This week the Wichita City Council declined to raise the fixed portion of customers water bills by $2.00 per month. Today, Wichita Eagle editorial writer Rhonda Holman praises the council for avoiding an illogical water-rate increase. Is she and the city council right on this matter?
The problem Wichita faces lies in the cost structure of water treatment and delivery. One source estimated that 70 to 80 percent of the costs of a city’s water supply system were fixed, or quasi-fixed, costs.
These fixed costs don’t vary with the amount of water demanded by customers, at least not in the short run. But the city charges for water based primarily on the amount that customers use. So when demand is low, revenue drops rapidly, but the water department’s costs decrease very little. That’s the source of the problem.
There is a fixed component to customer’s water bills. One solution would be to increase that fixed charge and drop the cost of a gallon of water. That would make the water department’s revenue less variable. This pricing formula would more accurately reflect the department’s cost structure.
In retrospect, it appears that the city’s campaign to get people to conserve water has been, to put it kindly, a waste of resources. We’ve conserved — although nature has been the primary force behind this — but we still have to pay. Just because the city council doesn’t want to raise water bills now, someone is still going to have to pay.
The water department is in control of its fixed costs over the long term, however. The growing demand for water over the long term is what leads it to make capital investment in its plant. Paying for these projects (fixed costs) by relying on revenue from the usage of water (variable revenue), as we now see, is problematic. The solution is to realize that these capital investments are not driven by daily or even yearly usage. Customers should pay for these capital improvements, then, through a fixed charge.
An alternative would be to charge new connections to the water system a fee that helps pay for the capital investment necessary to expand the water supply. As a matter of fact, the department charges a “Water Plant Equity Fee” just for this purpose. Currently this fee is $1,520. (This is in addition to a fee of $850 for tapping into a water main and installing a meter.) Perhaps the equity fee needs to be raised.
It appears that it is the desire of the city council to pay for capital improvements to the water system through a way other than raising the fixed portion of water bills. The net effect, whatever the city does, will still be felt by citizens as an increase in the cost of providing water. It would be best if this cost was realized as close as possible to its source, which is the water bill.
Hopefully the city council will do something to recognize this, regardless of whether Rhonda Holman will support them.
Here are comments left to this post that were lost and then reconstructed:
Charlotte: You don’t fully understand. The city water dept. needs this money coming in to pay for their ASR project–which is located up by Burrton along the Arkansas River. They did one part of the project and now they want to do more. ASR, Aquafier S—? Recovery is taking the dirty water out of the Arkansas River when it gets up after a rain, running it through a big above ground filter that creates sludge (which they sell) and then pumping that (supposedly clean water) down into the Halstead Equas Bed. I am not thoroughly convinced that the water they are putting into the clean Equas Bed is all that clean. They say we are drawing water out of the Equas Bed faster than this ASR is putting it back in. They say the city needs to do this for economic development.
I replied that the aquifer recharge project is an example of the type of capital improvements to plant that I was referring to.