Brewer braces for another water-rate hike

In the July 2004 legal notice announcing its proposed 15 percent rate increase, the Brewer Water Department stated the increase was caused by “costs incurred for a new standpipe and transmission line.”

However, during the course of the Public Utilities Commission water- rate case that subsequently followed, we learned the factors that drove the rate increase are different than those identified by the Water Department. In fact, it would not have been necessary for the Water Department to increase its rates if the department had not insisted on funding its depreciation expense. Including depreciation expenses in rates is optional. And a water utility can choose not to include those expenses if it feels that customers already have high rates. The former district had decided in 2001 to defer funding depreciation until several of its existing bond issues retire in 2008. Our city, however, has decided that they are “entitled” to these expenses.

In early 2002, when attempting to take over the Water District, the city told voters that they were going to “rein in rates.” City officials had studies performed of Brewer’s water rates and determined that “of the 14 Maine cities that are most similar to Brewer in size, Brewer’s is the highest, and the average rate is less than 60 percent that of Brewer’s rate.” They appeared to empathize with voters saying “water rates need to be brought under control,” “water rates are out of line with other communities” and that something must be done.

Customers of the Brewer Water Department will now pay $67.74 for 900 cubic feet. Bangor customers pay $27.94 for 1,200 cubic feet. The legal notice showed a $346,826 increase in revenue was required for the new standpipe and transmission line. The actual total debt service per year for both the standpipe and main is approximately $143,000 which translates to a 6 percent increase not 15 percent.

Furthermore, the city’s attorney called petitioners “misguided” for even believing the rate increase had to do with the standpipe and transmission main saying, “Careful analysis of the Department’s debt schedule reveals that, even with the new – and lower – debt associated with the Standpipe Project, there is still a net reduction in debt due to the maturity of other debts this year.”

City officials had said efficiencies and economies of scale would be obtained by incorporating the Water District into the municipality – using in-house personnel instead of contracted services would translate into significant short- and long-term savings in operating costs. During the course of the rate case, the city justified to the commission that a portion of the increase was due to increased operating expenses. Final adjusted operating expenses amount to an increase of $103,258. A breakdown of expenses showed that $46,924 will go to contracted services of city employees in the finance department – up $18,291 from last year.

Additionally, contracted services for city management have increased by $5,451 for a total of $23,151. The city claimed these additional expenses are because they are offering more services than the former district.

Efficiencies are achieved when more services or goods can be produced at the same level of costs or when the same services or goods can be produced at lower costs. Efficiency does not mean more services at more costs. The citizens voted for “economies of scale” and efficiencies – for reductions in operating costs and subsequently a reduction in rates. But even so, the city’s 2003 revenue compared to 2003 expenses already has a built in surplus of $127,926 – more than enough to cover the increase in operating costs.

Economic Analyst Dr. Ron Norton, from the Public Advocate’s Office, put forth a settlement offer that was significantly less than what the city felt they were “entitled” to but what he determined would meet all their obligations for debt and operating costs. The settlement offer went unanswered.

Dr. Norton testified at the hearing on April 7 that over the past 10 years rate-payers had experienced five increases for a cumulative 117 percent rate increase and compared that to a 19 percent increase in the Consumer Price Index over the same time period. An additional 15 percent increase at this time results in a cumulative increase of 149 percent since 1995. Dr. Norton also concluded that there are sufficient monies currently available to meet any unforeseen circumstances and payment of depreciation expenses is essentially forcing rate-payers to pay twice for capital investments. This is due to the fact that the original cost of any capital investment is already recovered in the rates through the principal component of debt service.

However, the Public Utilities Commission could not deny the city funding for these optional expenses.

By law, the Water Department is permitted to include the full amount of its annual depreciation expenses in its rates. PUC Commissioner Stephen Diamond noted that, “If there’s an issue there, it’s a political issue and not one which has any bearing on whether these rates are lawful.”

An additional 15 percent increase is a far cry from what most rate-payers would consider “reining in rates.” Why are city officials placing this unnecessary burden on rate-payers? Doesn’t that violate the promise they made to voters a few years ago when attempting to take over the district? And what is the city going to do with all this extra money?

A meeting to discuss this and other concerns will take place at 6:30 p.m. Wednesday, June 1 at the Community Center, 436 South Main St. in Brewer. Public Advocates Bill Black and Dr. Ron Norton will be on hand to review the case and answer any questions.

This commentary was submitted by Larry and Theresa Ayotte, of Brewer, on behalf of the more than 830 petition signers.