Testimony of MCTL Vice-President Gordie Brenne September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:
Rates rose in the last ten years at an annual rate of 6.63%, almost 3 times the CPI (Levchenko, 7/19/16, pg. 2). This is because cost controls are weak. In addition, fees for customer service and infrastructure maintenance were added last year to fortify revenues, but will undermine any cost control incentives in these areas.
You would think the revenue picture is rosy at this point. But it’s not, and it will always be desperate because weak cost controls and declining water demand create constant pressure on revenue sources. (WSSC is now faced with a judgement to change its rate structure to address the equity of higher tier pricing beginning from the first gallon.)
Even if our residents had deep pockets and could subsidize WSSC indefinitely, our family rates are 34% higher than Fairfax County (combined water and sewer rates of $11.69/1,000 gals vs. $8.71, OLO 2016-7, pg. 22- this is for an average family of 3), and we estimate business rates are 69% higher ($15.02/1,000 gals at 500 gallons ADC vs. $8.89, Sue Lacourse. 11/15). Fairfax is our primary economic development competitor. Our families are disadvantaged and we could be losing business opportunities and jobs because of this. What are Fairfax best practices that we can adopt to lower our costs? Is their overhead rate as high as ours? Do they manage fixed costs differently than variable costs? Do their cost controls link to their strategic plan? Do they outsource activities we don’t to capture cost savings? Does their supply chain management system generate greater cost savings? Do their sewer rates subsidize water rates like ours? What have they done to achieve a lower unbilled water rate and increase revenues?
Our recent letter to Joe Beach (7/27/16) outlined three areas that are key to reliability of service, and highlighted in the benchmarking report as having weak practices: Utility Services, Fleet Management, and Asset Management/CIP. We’re still waiting for a response. These three areas contribute to productivity weaknesses, result in growing fixed costs, and are key to bringing costs and rates under control.
Basically, WSSC operates on a cost plus contract basis with the taxpayers. They spend more, we pay more. There is no incentive to control rates and costs will continue to rise indefinitely. Why aren’t there incentives in the budgeting and rate setting process to improve performance?
Council Member Berliner has stressed the importance of reliability and we believe high costs impede reliable performance. Until these cost control questions are resolved, no rate increases should be approved. No pay increases should be budgeted, and a hiring freeze should be imposed until WSSC has implemented new cost controls and realigned rates to compete with Fairfax County.
Finally, a state law requires both counties to agree on changes to both the operating and capital budget proposed by WSSC, or the proposed budget must be adopted. This ridiculous rule resulted in excessive salary cost increases last year, and will guarantee the same result again this year. The council must amend this rule to allow common sense to reign in cost and rate increases. We also recommend that a citizen advisory panel be established to provide common sense criteria for the rate study.
(Effective organizations use compliance drills as an opportunity to advance strategic objectives. What other objectives do WSSC pricing strategies serve beyond compliance and revenue generation? Conservation, economic development, medical research, farming and aquatic sports come to mind, and I’ve barely scratched the surface. Does WSSC have these objectives and corresponding demand estimates and pricing strategies covered in its strategic plan? If so, revising rates will be easy. If not, it will be little more than a random experiment).