Misinformation from CFPUA Leadership Taints Upcoming Rate Hearings

In the February 5th Star News Article ”Utility urged to change rate structure” CFPUA treasurer Burrows Smith is quoted with saying “that Cape Fear Public Utility's rate structure is common practice for most utilities.” It's an apparent attempt to convince the public the CFPUA's tiered rate structure was the norm for water utilities in the state. Problem is, that’s not true at all.

Above is the slide presented to the CFPUA board.

More disturbing is that just before Smith’s interview with the Star News he had seen a presentation based on the August 2010 "Water and Wastewater Rates and Rate Structures in North Carolina" study written by the North Carolina League of Municipalities and the UNC Environmental. That study showed only 26% of utilities in North Carolina have the same rate as the CFPUA, not even close to being “the common practice for most utilities” that he claimed.

In a previous email Renzaglia stated “the State passed legislation that effectively cuts off funding to those utilities/muncipalities that did not have a tiered rate structure.” A review of North Carolina state law shows that’s not true either.

Smith and Renzaglia are the only two original board members left and defend the tiered rate structure they help put in place every turn. However, with five new board members in the past year, there is hope for meaningful change in the rate structure for families in New Hanover County.

Can these board members just say whatever they want regardless? Yes. So where is the accountability? Unfortunately, there is none. It seems to be a common strategy that’s being implemented. That is, if you say something enough times, people will believe it to be true, whether it is or not. A great way to manipulate public opinion and convince the newest CFPUA board members to blindly fall in line and support the status quo.

The bottom line is the CFPUA’s tiered rate structure punishes families for essential water needs and that’s wrong. That should be unacceptable to all board members. The current rate structure should be changed radically, if not done away with all together. For all the things the CFPUA is doing right, the rate structure is not one of them. It is government at it’s worst.

CFPUA Board Member Claims County Impact Fees Unfair

Text of an email sent to CFPUA Treasurer Burrows Smith on 2.7.11....

Burrows,

I read the February 4th Star News article “Builders Challenge New Hanover County on Impact Fees” and your complaints about the impact fees your development company was being forced to pay for schools. You didn’t like being charged premium when your retirement development was going to have little impact on the school system.

Likewise, under the CFPUA’s current tiered rate structure New Hanover County Families are punished with higher prices for essential water needs when they are no more a burden on the system per person than smaller families.

As a CFPUA Board Member I would hope you would make the same argument for the families of New Hanover County that you make on behalf of your personal business. You’re right, overbearing government fees are not fair. The CFPUA tiered water rate structure is simply bad policy and it’s time for change.

After reading that article, it seems you understand my point of view now and I look forward to seeing you lead the charge for change.

Best regards,

Chad O’Shields

CFPUA Calls for Public Hearing Before Next Round of Rate Increases

The Cape Fear Public Utility Authority has scheduled a public hearing before the next round of rate increases. The hearing will be March 9th at 6:00 pm in the Commissioners Chambers in the Historic Courthouse downtown. The hearing will allow the public to address concerns directly to the CFPUA board  regarding pending rate hikes.

One of the topics of discussion will be the results of a nearly $50,000 rate study. Many New Hanover County families hope discussions will result in meaningful change to the current rate structure. Under the current rate structure some families have seen the price they pay for essential water needs increase over 140% per thousand gallons.

For over two years families have complained to the eleven member CFPUA board they were being unfairly punished with higher rates. According to the American Water Works Association standards, the Cape Fear Public Utility Authority’s tiered water rates are unfairly punitive to larger families.

A rates workshop is also scheduled for February 23. It will be at 6:00 pm Commissioners Chambers in the Historic Courthouse downtown.

Investigation Finds Cape Fear Public Utility Authority Raised Rates in Violation of State Law

The Cape Fear Public Utility Authority's rates continue to spiral upward. The entity has plans to potentially raise rates every year for the next decade. The CFPUA has increased rates twice in 2010; a 25% increase in the fixed water and sewer rates in January and another 14% increase to the tiered rate in May. Both of these rate increases appear to have been in violation of state law.

The CFPUA was created under NC General Statute 162A. NC General Statute 162A-9(a) reads as follows: 162A‑9. Rates and charges; electronic notice; contracts for water or services; deposits; delinquent charges.
         "(a) An authority may establish and revise a schedule of rates, fees, and other charges for the use of and for the services furnished or to be furnished by any water system or sewer system or parts thereof owned or operated by the authority. The rates, fees, and charges established under this subsection are not subject to supervision or regulation by any bureau, board, commission, or other agency of the State or of any political subdivision.
        Before an authority sets or revises rates, fees, or other charges for stormwater management programs and structural or natural stormwater and drainage system service, the authority shall hold a public hearing on the matter. At least seven days before the hearing, the authority shall publish notice of the public hearing in a newspaper having general circulation in the area.”

In November of 2009, minutes show the CFPUA Board discussed and approved the 25% increase in the fixed rate portion of the water and sewer rates. That increase went into effect January 1, 2010 with no public notice or public hearing.

In March of 2010 the board approved a second rate increase of 14% in the tiered rate portion of the water rate which went into effect as of May 1, 2010. Meeting minutes again show the rate increases were discussed and approved with no public notice or hearing.

The CFPUA provided affidavits of publication from the Star News for the all Authority’s public hearings since October 1, 2009. Those records confirm that there was no notice of public hearing published for either the November 2009 or March 2010 meeting. Likewise, Authority minutes show there was no public hearing regarding rate increases.

Records from a board meeting in March 12, 2008 indicate the authority was aware of the requirement for public notice and hearing regarding rate increases. In compliance with NCGS 162A-9(a) then interim attorney Bill Lynch advised the Board that it should publish the proposed rates for hearing and approval at the next Authority meeting

Linda Miles currently serves as consulting attorney for the CFPUA Board. Records indicate she was in attendance at both the November 2009 meeting and March 2010 meeting where rates increase were discussed and approved. Minutes do not show that the requirements of 162A-9(a) were mentioned during either meeting.

Since rate hikes were imposed without due process, and in violation of North Carolina general statutes, customers have actually been overcharged for the last 12 months. Technically those overcharges should be refunded and the process completed in accordance with state law. However, that’s not likely to occur.

Refunding overcharges could cost the CFPUA millions of dollars. If the organization was forced to credit customers the overcharges, it would immediately have to turn around and send customers a bill to recoup the refund.

With the Cape Fear Public Utility Authority, citizens find themselves being governed by what is essentially a government corporation. An appointed board with the unlimited ability to spend money and raise rates, rates many would call taxes since they are levied by a government body. A scenario most likely not envisioned by our forefathers. What recourse do citizens have when these government corporations fail to comply with state laws and violate the public’s trust? Little, if any, according to the North Carolina Department of Justice(NCDJ).

Utilities Attorneys with the North Carolina Department of Justice’s Consumer Protection Division said it is the responsibility of local elected bodies, such as the City Council and County Commissioner, to keep entities like the CFPUA in check. In reality, the City Council and County Commission have little control over the CFPUA, other than the ability to appoint members to the board.

Attorneys with the North Carolina Department of Justice admitted there is no regular process for overseeing these government corporations. The only way for citizens to seek relief and force organizations like the CFPUA into compliance with NC General Statutes is by filing a civil action: an expensive proposition average citizens can not afford to undertake.

The Cape Fear Public Utility Authority’s failure to follow statute 162A-9(a) is not only a direct violation of state law, but a serious violation of the public’s trust. It is taking away the rights of the citizens to due process as required by state law. Local elected officials have called for a shake-up at the CFPUA. That shake-up may need to start in Raleigh with changes to the very statutes that allowed for the creation of entities like CFPUA.

Reference documents and links:
North Carolina Department of Justice
NC General Statute 162A
NC General Statute 162A-9(a)
CFPUA Affidavit of Publication October 2009 thru November 2010
CFPUA Board Meeting Minutes March 2008
CFPUA Board Meeting Minutes November 2009
CFPUA Board Meeting Minutes March 2010

Cape Fear Public Utility Authority could spend up to $84,660 on consultants for rate study

The Cape Fear Public Utility Authority could spend up to $84,660 on consultants for its newest rate study. The bids are in and information provided by the CFPUA purchasing department showed a total of 7 firms submitted quotes ranging from $42,900 to a nearly $85,000.

Bid totals were as follow:

Consultant / Total Cost
AUS / 42,900
Municipal & Financial Services Group(MFSG) / $ 44,200
Utility Advisors’ Network, Inc / $ 48,000
Raftelis Financial Consultants, Inc / $ 49,875
Burton & Associates / $ 53,928
CH2MILL / $ 79,500
Black & Veatch / $ 84,660

Municipal & Financial Services Group (MFSG) performed the Authority’s initial rate study and proposed the rate structure in place now. MFSG submitted the second lowest bid this time around coming in at $44,200. Their ongoing relationship with CFPUA makes them a likely front-runner to secure the study this time around as well. Their previous report is only two years old and it’s questionable what new ideas they might bring to the table.

Former CFPUA board member Kathryn Johnston wanted to see the board move away from spending money on consultants for rate structure input. With the decision to nearly double rates already in place there is concern the study will only serve as either a high priced propaganda piece to support the status quo, or a scapegoat on which to blame the impending rate increases.

It should be pointed out that some of the information requested in the rate study proposal is freely available online through organizations like The North Carolina League of Municipalities and the American Water Works Association.

The Authority will continue to move the bidding process forward holding rate study interviews December 6th, from 12:00 to 5:00pm, at their offices on Government Center Drive.

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.

American Water Works Association Classifies CFPUA Water Rates Unfair

Some CFPUA board members agree. Leadership defends the status quo.

According to the The American Water Works Association(AWWA), the Cape Fear Public Utility Authority’s tiered water rates are unfair. For over two years families have complained to the 11 member CFPUA board they were being unfairly punished with higher rates. Now it appears the AWWA agrees.

The AWWA says tiered rate structures like the CFPUA’s can potentially be punitive to large families, charging them a higher prices when they may in fact be very efficient water users, and thus not deserving of a higher unit rate. It goes on to say tiered rates should not punish water usage where there is no discretion in usage. The CFPUA’s tiered rate structure fails that basic standard of fairness.

Under the CFPUA rate larger families can pay significantly higher prices while using the same amount of water per person. These families are forced to pay a premium even while conserving water. For example, a typical family of 2 or less would pay 1st tier rates of $2.22 for essential water needs. A family with 3 members, using the same amount of water per person as the family of 2, would pay 2nd tier rates of $ 3.36. Likewise, a family of 5 can easily the 3rd tier rate of $ 4.50 for basic water needs.

County Commissioner and CFPUA board member Bobby Greer understood the inherent flaws in the rate structure and has attempted to change it virtually since it’s inception. A more recent addition to the board, City Councilman Charlie Rivenbark, has expressed concern as well. Unfortunately, Greer’s attempts to change the rate structure have been thwarted under the current leadership.

CFPUA Board Chairman Gene Renzaglia defends the tiered rate structure. Treasurer Burrows Smith does as well. While larger families pay a premium for their most basic water needs, they’ll find little compassion from Smith. “They’re the ones that have the family. It’s their choice.”, he said.

Many water utilities have refused to implement tired rates because of the inherent problems. AWWA figures show utilities actually moving away from that type of rate structure.

The problem for those that defend the status quo is that after 2 years there’s no evidence the Authority’s tiered rate structure has even been effective in encouraging conservation, or at least no more so than an appropriately set uniform rate would be. While usage is down since the CFPUA was created, reports from both CEO Matt Jordan and former CFO Brett McAbee credit the decrease specifically to increased rainfall and a downturn in the economy, not the tiered rate scheme

It is significant that the foremost authority on water, The American Water Works Association, classifies the CFPUA’s tiered rate structure as punitive to larger families. According to AWWA standards, the Authority’s tiered rate is inherently discriminatory and unfair, punishing families with higher prices for their most basic water needs

The CFPUA’s current tiered rate structure is bad policy and it remains a stain on the integrity of this board. The American Water Works Association agrees.

It’s time to bring this form of government sponsored discrimination to an end.