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4 Comments
Gini Harriman
Todd, thanks for this breakdown of our situation. One question that came to mind was when was our last rate increase and for how much? If the $50K replacement figure is critical to the security of our system moving forward we probably will need to increase our charges. But do we need to continue $50K moving forward? Will this figure change if we don’t have new projects planned for the next few years? I personally don’t think an increase of $5 or 6 per water share is onerous if we haven’t asked for an increase recently but if we can avoid it I’m sure our members would appreciate it.
Clint
Thanks for putting this out there. Just some quick questions, that might help me/us answer the questions:
What is the system replacement fund? I believe I understand it, but I need to be able to explain to any members who will invariably ask the question “What’s that fund for and why the increase?” How have we historically used it and what should we expect it to support?
Why/when did we adjust the funding down to $30k from $50k?
If we aren’t targeting breakeven on operations each year with the budget, what are we targeting?
If we have to make an increase, a phased in approach gets my vote. 2$ increase every 6 months for 18 months?
All shareholders should bear the increase equally. An increase in the stability/sustainability/continuity of the system benefits all.
If we really are projecting a $30k shortfall in 2021, the sooner we can shore up, the better.
Todd Currie
Thanks Clint and Gini, good questions and comments.
RE: historic $50k to System Replacement Funds (SRF).
SRF are “reserved” for projects or portions of projects where we are “replacing existing” infrastructure. Examples of projects would be to replace a pump with a similar pump. To replace a pressure valve or main or hydrant with similar material.
On the other hand, when we “upgrade/improve” the material or equipment (better quality, greater capacity) we use funds that have been “reserved” for “Capital Improvement” (CIF). So, replace something old with something not just new, but better/bigger. We also use CIF for new expansions to the system — new main, new filtration plant, etc… Note: an Improvement project is likely to use both CIF and SRF. SRF would pay for the replacement component including the labor to dig up the pipe or components that are replacing existing (with same), for example.
Because SRF tend to address “wear and tear/aging/use” of the system, we fund this reserve from Operations because all Operations funds come from Active Shareholders who are using the system. Because CIF is spent on capital improvement that benefits existing AND future users — the Base charge for Reserve shares and all Capital Charges (all shareholders $12/month) go to CIF.
So, the $50k transfer from Operations to SRF is essential for funding replacement (and portions of improvement) projects. This year we exceptionally reduced our transfer to SRF to $30k from $50k . (I do not know how long it’s been $50k — but likely 10 to 15years, at least). Why? We did not plan for significant “Replacement” type projects this year, the Filtration Plant is budgeted as exclusively CIF, and to delay a rate increase pending the (at the time) unknown costs & funding of Filtration and KingCo Right of Way tax.
I have put the term “reserves” in quotes. We do not have LEGAL requirement to restrict use of these funds. They are not “restricted”. It is our sense of best practice and transparent reporting to shareholders that guides us to track these “savings” differently. (It may also be an accepted industry or State DNR standard practice — I don’t know.)
How much money we choose to save as SRF and CIF is, ultimately, a function of our Capital Improvement Plans and specifically the timing and scope of identifiable projects, plus a bit for unscheduled projects.
Separately, we have a Contingency fund for emergencies.
Todd Currie
Re: Operations Budget. Historically (and, in a sense, as a “non-profit”) we budget Operations to be break-even AFTER the transfer to SRF. (Note: there is no legal requirement for us to be break-even or avoid “profit” in our operations.)
For a number of years (mid 2010’s) Operations was running a deficit. A combination of a rate change (before my time) and operations costs settling down resulted in improved results. In 2017 we decided to “modify” our rate structure — it was not a rate “increase”. We took advantage of the cushion of good results to implement what we felt was a better (and simpler) structure that was designed to be “revenue-neutral” to DWA. We lowered Base Rate (from $38.60 to $34). Usage fee remained at $.017/cf but it started with your first cf– there was no longer 500cf included in the base rate. We also eliminated a high surcharge on extremely high usage (over 3000cf), as it was not significant to revenue. With this structure, many light-users saw a cost reductions, most saw a very modest increase (ex. $5). It has been fairly revenue-neutral, perhaps a slight increase. This change was effective on July 1, 2017.
By the way, I happened to see the rates for 2006: $30/base and $.017/cf. Base included 600cf. CFs over 3000 were at $.05/cf. So, for most users, the net monthly cost increase since 2006 has been $4 (increase in base) and $10.20 (cost of the first 600cf) = $14.20/month increase. The $12 Capital Charge (put into effect in Jan 2005) has remained unchanged. A typical bill has gone up a bit over 30%. Inflation since 2006 has been 30%. Of course, the system is vastly improved during this time.
Todd, thanks for this breakdown of our situation. One question that came to mind was when was our last rate increase and for how much? If the $50K replacement figure is critical to the security of our system moving forward we probably will need to increase our charges. But do we need to continue $50K moving forward? Will this figure change if we don’t have new projects planned for the next few years? I personally don’t think an increase of $5 or 6 per water share is onerous if we haven’t asked for an increase recently but if we can avoid it I’m sure our members would appreciate it.
Thanks for putting this out there. Just some quick questions, that might help me/us answer the questions:
What is the system replacement fund? I believe I understand it, but I need to be able to explain to any members who will invariably ask the question “What’s that fund for and why the increase?” How have we historically used it and what should we expect it to support?
Why/when did we adjust the funding down to $30k from $50k?
If we aren’t targeting breakeven on operations each year with the budget, what are we targeting?
If we have to make an increase, a phased in approach gets my vote. 2$ increase every 6 months for 18 months?
All shareholders should bear the increase equally. An increase in the stability/sustainability/continuity of the system benefits all.
If we really are projecting a $30k shortfall in 2021, the sooner we can shore up, the better.
Thanks Clint and Gini, good questions and comments.
RE: historic $50k to System Replacement Funds (SRF).
SRF are “reserved” for projects or portions of projects where we are “replacing existing” infrastructure. Examples of projects would be to replace a pump with a similar pump. To replace a pressure valve or main or hydrant with similar material.
On the other hand, when we “upgrade/improve” the material or equipment (better quality, greater capacity) we use funds that have been “reserved” for “Capital Improvement” (CIF). So, replace something old with something not just new, but better/bigger. We also use CIF for new expansions to the system — new main, new filtration plant, etc… Note: an Improvement project is likely to use both CIF and SRF. SRF would pay for the replacement component including the labor to dig up the pipe or components that are replacing existing (with same), for example.
Because SRF tend to address “wear and tear/aging/use” of the system, we fund this reserve from Operations because all Operations funds come from Active Shareholders who are using the system. Because CIF is spent on capital improvement that benefits existing AND future users — the Base charge for Reserve shares and all Capital Charges (all shareholders $12/month) go to CIF.
So, the $50k transfer from Operations to SRF is essential for funding replacement (and portions of improvement) projects. This year we exceptionally reduced our transfer to SRF to $30k from $50k . (I do not know how long it’s been $50k — but likely 10 to 15years, at least). Why? We did not plan for significant “Replacement” type projects this year, the Filtration Plant is budgeted as exclusively CIF, and to delay a rate increase pending the (at the time) unknown costs & funding of Filtration and KingCo Right of Way tax.
I have put the term “reserves” in quotes. We do not have LEGAL requirement to restrict use of these funds. They are not “restricted”. It is our sense of best practice and transparent reporting to shareholders that guides us to track these “savings” differently. (It may also be an accepted industry or State DNR standard practice — I don’t know.)
How much money we choose to save as SRF and CIF is, ultimately, a function of our Capital Improvement Plans and specifically the timing and scope of identifiable projects, plus a bit for unscheduled projects.
Separately, we have a Contingency fund for emergencies.
Re: Operations Budget. Historically (and, in a sense, as a “non-profit”) we budget Operations to be break-even AFTER the transfer to SRF. (Note: there is no legal requirement for us to be break-even or avoid “profit” in our operations.)
For a number of years (mid 2010’s) Operations was running a deficit. A combination of a rate change (before my time) and operations costs settling down resulted in improved results. In 2017 we decided to “modify” our rate structure — it was not a rate “increase”. We took advantage of the cushion of good results to implement what we felt was a better (and simpler) structure that was designed to be “revenue-neutral” to DWA. We lowered Base Rate (from $38.60 to $34). Usage fee remained at $.017/cf but it started with your first cf– there was no longer 500cf included in the base rate. We also eliminated a high surcharge on extremely high usage (over 3000cf), as it was not significant to revenue. With this structure, many light-users saw a cost reductions, most saw a very modest increase (ex. $5). It has been fairly revenue-neutral, perhaps a slight increase. This change was effective on July 1, 2017.
By the way, I happened to see the rates for 2006: $30/base and $.017/cf. Base included 600cf. CFs over 3000 were at $.05/cf. So, for most users, the net monthly cost increase since 2006 has been $4 (increase in base) and $10.20 (cost of the first 600cf) = $14.20/month increase. The $12 Capital Charge (put into effect in Jan 2005) has remained unchanged. A typical bill has gone up a bit over 30%. Inflation since 2006 has been 30%. Of course, the system is vastly improved during this time.