Archive for Thursday, January 24, 2008

Water rate hike spurs discussion of department’s future

January 24, 2008

Faced with the prospect of a series of water rate increases, the De Soto City Council has decided to explore purchasing wholesale water as an alternative to continuing to operate the Sunflower water treatment plant.

The decision to again look into purchasing water from an outside source came as the council considered City Administrator Pat Guilfoyle's proposal for an immediate 3 percent increase to the city's water rates. That would be followed by 3 percent increase in July.

Moreover, additional increases of 5 percent would be needed the next four years to keep the water department from running in the red, Guilfoyle said. The city is playing catch up on rates, Guilfoyle said, having only raised rates an average of 1.7 percent annually the past seven years.

Alarmed by the string of increases and the cost of water in De Soto compared to neighboring cities, Councilman Mike Drennon said the council had to take action to keep water rates affordable. It was the second water rate increase he approved since joining the council in April.

Despite years of discussion, the key question remained the same as the one he raised when running for mayor several years ago, Mayor Dave Anderson said.

"Do you want to be in the water production business?" he asked the council.

In answering the question, Councilman Ted Morse said water production came down to a pricing game based on unit costs and De Soto couldn't compete with large producers like Johnson County Water One and the city of Olathe. Those large producers would siphon off customers like the future development in Sunflower and even De Soto's own growth areas served by Johnson County Consolidated Water District No. 6, he said.

"I don't want to be in the water business because we wouldn't have any customers," he said. "What we should be doing in marketing sewer service."

In past discussions, the council has always agreed the city should continue to produce water because of the cost of installing a line to a neighboring water provider, the necessity of the city maintaining a water distribution system even if it quit producing water and the desire of the council to control the city's water supply.

Recent developments have changed one of those factors, Guilfoyle and city engineer Mike Drennon told the council.

City staff has had discussions with Johnson County Consolidated Water District No. 6 about sharing in the $6.2 million cost of installing a main from the city of Olathe and a new water tower. The assumption is the city would be responsible for 70 percent of the cost and the water district 30 percent, Brungardt said.

While he emphasized the numbers were preliminary, it appeared as though De Soto could purchase water from Olathe for $3.80 to $4 per 1,000 gallons, Brungardt said.

Firmer numbers will be learned in 60 to 90 days when Olathe completes a water rate study, Brungardt said.

That unit rate would cover the cost of the water, the system development fee Olathe would charge the city as a new customer, cost of the new waterline, a wheeling fee paid the water district and some waterline upgrades that would be needed in De Soto.

It currently costs the city about $6.25 to produce 1,000 gallons of water, despite city staff having made great strides in efficiency at the Sunflower plant, Guilfoyle said.

Brungardt said the $6.25 per 1,000-gallon rate was on the high end of regional cities and water districts. That figure includes both the cost of production and distribution.

One thing that makes De Soto different from other cities with similar high rates is that part of the expenses in the other cities with higher rates is debt service for recent system upgrades, the city engineer said.

De Soto's water department currently doesn't have any debt, although the city's capital improvement plan does include a water tower.

A more efficient new water plant or extensive upgrades to Sunflower plant would only be affordable with a larger customer base, Guilfoyle said. He agreed with Morse that De Soto's growth area within the water district or future Sunflower development didn't appear to be likely customers because they could purchase cheaper water elsewhere.

At the end of the discussion, Councilwoman Mitra Templin agreed she, too, was ready to explore purchasing water from Olathe.

With three council members - or a majority - open to that option, it was agreed Brungardt and Guilfoyle should research the city's cost of maintaining its distribution system so that a one-to-one comparison of the cost of purchasing and producing water could be made.

That was enough to satisfy Drennon, who joined Templin, Morse and Councilwoman Betty Cannon in approving the 3 percent rate increase.

"Three percent isn't much, but if we keep doing those I have concerns," he said. "As long as we agree we're looking at this option, I'm OK with it."

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