Monday, September 28, 2015

The Tale of Two Water Systems

There is no true “cost” of water. The price charged for water, often does not reflect its value or true cost. Much of our drinking water infrastructure is nearing the end of its useful life and approaching the age at which it needs to be replaced. Moreover, our growing regional population stresses our supply of fresh water requiring billions of gallons of additional water storage. The price charged for water has a political component.

Fairfax Water has announced its intention to raise their water rates next spring. There will be a public hearing on Thursday, December 17, 2015, on the proposed rate increase held at Fairfax Water’s main office at 8570 Executive Park Avenue in Fairfax. This rate increase is part of an ongoing program in Fairfax to ensure that the water infrastructure in Fairfax County is maintained.

The need for infrastructure replacement is an issue that has caused significant service problems and rate increases in other parts of the Washington Metropolitan region. Fairfax Water Board of Directors have dedicated funding to infrastructure maintenance and replacement for many years, and has forecast future capital needs for replacing water mains in the system rather than try the wait for the water mains to fail first. In addition, Fairfax Water is planning for additional water storage within their system by developing the Vulcan Quarry as a reservoir.

Fairfax Water benefits from the fact that their distribution system is relatively young. Over half of the water mains (56%) have been in the ground for 30 years or less and only 23% of their distribution system is over 50 years old. After observing the experience of other regional water companies that have neglected maintenance and replacement they are choosing the other path. In the next decade or two, Fairfax Water will have to replace the oldest portions of the distribution system to maintain their record of low water rates and system-wide break rate at the lowest in the region. In 2010, the Fairfax Water Board increased the annual budget for repair and replacement of the water pipes by 50% to $9 million per year and has since increased expenditures for repair and replacement to $11 million per year. Yet, water in Fairfax remains a bargain.

Fairfax Water performed a comparison of the water costs throughout the Washington Metropolitan region. This comparison is based on rates as of July 1, 2015, and on 24,000 gallons of residential water use for an established account. That is approximately the water usage of one person. The amount shown for each jurisdiction/utility includes the service charge and the water charge for 24,000 gallons. I assume that the comparison was done this way because Fairfax Water looks best with this approach, as you can see in the chart Fairfax Water has the lowest quarterly rate in the region.

From Fairfax Water
In contrast, the highest quarterly water rates in the region are in Manassas Park more than three times the cost of water in Fairfax. The city of Manassas Park does not own their water supply or water treatment plant. Instead they buy their water from the City of Manassas and Prince William County who in turn buys water from Fairfax Water. Not only does Manassas Park have to pay for the water they receive, but also for the right to have access to part of the water supply and reservoirs. Manassas Park is a small utility system and they have to spread the system’s overhead costs over a relatively small base of fewer than 5,000 customers.

In addition, tucked into that overhead is debt service. Manassas Park is responsible for paying City utility bonds, their share of the bonds used to build the Upper Occoquan Service Authority Waste Water Treatment plant where there sewage is treated. In addition because the water and sewer payments go into the city's Enterprise Fund the money is also needed to make the annual principal and interest payments on the bonds sold to build the City Schools, Police Station, and Fire Station & Community Center. In total bond interest and principal payments will increase to $4.5 million in FY2016 when the sewer bonds come due. (In case you do not have a calculator handy, that is $900 per household.)

On top of the debt that Manassas Park has managed to accumulate, they failed to properly maintain their water distribution system. At the worst point in the winter of 2011 Manassas Park was losing over half the water they purchased to leaks. In the past few years, they have managed to reduce their water loss to around 25%, increase system pressure, cut city costs and raise revenues by increasing taxes and water and sewage rates. In case you care about these things Manassas Park’s bond ratings have improved from junk to once more investment grade. So Manassas Park is headed in the right direction, but fees and taxes are not going down and it does not appear they have the capital to improve the distribution system.

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