Report Shows CFPUA is Selling Water Below Cost

Budget Woes Continue

When the Cape Fear Public Utility Authority was created in 2008 it changed from a flat rate to an increasing tiered rate structure to bill for water consumption. The current tiers are $2.22, $3.35 and $4.50. A report given at the CFPUA July 2010 board meeting showed that water sold at the first tier of $2.22 is being sold below cost.

Exhibit 5-16 of CFPUA Financial Position Report dated June 30, 2010 shows the average cost of 1000 gallons of water is $3.01, which also represents what the equivalent flat rate would be. The problem is the Authority sells a majority of its’ water at $2.22 per 1000 gallons, or $.79 cents below cost.

At a recent meeting CFPUA Board Chairman Gene Renzaglia was quick to inform fellow board members that the price would have to be raised to keep from selling water below cost. Mr. Renzaglia previously justified the status quo stating that companies sell products below cost all the time.

Budget woes continue as the CFPUA cuts project and freezes employees salaries (all salaries except for CEO Matt Jordan who received a $22,500 pay increase.) A scheme that sells water below cost only compounds the organizations budget problems.

Almost since its inception, long time CFPUA Board member and County Commissioner Bobby Greer has lobbied to change the tiered rate portion of the rate structure. City Councilman Charlie Rivenbark, a more recent addition to the board, has expressed concern as well.

The irony is, with the CFPUA selling water below cost at the first tier, it relies on customers to do the very thing it claims it wants to discourage in order to balance the budget. Under the current rate scheme, the CFPUA needs customers to waste water, paying second and third tier rates, to make ends meet.

The Financial Position Report explained one of the board’s philosophies in forming the rate structure was that it was to encourage conservation. If the board believes a higher price (such as the third tier price of $4.55) encourages conservation, then by default it would agree a lower price encourages consumption. The question then is how does selling water significantly below cost encourage conservation? The answer is, it doesn’t.

The Cape Fear Public Utility Authority continues to take heat for its tiered rate structure on other fronts as well. Since its inception families have complained the rate structure is discriminatory. CFPUA internal reports back up the families claims showing it is indeed punitive to larger families, forcing them to pay 2nd and 3rd tier rates for essential water needs.

With project spending to possibly exceed half a billion dollars in coming years, CFPUA rates will continue to be in the headlines. According to the Authority’s own estimates, the rates it charges will nearly double over the next decade.