No New Rate Increases for Additional Water Projects?

Wicks asks pressing questions; administration provides some answers.

By Dan Schroeder

At least one Ogden City Council member is asking some good questions about the $30 million increase in planned water infrastructure spending over the next ten years. Councilmember Amy Wicks submitted a list of nine written questions shortly in advance of last Tuesday’s work session, and received nine short answers on Friday:

• Questions and answers on water utility master plan amendments

One of the answers will come as good news to Ogden utility ratepayers: “It appears that rate increases outside those already accepted will not be necessary.” Though this statement is tentative, it is consistent with the results of my own financial analysis. (The “already accepted” rate increases include a 3.5% hike this July plus annual increases for inflation.)

In another of its answers, the administration suggests that additional bonded debt may be in the water utility’s future, when it comes time to spend an estimated $17 million to replace the 36-inch pipeline in Ogden Canyon. This is the larger and newer of two parallel canyon lines, first installed in 1937; the older 24-inch line was replaced last winter. The administration and its consultant are now recommending that the 36-inch line be replaced within six to ten years, whereas the 2012 version of the master plan put this project in the 11- to 40-year time frame.

My own analysis indicates that all of the proposed water projects, including the 36-inch line replacement, can be completed without any new bonds. Then the water fund would keep its debt interest payments from growing yet again, and could reduce rates (or forgo inflationary increases) after the end of the ten-year period of intensive upgrades.

However, the administration and its financial consultants (LYRB) seem to favor paying for projects with bonds, rather than dipping into the water fund’s cash balance. That balance stood at nearly $10.7 million last June and should reach approximately $15 million by this June. The cash is earning less than 1% interest, while the water utility is paying 4.45% interest on its most recent bonds.

The administration’s unwillingness to spend this cash is also reflected in another of its answers, in which it explains that “available funding” dictated the relatively modest capital spending rate of only $4.3 million per year over the first five years of the new plan. This is less than the rate at which surplus cash will accumulate in the water fund, thanks to the recent rate increases. Under the proposed plan, I project that the cash balance will reach $20 million by 2019.

Of course the administration won’t rely on my financial projections, or even try to do its own. Instead it is again retaining consultants LYRB to update the projections they did two years ago. (Those projections weren’t very accurate: they under-estimated the June 2013 cash balance by $4.7 million. This low estimate contributed to the city’s decision to issue new bonds, with LYRB as its paid financial advisor for the bonding process.) The council will have to wait a few more weeks to see the revised LYRB projections, and to discuss the water fund’s current cash position.

Wicks’s final question concerns two proposed new wells on the west side of the Wasatch Range. The city’s engineering consultant originally projected that these wells would be needed to meet growing demand in about 18 years (from now). Furthermore, the city recently achieved some unanticipated water savings by replacing the leaky 24-inch canyon pipeline. The administration, however, asserts that the two new wells should be dug only six years from now, “for both source redundancy and capacity.” There is no mention, in the proposed master plan revisions, of the possibility of avoiding the need for new wells through water conservation.