Published: September 21, 2008 02:40 am      

‘We’ve got to fix it’

12 percent hike in water rates to be introduced Tuesday

FAIRMONT — (Editor’s note: Some of the information reported in these stories came from a meeting with the Times West Virginian’s editorial board that was requested by members of Fairmont City Council and the city’s administration.)

A small percentage of the amount of money needed to bring the city’s troubled water fund out of debt and finance permanent system improvements is slated to be officially introduced to council Tuesday night.

City Manager Jim Snider said the increase will be introduced at 12 percent, just enough to start the ball rolling on an $8.7 million corrective action engineering project to ensure the plant is up to par for the long term.

“It is important to get that going forward to have the funding in place to sign an engagement agreement with STRAND (Associates) to start the corrective action process,” he said.

Snider explained that the 12 percent increase will add $3.15 per month to the average residential customer bill. And if 25 percent of the city’s 14,000 direct customer base or one of the system’s nine resale customers objects to the proposal, the authority to determine the level of the increase will be taken from the city’s hands and will go directly to the West Virginia Public Service Commission.

In total, officials said this increase only scratches the surface of how much money the city really needs to start operating normally. Staff determined several months ago that a 51 percent customer increase is necessary to pay back all of the debt the city incurred with the occurrence of two water emergencies at its faulty 5-year-old plant during the winter of 2007.

The lack of a pretreatment within the $40 million system caused the membranes in the plant to get clogged with residue from its Tygart River source at that time, slowing water production to a point too low to completely meet the high demand of all of its customers. This left some customers with little to no pressure and led to boil-water advisories for several days at a time.

Now after a series of short-term fixes to get the plant back online and through this past winter, Snider said the water fund has a deficit of around $400,000 itself, owes the city’s general fund $1.2 million, and the sewer fund $238,000.



Past Rate Increases:

Although staff members have advised council that a rate increase, though unfortunate, is the most logical way to make the city whole again, Mayor Scott Sears, who is up for re-election in November, is still avidly seeking another way.

He said he does not want to burden customers with the fifth rate increase to help fund this plant since 2001.

Sears points out that until January of 2003, six months before the plant opened and within the first two months of him being voted onto council, “The city felt that it had a great system. It was the best system there was.”

But during a council meeting that month, the utility asked for a 6.5 percent rate increase that amounted to $1.4 million to cover additional costs for the plant under construction.

The 2003 rate increase came on the heels of a 58 percent water rate increase, which took effect in December of 2001. Prior to then, rates had not increased since 1983.

In March of 2005, council was again asked to increase the water rates by 14 percent to account for an anticipated $530,000 budget shortfall and to fund a 10-year capital improvement plan.

In August of 2007, seven months after the water crisis crippled the utility, council increased water rates by 21.4 percent to cover expenses from the event that nearly stalled water produced at the 3-year-old plant.

“If you look at these (city council meeting) minutes and you look at today’s situation, it’s deja vu all over again,” Sears said. “If you look at the city manager’s and the utility manager’s explanation of why we needed water-rate increases back in 2003 and 2005, they’re pretty much saying the same thing then to defend themselves as the problems we’re having today. Nothing’s changed in the last five years.”

If the calculated 51 percent increase had been introduced, it would have cost the average residential user about $13.26 more per month, a number that Sears said is hard to swallow for a customer base that has taken on four other rate increases in such a short amount of time.

“You can throw out that $13.26 all day long, but if $13.26 represents 51 percent, that’s awful hard to digest. That 51 percent equates with all the other past water-rate increases to a 95 percent rate increase over a five-year period. Not a whole lot of people can live with that,” Sears said.

“Maybe five years ago, it wasn’t that bad, but in today’s world with what’s happening and the financial situation of this country, 95 percent is not acceptable. Fifty one percent is not acceptable.”



Other Options:

Sears said that he is not only not in favor of the overall 51 percent increase, but he is also skeptical about the 12 percent one.

He said that he has spoken to and is keeping in contact with state officials who have expertise in water-utility situations and will stay in contact with them as the city assesses this situation.

“To this point, there has been no expert advice at the local or state level until now,” the mayor said. “I have a feeling we can defer any type of application fees with no interest until a later date when we have a better understanding of what our position is through mediation. They (state officials) have given me indication that is possible.”

Sears said that from the information he has gathered, that the debt service on the $8.7 million project may not be due for up to three years, which means that the 12 percent increase may not even be necessary right now.

“The question out there is do we need to have a water rate increase to start the process?” Sears said. “Personally, as mayor, I think it is a very premature decision to make right now.”

“I am totally against it and will not support any 51 percent rate increase,” he added. “I feel it is our obligation to find other means of financing on the short-term basis.”

Snider said that the city was basically able to put off the rate increase at this time because officials are still waiting to see if any interim funding can be obtained from the state while officials seek relief from mediations with GE Zenon Environmental and Chapman Technical Group, the two companies officials believe are responsible for the problems at the plant.

“We are reaching out for any funding source in the interim. We are trying to explore every alternative so we don’t have to put out a rate increase at this time,” Snider said of the current situation. “We are in contact with the West Virginia Water Development Board and are having them review what we are doing and where we are at. We are asking them to give us some insight and give us some options.”

He said that if state funding is obtained, though, it would be “out of the norm.” And legally, he said that enterprise accounts, which the water fund is, need to be financed by user fees and always have been in his experience.

“We are definitely impaired, and the solution is that there is some type of funding that is out of the norm for what is normally supported by user fees,” he said.

Snider said he is hoping to get some response back from the state about any alternatives before the council’s Oct. 14 meeting. But if nothing comes of it, the city may have to introduce the additional 39 percent of the calculated increase at that time.

“We are hoping to get a response back by the first meeting in October,” Snider explained. “If it hasn’t happened by then, we will have to evaluate and make a determination whether we need to move forward (with the rate increase) or not.”

Deputy Mayor John Dahlia said that while he commends the work of the mayor and other city officials for attempting to find other funding sources, he is skeptical about whether or not there is anything short of a rate increase that can be done.

“At this point, I’m unsure if indeed the state or any entity can bail us out,” he said.

Dahlia added that he is concerned not only about the rate increase at hand, but also about ensuring that future generations do not have to deal with the problems that this plant has caused for the citizens today.

He said that one prevention tactic could be to appoint a separate board to take over the water utility, like Morgantown and Clarksburg have done, to be its own entity so council is no longer making these decisions.

“One of my ideas, one of my hopes, is after this is resolved at least now and in the short term, we think about creating a separate entity for the water department, a water board or water authority so we are not taking away from the general fund and the city,” Dahlia said. “We have dumped more than a million dollars from our general fund into this problem in hopes of repairing it, and it’s not getting any better.”

In any case, Snider said it is his responsibility as the city manager to ensure that the system’s direct and resale customer base always has sufficient water service but that the city’s finances are also maintained adequately in the process.

“Our responsibility is to provide consistent water service that you can rely upon. That’s our No. 1 objective,” Snider said. “At a reasonable rate, but yet at a rate that is equitable. At some point, this situation has got to be fixed. We cannot survive where we are right now. We’ve got to fix it.”



Membrane Reserve:

Included within the original 51 percent rate increase, and now in the remaining 39 percent, are the means to get caught up with the membrane reserve account council voted to establish for the plant with the rate increase instated in 2005, Snider said.

The fund presently has a near-zero balance, though, and 80 percent of the membranes in place have been in service for five years, Snider said.

“We have not been able because of the strain we’ve had on our finances to budget for membrane replacement,” he explained.

GE Zenon, the only provider for the membranes, initially suggested that the account be supplemented with $100,000 annually. But several months ago, the company raised this amount to $500,000 with no explanation as to why. Snider has said that the officials planned to inquire about this during mediation.

Mediation:

The first mediation session between city officials and representatives from Chapman and Zenon was held at the end of last month, and Snider said a second is tentatively scheduled for sometime in November.

“There’s no doubt that there was a perfect storm, and the final blow was that the engineers did not design a plant for pretreatment. They felt like we didn’t need it. That was their decision,” Snider said. “GE (Zenon), who brought forth the product, recognized the fact that they didn’t provide the pretreatment. Every indication that I have and what STRAND is informing us and all of the internal evidence is that was a major flaw in the design, and that was a major flaw in the manufacturer delivering the product to us. That’s why we’re mediating, and we’re being as aggressive as we can to get that mediation.”

Contractually, the city is bound to go through the mediation process with Chapman Technical, city attorney Kevin Sansalone said, and GE Zenon participated voluntarily. The city also has a contractual obligation to go through an arbitration process with GE Zenon.

“Before we go to the courtroom, we have to exhaust these options,” Sansalone said. “Nothing is off the table with regard to the mediation. It’s an ongoing process and hopefully at the end of the day, the ultimate goal would be to make the city whole.”

Snider added that, while the city is prepared to go to litigation if necessary, officials are hopeful that they will get positive results from the upcoming mediation.

“I have confidence that in this next mediation that we’re going to come to a point where this council can say, ‘OK, this is what we’re going to accept,’” Snider said. “But we’re going to protect the city’s interests, so we’re willing to litigate if we have to, but we’re hopeful that it won’t be the case.”

E-mail Mallory Panuska at mpanuska@timeswv.com.

E-mail Misty Poe at mpoe@timeswv.com.