Tuesday, February 10, 2015

DWSD's 4% Rate Cap Was a Sham

In the transition of regional water services from the Detroit Water and Sewerage Department (DWSD) to the new Great Lakes Water Authority (GLWA), the most important documents so far are (1) the Memorandum of Understanding (MOU) signed by representatives of the principal units of government in the region and (2) the Articles of Incorporation.

GLWA’s new website contains both of those documents.

The website introduces GLWA’s six recently appointed board members and the interim director, Sue McCormick (who has been DWSD’s director the past three years).

The Detroit Free Press reported last month that, “Suburban communities could face double-digit water rate increases this year in part because falling water sales have hurt revenue,” and further that “[t]he authority [GLWA] was created as part of Detroit's bankruptcy and included a promise that  it would limit budget increases to 4% annually.”

However, the only reference to a 4% rate cap in the aforementioned documents is a short blurb at the bottom of page four in the MOU.  It falls far short of being a promise.  It says, “Each system [i.e. water and sewer] as a whole, is assumed to experience revenue requirement increases of not more than 4% for each of the first ten years under Authority management.”

It looks to me like the so-called 4% rate cap was nothing more than an artificial sweetener, just  one more deception in a long line of deceptions coming out of DWSD, the city and its bankruptcy.

In her January 28, 2015 Director’s Report (p.1)* to the DWSD board, McCormick seems to be saying that rising costs weren’t the reason for reneging on the hint of a commitment not to raise future rates more than 4% per year. No, her suggestion (see footnote) is that rates have to go up substantially more than 4% because revenues have gone down (unexpectedly?), by reason of a shrinking population (presumably in Detroit**), which uses less water.

**UPDATE 2-13-15:  A county official who read this post forwarded it to DWSD Director McCormick with the comment, "...please have someone from DWSD correct the misinformation in the below email concerning ‘rates’ and ‘revenue requirements’ as it apparently remains confused..." (copy to me).  

I haven’t heard back from anyone at DWSD as of this update, but news accounts in the meantime attribute the falloff in water sales to the withdrawal of Genesee County communities from the Detroit water system.  Beg your pardon, but that’s old news.  I can’t even be sure that the Genesee County circumstances are the “misinformation” to which the official referred.

Nevertheless, the important point is that everybody knew about Genesee’s withdrawal and anticipated a DWSD revenue shortfall long before the MOU containing the 4% cap was signed last September. It appears to me likely that the problem now is less about revenue loss (that's old news) and more about DWSD overestimating its cost cutting. Look at the quotes from Veolia's report in the January 22, 2015 post on this blog ("The Risk...").

But wait a minute!  How could she have been surprised by a shrinking population, skewing her calculations?  Hasn’t she had access to population trends, routinely estimated by the U.S. Census Bureau, year to year, state by state and city by city, not to mention a number of other sources, such as Data Driven Detroit?

And where did this galloping exodus go?  I’ll bet you a dollar to a donut that 99% of those leaving the city resettled in Detroit’s suburbs.  In other words, the same day that they closed their Detroit water tap for the last time, they opened their new water tap in the suburbs for the first time -- in the same water system. Same system, same volume.

I think you’re giving us the runaround, Sue.

* Last paragraph, page one of Director’s Report, January 28, 2015:

“As challenged by the BOWC, DWSD has been working with customer representatives through our outreach process to explore options for addressing the revenue shortfall experienced by the water fund during the current fiscal year. The solutions proposed in collaboration with our customers, require changes in the volume purchase numbers to align with actual sales in recent years. Additionally, some additional shift to recover some of the assigned costs through fixed charges will also be proposed. In short, we must be more conservative in our water sales forecasts and recognize the significant amount of fixed costs in our methodology, to assure the needed system water revenue in a manner that is fair to all of our water customers. This effort is required to accomplish for the water fund what the BOWC challenged us to do, and what we accomplished in collaboration with our sewer customers with sewer rate simplification last year - establishing equity and stability of revenues in the process. This change will require extraordinary communication efforts to assure our customers that our commitment to cost containment is ongoing, and adjustments are not due to increases in expenses beyond our commitment to 4% per annum. The communication effort has started, and will continue through the rate season.”

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