Water rate hike may be 17%, not 10%

Wednesday, August 25, 2010

Calculations were incomplete Friday, but estimates on Lewisburg's water rate hike indicated bills might be 17 percent higher instead of 10 percent as previously indicated by the water department.

A state examination of the Water and Wastewater Department budget shows the utility should have a more secure depreciation schedule of assets and that will influence the rate hike, officials explained late last week.

Sewage treatment plant expansion has been the reason given for raising water rates. Wastewater passing through the plant when there's a high flow pollutes the stream into which it flows. High flows occur when rain seeps into the ground and into sewers through cracks and other pipe breaks. Plant expansion to treat the diluted sewage, estimated at $13 million, was seen as increasing an average household's water bill by $7-8 per month. The Tennessee Department of Environment and Conservation ordered the city to increase the capacity of its plant. That solution costs less than fixing leaky pipes, according to utility officials.

Now, an accountant in the Office of the Comptroller of the Treasury has recalculated the financial needs of the utility and he's applied an accounting practice, depreciation. It creates an allowance for the loss in value of pumps, buildings, vehicles and other physical assets needed to operate the utility. It's like a motorist's savings account so there's money available to buy another car when there's a crash, or the vehicle is worn out. Adding depreciation as a cost for the department is seen as another reason to increase water and sewer rates.

Depreciation was a big part of a rate structure recommended by a consultant for the Marshall County Board of Public Utilities in October 2008. The increase was proposed at 34 percent because depreciation was calculated over a short period of time. MCBPU hasn't adjusted its water sales price schedule yet, but its 2,700 customers will be affected by what Lewisburg's water board does because the county-owned system buys its water from the city.

MCBPU has a sizeable reserve account and that's a reason county utility leaders agreed to forego its annual income from the adequate facilities tax charged on every square foot of new building construction. Transfer of that revenue stream from the utility to the county's general fund budget helped ward off a tax rate hike for all owners of property in Marshall County, according to discussions among county commissioners.

This week, the state comptroller's accountant was expected to complete calculations on what the city needs to charge for water so it will remain solvent.

Meanwhile, federal economic stimulus money is available through the Tennessee Department of Environment and Conservation to help finance the $13 million expansion of the sewage treatment plant. TDEC received money from the American Reinvestment and Recovery Act (ARRA) and is making it available through forgivable loans. The loans are made to protect water quality, but they don't have to be repaid.

To remain qualified for a $2 million forgivable loan from TDEC with ARRA money, Lewisburg must have new water and sewer rate schedules in place 90 days after the utility was notified about the deal. Notification was about 60 days ago.

To enact a new schedule in time to remain qualified for the $2 million, the city council must adopt an ordinance on three successful votes during separate meetings. A public hearing is also required. None of those meetings are scheduled.

Before the council can act, it must receive a recommendation from the water board. Its monthly meeting was Thursday. Water rates were discussed after the meeting, but without calculations from the state accountant, there was nothing to recommend.

The utility board had submitted a recommendation to the council, but the council rejected it during a special meeting to conduct the first of three votes to adopt a water-sewer rate that would have increased an average home's utility bill by $7-8 a month.

That increase was, in rounded numbers, seen as a 10 percent increase. An early indication from city officials on what the increase might be -- after depreciation was included in the department's budget -- was 17 percent.

Mathematically, 17 is 70 percent more than 10, so if an average bill was going to increase by $7 under the utility board's first recommendation, it would now appear that the average bill could go up by almost $12 a month.