burns & McDonnell is conducting for the city, consultants with the firm compared needed revenue to the capital requirements and operating costs of the five different options being considered.

Depending on the option chosen, the city would spend from $5.3 million to $15.9 million in the next two to three years, mostly in up-front capital investments. Those capital costs will drive the need for additional revenue in 2007 of from 50 to 160 percent and almost certainly necessitating rate increases.

"You have cost right off the bat," said Burns & McDonnell principal Ted Kelly, while presenting the financial analysis last Thursday to the council.

Just what customers will see in rate increases is yet to be determined because the council has flexibility about how to structure those increases. The council could spare its residential customers some of the pain by increasing the price of the wholesale water it sells to other water utilities or by hikes in its system development fee charged to new construction. It could also implement a sliding rate structure that charges big users more than most residential customers, a method adopted with the city's 2003 water rate increases.

City engineer Mike Brungardt said the council could also backload debt with the expectation growth would provide more customers to help with future annual payments. The retirement schedule of bonds for the new sewer plant is structured in that way.

In an earlier report, the consultants recommended the city not consider refurbishing the water treatment facility at the Sunflower Army Ammunition Plant, which would cost $10.2 million if the plant supplied only De Soto and $14.3 million if it supplied rural water districts and future Sunflower growth. The revenue report gave support to that recommendation.

Renovating the Sunflower plant to serve De Soto's needs would require a 46 percent increase in revenue for the water department in 2007, a 24 percent increase in 2008 and a 70 percent revenue hike in 2011.

Rehabbing the Sunflower plant to serve De Soto and regional customers, including future Sunflower development, would require a 160 percent revenue boost in 2007, the report finds.

Also, the report finds an overall revenue increase of 88 percent (50 percent in 2007, 18 percent in 2008 and 20 in 2011) would be needed if the city built a new plant to serve just its needs. A new plant that would serve De Soto and area rural water district would require an 80 percent revenue spike in 2007.revenue in 2007 and 2008 to pay for the water line and improvements needed to purchase water from the city of Olathe. Purchasing water from Olathe is estimated to have the smallest capital cost, requiring the city spend $5.3 million by 2010.

Despite the higher costs associated with a new plant, Council members Tim Maniez and Ted Morse indicated early support for taking such action. Maniez compared the city putting its water needs in another utility's control to America's dependence on foreign oil.

"They've said for years water is going to be the next big commodity," he said. "It's like bringing in oil from Venezuela -- you hope they are going to treat you right."

Taking a different view, Councilwoman Linda Zindler said the new plant scenarios assumed the city would provide water to its growth area to the south and west, now served by Johnson County Rural Water District No. 6. She wondered if De Soto could count on providing water to RWD 6, future Sunflower development or any customer considering Burns & McDonnell's earlier report found the city could distribute water it purchased from Olathe at $3.90 per 1,000 gallons while it would spend $6.32 to produce that amount.

Olathe and Johnson County Water One operate 40-million-gallon-a-day plants that allow them to take advantage of economies of scale to produce water much cheaper than the 8-million-gallon-a-day plant De Soto would build, Zindler said.

For its next discussion in July, council members agreed they wanted an indication of how much the city would have to charge wholesale customers, possible rate structures of the different scenarios and how a new water plant of the type recommended would affect the sewer plant.

That last concern was brought to the council's attention by city sewer department head Doug Smith, who pointed out the reverse osmosis water plant of the kind the consultants recommend would discharge hundreds of thousands of gallons of water a day into the new sewer plant, decreasing its capacity.

Although he agreed to study the concern, Burns & McDonnell engineer Jeff Klein said the Kansas Department of Health and Environment might allow discharge into the Kansas River or its injection of water into shallow wells.

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