Elkins looking at ‘emergency’ 32% water rate increase
ELKINS — The Elkins Water Board recommended an “emergency rate increase” of 32 percent for city water customers this week, an increase Elkins City Council may approve as soon as Sept. 15.
“We’re following an emergency process to set this new rate, because the Water Board recognizes that there could be severe consequences otherwise,” Wes Lambert, the chief operator of the Elkins water system, said.
“Without this rate increase, we would soon be getting to the point of not being able to make bond payments, pay vendors or make payroll.”
Officials said the emergency rate increase is essential for the utility to avoid insolvency in response to regulatory changes at the state level and huge inflation-driven increases in supply costs.
The rate increase would become effective immediately upon passage. An additional 3 percent increase would become effective in the summer of 2023.
“Elkins water rates were last raised in 2017 and are no longer sufficient to support operation and maintenance of the city’s water system,” a City of Elkins press release states. “For the fiscal year that ended June 30, costs exceeded revenues and it has been months since the system could afford to make state-required deposits into accounts intended to defray future expenses. Other long-deferred expenses include vital new equipment purchases, urgent technology upgrades, and wage increases to better retain system personnel.”
“To determine a suitable rate, Lambert and the board worked with the accounting firm of Griffith & Associates, PLLC to analyze the last three years of actual costs, the ongoing effects of inflation, the condition of rolling stock and other essential equipment, and vendor price projections,” the release stated. “The board also worked with Robert Rodecker, an attorney with Kay, Casto & Chaney PLLC who practices before the West Virginia Public Service Commission on regulatory matters involving water and other utilities.”
“In my entire career, I’ve never seen such extreme inflationary impacts on water utilities,” said Michael Griffith, a CPA and the presiding member of Griffith & Associates, who presented the proposed rate increase to the water board. “We do work in 45 counties, and everyone is dealing with similar issues. Costs for many crucial supplies have at least doubled, and I don’t see that situation improving anytime soon.”
Lambert pointed out several examples of higher expenses.
“The cost of every material good we buy has shot up, sometimes as much as 500 percent,” he says. “For example, six-inch water line has gone from $2.10 to $7 a foot. Eight-inch line has gone from $4 a foot to $16.50 a foot.”
Chemical expenditures have increased more than 100 percent overall since 2018, the first year of operation for the city’s new $37 million water plant. The water treatment plant uses about 45 gallons of bleach daily; the cost of bleach has recently increased from $2 to $3.50 per gallon.
“That’s an increase from about $28,000 to $49,140 each year,” Lambert said. “And that’s just one of the many chemicals and supplies we use on a daily basis that we’re having to pay a lot more for.”
Rodecker explained that the new rate must also be high enough to meet the utility’s responsibilities to bond holders.
“This utility has a covenant with bond holders that rates will always be held high enough to both operate the system and make bond payments,” Rodecker said. Under the terms of the bonds issued to pay for the water plant constructed in 2017, the city must pay $116,000 a month until 2055.
Senate Bill 234 requires municipal water and sewer utilities to set aside 12.5 percent of annual operation and maintenance costs in a Cash Working Capital Reserve Fund each year. Before the adoption of this rule, the West Virginia Public Service Commission did not allow utilities to set aside sufficient funds for future capital needs.
Under this rule and as part of the proposed rate increase, Elkins would now start setting aside about $270,000 annually toward large capital outlays, such as the eventual $1 million cost of replacing the water plant’s membrane filters, which will reach end-of-life in the mid-2020s.
An additional factor contributing to this rate increase is the length of time since the last one, sin 2017. The new plant, which uses membrane filtration, replaced a century-old plant that used mixed-media filtration.
“It’s now clear that the 2017 increase wasn’t enough,” Lambert said. “That rate increase was what was needed to pay initial costs and cover our monthly bond payments, but it didn’t turn out to be enough to cover the ongoing costs of electrical power and all of the new kinds of supplies that a membrane plant needs. A ‘smart plant’ like this has a lot of advantages but it also costs a lot more to run.”