A Municipal Electric Utility? Proceed with CAUTION!

After holding off writing about the possibility of establishing a Bainbridge Island municipal electric utility, the time has come for some electronic ink to flow on what I believe is perhaps the key decision point that is being ignored.

It has absolutely nothing to do with BPA or PSE’s electrical rates, the potential cost of acquiring the Bainbridge Island electrical grid system, or global warming or BPA’s Snake River dams and  Northwest fish  considerations.

It’s the “local control” issue and the City of Bainbridge Island’s failure to efficiently manage the financial aspects of the three existing City utilities for the benefit of the utilities ratepayers.  

City utility ratepayers have been financially gouged for years by excessive utility rates  … and still are for the Sewer and Stormwater utilities.

I wrote the following e-mail to the Electric Utility Municipalization Task Force, City Manager and City Council on February 27, 2017:

As you conclude your discussions on the D. Hittle draft report, two observations from a private citizen who has followed City of Bainbridge Island utility issues relatively closely for the past 10 years.

1. The City of Bainbridge Island has a fairly respectable reputation for operating the three current City utilities (Water, Sewer, Stormwater). It does not have a good record of cost effective management of those same utilities.

Examples:

• In 2009, City water rates were among the highest in Washington State. A ratepayer lawsuit resulted in an outsourcing study, and the number of City FTE employees paid by that relatively small utility was reduced from 9.6 FTE to 4.2 FTE. At the time, each FTE costs approximately $120,000 including salary and benefits, not including the City Hall space rent charged to the water utility FTE’s. Residential water rates were subsequently reduced by more than 60%. The water utility currently has approximately $6 million in excess cash above required reserves … that represents roughly 3 years of water utility operating and capital improvements.

• The Waste Water Treatment Plant improvement project was originally estimated to cost $4.3 million. After costs exceeded $9 million, a single City Council member noted the costs were climbing, and the then Public Works Director assured the City Council the final project would not exceed $11 million. It concluded at $15.8 million. Near total lack of cost oversight and control on the part of the City.

• City sewer utility rates are the highest of any comparable Western Washington State City as documented in the City’s 2015 Sewer Plan. That in part is because of the relatively small sewer district and the WWTP upgrade cost, but it’s also a cost allocation problems with the City charging 9.79 FTE (some 41 individual City employees) to the Sewer Utility fund. City Council will not take up the issue likely because the City’s cost allocation plan is too complicated to understand without multiple hours of research and they don’t have the necessary auditing skills, and any personnel changes would mean shifting costs over to the General Fund which both staff and City Council are loath to do because the needs of the general fund are perceived to be near endless.

• Annual City stormwater 2017 rates at $169 per ISU are “justified” by a program that funds multiple programs outside the City’s Municipal Stormwater System (program bloat), some of which have no proven benefit to Island residents. Stormwater is the City’s largest utility from an FTE standpoint … it’s been increased to 10.42 FTE for 2017. City staff and City Council refuses to reign in this utility to where it is cost effective.

The average FTE cost for salary and benefits exceeds $133,000 in 2017, and City also collects City Hall space rent for utility FTE’s along with other costs allocations, such as insurance. Additionally, they collect a City tax from the utility rates.

2. I don’t see sufficient discussion or cost data in the D. Hittle draft report on what a pole, transformer and service equipment yard and electrical grid control facility would cost. I toured the Jefferson County utility base site, and it’s quite an extensive operation. Acquiring land and getting NIMBY issues solved on Bainbridge Island are not insignificant issues if the City does not already have sufficient City owned property.

In the big picture, I think the City could acquire and properly operate a Municipal Electrical Utility. But a LOT would have to change in this City to give any confidence that an electrical utility could be cost effectively operated and managed based on this City’s past and current utility financial management. Cost of system acquisition and current/ future BPA rates vs. PSE rates per Kwh are not the most relevant issues … it’s the ability of the City to financially efficiently manage a municipal utility that looks out for the interests of City ratepayers and not so much the City’s General Fund that is so sorely lacking in the City of Bainbridge Island.

And that is (in my opinion) the single most important issue in this upcoming decision that the D.Hittle report does not, by contract scope, discuss.

Island Power claims Bainbridge Island residents will have future lower cost electrical power if the City owns and operates its own municipal electric utility.

Unless the City of Bainbridge Island  gets a new City and Deputy City Manager, a new City Council, a new Finance Director, a new Public Works Director, and a Utility Advisory Committee (or something similar) that actually looks out for ratepayers and doesn’t use  utility fees to augment the City’s General Fund, electrical rates will almost certainly be higher with a locally controlled electric utility because the City will almost certainly use the new utility to unduly augment the general fund with cost allocations, rents and utility taxes like it currently does with its existing three utilities.

No consultant report is going to show how this City has creatively found ways to siphon utility ratepayer money to support general City operations. 

Proceed with CAUTION.

Better yet, don’t proceed at all.

(Note – this posting is supported by facts, not alternative facts).

 

 

 

 

 

 

 

Update on SSWM Utility Fees

The City Council (CC) approved the 2017-2018 biennial budget 22 November 2016. There is a lot to say about that budget, but first, an update on the SSWM utility fees.

The CC increased the SSWM fees 15% for 2017, and did not act (yet) on the City staff proposed additional 12% increase for 2018.

Single family resident properties and condominium owners now are assessed $169 annually for stormwater fees. Businesses, the Park District, the School District, the library, churches, private schools, farms with large stables and/or barns, etc. are assessed $169 for each 3,000 square feet of impervious surface.

That can amount to a sizable chunk of money.

Some examples:

IslandWood                                       $ 7,774
COBI, Prichard Park                      $16,565
St. Barnabas Church                      $ 3,551
High School, Admin, Ordway    $56,446

The stated purpose of the SSWM fee increase was to pay for new capital projects, namely deep culvert replacements.

There is a smidgen of logic to that since the estimated costs of replacing deep culverts may exceed $1 million each … and up to $5 million or more if a fish lives somewhere in the waters that flows through the culvert. You can blame the Department of Fish and Wildlife hydraulic permit rules for those ridiculously high costs for high end stream simulation culverts, meaning  flowing water isn’t supposed to touch either  side of the culvert in a 100 year flood scenario.

But the City added staff being paid by the SSWM utility to support a number of discretionary programs that don’t contribute anything useful to the SSWM utility.

In actuality, the SSWM fee could and should have been lowered if the City would stop paying for programs and consultants that have nothing to do with the original intent of a stormwater utility, and that intent was to pay for stormwater infrastructure and maintenance to prevent urban flooding by having  a municipal stormwater (MS4) infrastructure system such as storm drains and storm water piping, ditches, and retention/detention ponds, and discharging stormwater that is as free of pollutants as reasonably possible.

This City, admittedly along with some others, have expanded the utility from it’s state law initial to include any number of Clean Water Act  and other discretionary programs. No problem with that if those programs would actually clear up water quality problems or reduce urban flooding, but they don’t. City Council seems simply oblivious to what they are really spending utility money on and how ineffective those programs are as they are currently being administered.

And the City’s overhead charges are significantly too high … somewhere in the 60%-70% range.

The one positive action the City Council did for the SSWM utility is earmark $50,000 for a SSWM efficiency study, likely initiated because of this blog and six years of messages and committee public comments that the SSWM utility needs to be reigned in and made efficient.

It’s a reflection on management that this City can’t itself discuss and figure out what a proper and cost efficient level of personnel is needed to run an enterprise fund business that has fewer than 10.5 employees. And it’s an even scarier proposition to think this City is even considering taking on a much larger electrical utility!

Some citizens remember the COBI’s water utility was cost allocating 9.6 FTE (Full Time Equivalent employee) to the water utility and the City had excessively high water rates. The City was forced by a citizen lawsuit to do a competitive study, and a consultant hired to do an efficiency study concluded the water utility could be operated with 3.9 FTE. Our City Manager objected, but reluctantly agreed to 4.2 FTE. Water rates were subsequently reduced by more than 60%, and the water utility, although now with 4.7 FTE,  is still operating at a revenue to expenditure break even level.

SSWM has a similar excessive cost allocation problem. Too many employees being charged to the utility, and programs in the utility that are either not effective or are being paid for by the SSWM utility when they more properly should be paid for by the general fund.

An average City employee now costs in excess of $133K a year, and so every FTE charged to the utility is a significant expenditure.

The City Council also decided to keep the 6% tax on the SSWM utility, although at least three Washington court decisions have ruled what can be taxed is the proprietary functions of a utility (think business sales, like water service or sewer service), and not general government functions, such as sweeping streets or measuring bugs in streams or maintaining the City’s weather station. Virtually all of what the SSWM Fund pays of a general government nature … after all, the SSWM fee itself has all the characteristics of a general tax since the City doesn’t provide  any specific service or product to the individuals who pay the fee … it’s a utility to pay for the City’s MS4 system maintenance and operation, which is City owned  public infrastructure.

It’s an interesting circus of decisions at City Hall.