Water Rate Increases Unfair to Residents

By John Lukach, posted November 17, 2015

Recent water rate increases in Shrewsbury have been unfair to residential users compared to rates for large commercial users, as the Town Manager’s own statistics make clear. I sent a letter to the selectmen (see Exhibit A below) prior to their August 25th public hearing on the proposed new rates, which pointed out the huge disparity in top rates of residential and commercial users. They ignored my letter. Worse, they decided to increase the disparity by voting to raise the top residential rate an additional $2.00, to $14.00/Thousand, while maintaining the top commercial rate at only $4.30/Thousand.

When the Community Advocate newspaper ran an article on the new water rates, I wrote  a letter to the paper (Exhibit B below) pointing out misleading comments in the article. After waiting three weeks, I asked the paper’s editor why my letter had not been printed. The next day she responded by saying that she had discussed my letter with the Town Manager, who reviewed the water rates with her, and based on that discussion, he had apparently convinced her not to run my letter.

I followed up by sending the editor three documents which proved the facts in my letter. The first (Exhibit C below) shows the new rates compared to the old rates and showed the huge disparity between residential and commercial rates at the higher consumption levels, in particular, $14.00/Thousand above 60,000 gallons for residential users compared to only $4.30/Thousand above 25,000 gallons for commercial users.

The second document (Exhibit D below) shows consumption and cost data for the 20 largest residential users, and the third document (Exhibit E below) shows consumption and cost data for the 20 largest commercial users. The average cost per thousand for these residential users ranged from $9.22 to $6.47, but the maximum average cost per thousand for commercial users was no more than $3.80, even at consumption levels of over 1,000,000 gallons per quarter (the one exception shown is probably a reporting error in the Town Manager’s file, from which I obtained this data).

With this additional proof of the statements in my letter, the Community Advocate finally printed it in its November 6, 2015 edition. So, town officials have tried to mislead residents … again. But the facts presented in this article prove that large commercial water users are being subsidized by residential users. Hopefully, with these facts in hand, hundreds of residents will demand that the selectmen make water rates more equitable the next time they need to be changed.

 


 


 

Exhibit A) Letter to Shrewsbury Selectmen dated August 19, 2015

TO: Shrewsbury Board of Selectmen

Cc: Daniel Morgado, Town Manager

FROM: John Lukach

SUBJECT: Public Hearing – Proposed New Water Rates: Unfair to Residents

On August 12th a notice appeared on the town website saying that the Board of Selectmen will hold a public hearing on proposed new water rates on August 25th. This is nowhere near enough time for residents to thoroughly review the memo and the materials that the Town Manager supplied with that notice, and suggest changes. But since I have followed the water rate discussions from previous years and in particular, provided the selectmen with detailed comments when the 2012 rates were proposed (e.g. my letter to the selectmen dated September 6, 2012), I am again pointing out a major problem with his proposal. Since I will be out of town on August 25th, please include these written comments in the public record of this hearing.

The overriding problem is that residential rates are substantially higher than commercial rates at medium to high usage levels, under both the current and the proposed rate structures. This is manifestly unfair to residential users. For example, under his proposed rates, a residential user would pay $12.00/Thousand over 60,000 gallons vs. a commercial user paying only $4.30/Thousand over 50,000 gallons. In other words, above 60,000 gallons, the residential rate would be 2.8 times the commercial rate!

There is no economic or conservation justification for this huge disparity in rates. Some town officials have argued that low commercial rates are needed to attract new businesses, but they provide no evidence to support this claim, and in fact, overall Shrewsbury’s low property taxes and fees are attractive to businesses compared to other towns. And do we really want to attract with our low water rates the types of commercial businesses that will use a lot of water, when our water supplies are limited? Of course not.

What has probably prevented some commercial developers from selecting Shrewsbury is the constraint on the town’s ability to pump more water. Raising commercial water rates substantially on current high-consumption commercial users would encourage more conservation, thus making more water available.

Some town officials have also argued that since sewer rates are higher for commercial users, these users’ water rates should be lower. But no detailed study has been published showing the effects of equalizing residential water and sewer rates across residential and commercial users. Until such a study is done, town officials are merely speculating, and this argument has no merit.

So, if more revenues are needed to support the town’s water system, there is a better, fairer alternative to the Town Manager’s proposal. Raise the commercial water rate for usages over 50,000 gallons from $3.80/Thousand to $8/Thousand. Since current consumption levels in excess of 50,000 gallons is about 105 Million gallons (from page 12 of Town manager’s memo), this would raise about $440,000 ($4.20 times 105 Million divided by 1,000), assuming current consumption levels. This is $75,000 MORE than what the Town manager hopes to realize from his proposal. And even if commercial users reduced their consumption by 20% in response to the increased rates, water revenues would still increase by over $350,000. Thus no residential rates would have to be increased at this time.

What are the benefits of my proposal? It generates the additional revenue that the Town Managers says is needed without having to increase already high residential rates; and it encourages conservation by users with the highest consumption levels. But fairness would be the biggest benefit – reducing the disparity in water rates between residential and commercial users. And note that even at a commercial rate of $8/Thousand above 50,000 gallons, this rate would still be 20% lower than the current $10/Thousand rate for residential users at the same consumption levels.

Recommendation: I ask that the selectmen defer any action on water rate increases until it has more time to consider alternatives to the Town Manager’s proposal, alternatives that spread the burden of supporting the water system more equitably among users. (There are fairness issues with some of the other rate categories that I won’t go into at this time, but their rates should also be reviewed.)

Sincerely,

John Lukach
Encl: Letter to selectmen dated September 6, 2012


Exhibit B) Community Advocate Letter:  Email sent September 30, 2015

Large Commercial Water Users Subsidized by Shrewsbury Residents

The September 18th edition of the Community Advocate had an article on rising water rates in Shrewsbury. The article contained errors and misleading statements. For example, the last water rate increase was in 2012, not 2008. Also, it is incorrect to say that the town’s rate is low compared to its neighbors: Shrewsbury has several rates depending on category and consumption levels, and some of them are substantially higher than neighboring towns, some of which have just one rate.

But the biggest problem with the article was that it ignored the fact that the largest commercial users will continue to pay much lower rates for their water than many residential users. On August 19th I sent a letter to the selectmen on this issue, but they ignored it. (A copy of this letter is at shrewsburysrt.com.) Under the new approved rates, commercial users will pay no more than $4.30/Thousand no matter how much water they consume, compared to residential users who will pay $14.00/Thousand starting at only 60,000 gallons, more than 3 times the commercial rate. In other words, commercial users who consume over a Million gallons per quarter will pay no more than $4.30/Thousand, but residential users will pay $14.00/Thousand above only 60,000 gallons. And this is fair?

The major reason for increasing rates at higher consumption levels is to encourage conservation, but town officials refuse to be serious about encouraging water conservation among the largest commercial users.

Why should average residential water consumers care? Because NO increases in any residential water rates would have been necessary if commercial rates over 50,000 gallons had been increased to about $8.00/Thousand, which is still quite low compared to the highest residential rate of $14.00/Thousand. This would have encouraged conservation among the largest water users and resulted in a more equitable rate structure. But evidently, town officials are not all that interested in water conservation, and not at all interested in fairness.

John Lukach


 

Exhibit C

New Water Rates vs. Old Water Rates
Source: Town manager’s List received 9/15/15
Pertinent
Rate Range Current Proposed Increases
Residential & Minimum (0 to 5,000 gallons) 21.00 24.00
Condominium 5,001 to 25,000 Gal/Thousand 3.40 3.70
25,001 to 60,000 Gal/Thousand 6.30 6.90 0.60
Over 60,000 Gal/Thousand 10.00 14.00 4.00
Commercial Minimum (0 to 5,000 gallons) 36.00 40.00
5,001 to 25,000 Gal/Thousand 2.80 3.30
25,001 to 50,000 Gal/Thousand 3.80 4.30 0.50
Over 50,000 Gal/Thousand 3.80 4.30 0.50
Apartments Flat Rate/Thousand 4.25 4.50
Residential Lawns Minimum 21.00 24.00
Residential Summer 0 to 60,000 Gal/Thousand 6.30 6.90
Apartment Lawns Over 60,000 Gal/Thousand 10.00 14.00
Commercial Lawns
Condominium Lawns
School & Municipal Minimum (0 to 5,000 gallons) 36.00 40.00
5,001 to 50,000 Gal/Thousand 2.30 2.50
Over 50,000 Gal/Thousand 3.40 3.80
School & Municipal Flat Rate/Thousand 3.50 3.80
   Lawns

 

Exhibit D

Top 20 Water Customers – Residential Source: Dan Morgado pdf file
FY2015
Average
Total Usage Average Total Charges Cost per
ID # of Bills All Bills (Gallons) Quarterly Usage All Bills 1,000 Gallons
R1 4 887,000 221,750 8,180.80 9.22
R2 4 725,000 181,250 6,283.80 8.67
R3 4 680,200 170,050 6,350.58 9.34
R4 4 467,000 116,750 4,147.30 8.88
R5 4 407,000 101,750 2,930.20 7.20
R6 4 394,000 98,500 2,870.50 7.29
R7 4 392,500 98,125 3,080.46 7.85
R8 4 361,000 90,250 2,559.00 7.09
R9 4 358,000 89,500 2,469.80 6.90
R10 4 337,000 84,250 2,208.00 6.55
R11 4 329,000 82,250 2,432.40 7.39
R12 4 321,000 80,250 2,240.40 6.98
R13 4 306,000 76,500 2,040.70 6.67
R14 4 306,000 76,500 2,126.30 6.95
R15 4 298,076 74,519 2,084.49 6.99
R16 4 281,000 70,250 1,869.90 6.65
R17 4 279,000 69,750 1,735.30 6.22
R18 4 269,000 67,250 1,550.20 5.76
R19 4 263,000 65,750 1,723.72 6.55
R20 4 259,000 64,750 1,676.60 6.47
Total 7,919,776 60,560.45 7.65

 

Exhibit E

Top 20 Water Customers – Commercial Source: Dan Morgado pdf file
FY2015
Average
Total Usage Average Total Charges Cost per
ID # of Bills All Bills (Gallons) Quarterly Usage All Bills 1,000 Gallons
C1 8 10,644,000 1,330,500 40,423.20 3.80
C2 4 5,705,000 1,426,250 21,667.00 3.80
C3 4 5,353,000 1,338,250 20,329.40 3.80
C4 4 4,319,000 1,079,750 16,400.20 3.80
C5 4 3,604,000 901,000 13,686.24 3.80
C6 4 3,578,000 894,500 13,584.78 3.80
C7 4 2,954,700 738,675 11,215.86 3.80
C8 4 2,722,000 680,500 10,331.60 3.80
C9 4 2,640,000 660,000 10,020.00 3.80
C10 ? 4 2,557,600 639,400 19,425.76 7.60
C11 8 1,942,000 242,750 7,355.60 3.79
C12 4 1,925,300 481,325 7,304.14 3.79
C13 4 1,743,000 435,750 6,611.40 3.79
C14 4 1,639,290 409,823 6,217.30 3.79
C15 4 1,639,000 409,750 6,216.20 3.79
C16 4 1,582,000 395,500 5,999.60 3.79
C17 8 1,575,000 196,875 5,961.00 3.78
C18 4 1,481,000 370,250 5,615.80 3.79
C19 4 1,469,600 367,400 5,572.48 3.79
C20 4 1,342,000 335,500 5,087.60 3.79
Total 92 60,415,490 239,025.16 3.96