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Archive for Sunday, November 1, 2009

City’s high prices driving away some rural water districts

November 1, 2009

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For decades there’s been a big business in Lawrence City Hall that stretches well beyond the borders of the city limits.

It is the water business.

The city of Lawrence has long been the largest provider of treated water in the Douglas County area. Water that gets processed at one of the city’s two treatment plants flows to a host of Douglas County rural water districts, and also to the cities of Baldwin City, Wellsville and Edgerton.

But now, the city’s perch atop the water wheel may be a little more precarious. The reason: “They’re beginning to price themselves out of the market,” said Baldwin City Mayor Ken Wagner.

Officials with Baldwin City and Douglas County Rural Water District No. 4 both confirmed that they have begun having serious discussions with a group that hopes to start a new wholesale water district that would use the water plant and water rights associated with the former Sunflower Army Ammunition Plant near De Soto.

The impact to Lawrence residents could be significant because the large wholesale water users are helping the city pay for an already-completed $14 million expansion of the city’s Clinton Water Treatment Plant. Without the large water users, city residents alone would pay for the plant upgrade.

“I don’t want to lose those customers,” Lawrence Mayor Rob Chestnut said. “We need to look at whether we can sharpen our pencils a little bit. If those communities have cheaper options, I suspect they will go to them.”

Double-digit increases

Leaders with Baldwin City and Rural Water District No. 4 — which covers an area north of Baldwin City — said the city’s pencil hasn’t been too sharp lately.

The wholesale water rates that the city charges to the two groups increased by 16 percent in 2009 and will increase by nearly 18 percent in 2010. The wholesale rates for the past two years have been increasing at a rate that is more than double the normal increases that Lawrence residents have experienced for their water bills.

“The increases are just too large,” Wagner said.

But Lawrence City Manager David Corliss said he thinks the rates are reasonable given the quality of service the communities receive and the amount of expense that is involved in operating a water treatment plant.

“One of the things water districts will have to look at is the significant costs of operating a water treatment plant,” Corliss said. “It is a complicated, sophisticated and expensive business.”

Corliss said the city uses a formula to establish its rates that takes into account the cost of treatment chemicals, personnel, energy and maintenance costs. The city also expects to receive a certain rate of return — or in the business world, a profit — on the sale of water. Corliss said in past years the city has adjusted its expectations for a rate of return upward. He estimated the city now has an expectation of an 8 percent to a 10 percent rate of return on its wholesale water sales.

The increased expectations come at a time when Lawrence water rates have been under other pressures. Shortly after the city began its expansion of the Clinton Water Treatment Plant, the rate of housing growth began to slow significantly as the national housing bubble began to deflate. The amount of water residents used also began to slow as several wet summers led to less lawn watering. In 2010, the water rates Lawrence charges its residents is expected to increase by about 8 percent to 10 percent.

Earlier this year, Chestnut told staff members he had concerns that the rates Lawrence charges its residents would soon become uncompetitive with surrounding communities. This week, he said the city also needs to spend time reviewing its wholesale rates.

“Wholesale water users have other options, so we have to be competitive,” Chestnut said. “I don’t think that has been a primary focus here up until recently.”

Large users

In terms of total water, losing the Baldwin City business would be the biggest blow. Based on 2008 totals, Baldwin City is the second largest water customer in Lawrence’s system. Baldwin City used 224.1 million gallons of water, trailing only Kansas University in terms of usage. Baldwin City’s total is high, in part, because it turns around and sells some of the water to Wellsville and Edgerton.

Rural Water District No. 4 was the sixth-largest water user in 2008, using 54 million gallons. Douglas County Rural Water District No. 5 was the fourth-largest water user. That district has been exploring creating a new wholesale water district with Douglas County Rural Water District No. 2 and Osage County Rural Water District No. 5. They recently have begun drilling test wells in the Kansas River valley between Eudora and Lawrence. RWD No. 5 did sign a new water contract with Lawrence earlier this year, but the contract gives the district the ability to get much of its water from another provider.

Corliss said the city is willing to have discussions with its wholesale water users about how the city’s wholesale rates are structured. But he also said it is too early to assume that a new wholesale water district will be formed at the former Sunflower plant.

“This has been talked about off-and-on for a long time,” Corliss said of a major water provider forming at Sunflower.

Competition’s feasibility

But Scott Schultz, the administrator for RWD No. 4, believes the project is more advanced than in the past. A draft feasibility study has been completed by De Soto, Gardner and Johnson County Water Districts Nos. 6 and 7. A final study is expected to be released this month.

The draft study, Schultz said, projected the district could provide water to RWD No. 4 at a rate of $3.13 per thousand gallons, or about 70 cents cheaper than what Lawrence will charge the district in 2010.

Schultz also is optimistic that a change to a Sunflower plant would not take much new infrastructure on the water district’s part because one of the main lines proposed to be used by the Sunflower district already runs near a RWD No. 4 line.

“The engineering company that put together the feasibility study has a good reputation,” Schultz said. “I take comfort in the fact that they are projecting it as a reasonable option.”

Schultz and Wagner both said they thought decisions would start being made on whether to move ahead with a new wholesale water district in the next six months to a year. But neither group likely would stop buying Lawrence water in the near term. Both groups have water contracts with Lawrence that run until about 2015, but they said now is the time to begin planning for any change.

Schultz said he believes his board will take a serious look at change.

“It will be a business decision that just comes down to the cost of water,” he said. “If the price escalation from Lawrence exceeds the price we can get elsewhere, the board will have no choice but be serious about it.”

Comments

Keith 5 years, 1 month ago

“Wholesale water users have other options, so we have to be competitive,” Chestnut said. “I don’t think that has been a primary focus here up until recently.”

Us retail water users are just up water treatment creek without a paddle.

Practicality 5 years, 1 month ago

The usual M.O. for the city of Lawrence. Tell me something the city doesn't overcharge for? They probably think that because the water came from Lawrence it is somehow better and that people will just want to pay more because it is "Lawrence Water".

monkeywrench1969 5 years, 1 month ago

Lawrence prices have never been competitive in any respect. It is times like these when cost is competitive and service is better. Chestnut has a problem with only seeing the short term savings in most areas rather than what it will cost him in the long run.

Richard Heckler 5 years, 1 month ago

If these water customers back out Lawrence customers need to grab their wallets.

Remember when property tax revenues drop due to millions of more houses going on the market elsewhere our water supply is how this revenue loss will be made up.

When people get tired of paying higher utility rates and user fees there are plenty of homes in surrounding areas that are becoming extremely competitive. KCMO receives mention frequently on national radio news for having a great housing market. Topeka is always talked about on the local scene.

Economists and urban planners are seeing a move back into the cities closer to jobs and reasonable housing prices. Gasoline prices will also encourage such.

College towns are great places to live so long as one does not tire of affording such an existence.

LogicMan 5 years, 1 month ago

"a new wholesale water district that would use the water plant and water rights associated with the former Sunflower Army Ammunition Plant"

Is that existing plant still in operation? Meet current water quality standards?

Its water rights from wells or rivers? If wells on or near the plant, is the groundwater contaminated?

Pete_Schweti 5 years, 1 month ago

"But Lawrence City Manager David Corliss said he thinks the rates are reasonable given the quality of service the communities receive and the amount of expense that is involved in operating a..."

Wow, that's the same kind of crap Sunflower Broadband reaches for when people complain about their exorbitant prices and increases. At least with them, I had the option of switching to DISH Network. No such luck with this.

devobrun 5 years, 1 month ago

"The city also expects to receive a certain rate of return — or in the business world, a profit — on the sale of water."

The public needs to reflect on this statement.

I have done business with non-profits for many years. I have worked for non-profits.

They make a profit.

The only difference between a non-profit and a for-profit is the later pays dividends to shareholders for taking the risk of investment.

Non-profit corporations work with capital given to them by philanthropists or government. These stakeholders don't require a distribution of the wealth generated. Thus, profits are distributed to growth, rainy-day funds, executive pay, or to non-profitable ventures.

Oh, they don't pay taxes either.

I don't begrudge Lawrence their profit. I say the above so that people who decry the outlandish profits of Exxon (9.4% last year in a very good year) will have a proper perspective on business and government and Lawrence's similar expectation from their water business.

Lacy Mohler 5 years, 1 month ago

I am planning retirement in just under four years and have been researching places to live with better air and water quality. I have found on a scale where 100 is best Lawrence water is 45 and air is 40, Topeka water is 40 and air is 37, Lenexa water is 30 and air is 22.

The town in Missouri where we are thinking of retiring is water 87 and air 73. There may be better out there, but we are trying to stay close to a city with a large hospital and other ammenities. We will be close to Jefferson City which has water 90 and air 52 where places like Phoenix and Scottsdale air quality is 1.

puddleglum 5 years, 1 month ago

water wars. yeah, these people are not going to get their water from anywhere else. sorry about all your higher utility bills, but like all the republicans always say: hey, if you don't like the cost of electricity, don't use it. ha! welcome to the 21st century.

KUgrad09 5 years, 1 month ago

KCMO's water has been among the top in the nation recently and the rates here are much cheaper than in Lawrence. I remember paying water bills in my apartment that were more than in my house now.

KUgrad09 5 years, 1 month ago

puddleglum- "the republicans always say: hey, if you don't like the cost of electricity, don't use it."

Wouldn't that be the democrats saying? I believe the democrats cap and tax bill that was just passed will be raising our electricity bills...

Leslie Swearingen 5 years, 1 month ago

If you look at a utility, cable or phone bill, the fees and taxes are more than usage. Thankfully, I have the water paid where I live Paying that bill was more of a concern than the gas or electric which I think is just silly. Cutting back on water use is not that simple. My daughter said she was actually contemplating buying paper plates and plastic utensils to save money. Money for upgrades to water treatments have to come from somewhere

bliddel 5 years, 1 month ago

Excuse me, but if rates for water (and sewer) keep going up, won't more and more people begin using extreme water conservation techniques? I already know people who don't flush every time, because of high water rates. I've been out of work awhile now, so believe me, I'm thinking about collecting rainwater for certain uses such as laundry and flushing.

How will it solve the city's problems if they price water so high that we all start distilling our own from rainwater, or from our air conditioners?

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