Water: Fairness, profit and the future

by Mike Kroll

As decision time rapidly approaches at least some Galesburg aldermen remain concerned about the administration's proposed "Raw Water" rate for Monmouth. Perhaps the choice made by the Galesburg City Council to table discussion of this issue Monday evening underscores the personal and political quandary in which some council members find themselves. There appears to be a genuine desire among council members to help Monmouth sort out its water problems, but the hesitation to offer such a bargain rate is also understandable. There is a matter of fairness to the residents and businesses that are located within Galesburg yet would pay appreciably more for water than the troubled neighboring municipality.

Galesburg currently has four water rate tiers, each of which offer substantially decreasing rates as water consumption increases, and three rate classifications (inside Galesburg, outside Galesburg and Pipeline). The table on page 14 shows these water rates alongside the City Manager's proposed modification to the Pipeline or Raw Water rate. Not shown on the chart is the $6 facilities charge that is added to all quarterly water bills.

The general rule is that water customers outside of Galesburg pay double the inside water rate for the first three tiers or 53,200 cubic feet of water. The City measures water in 100 cubic feet increments (ccf) which converts to approximately 748 gallons. Once an outside water user's consumption reaches the fourth tier, the difference between inside and outside customers is reduced to approximately an 18 percent premium for outside customers. What this translates to in practice is that the large water consumers outside of Galesburg pay a much more modest premium for the bulk of their water usage than small users.

Historically, Galesburg has seen fit to charge Pipeline users, those landowners that sit astride the water pipeline to Oquawka and buy so-called "raw water" prior to its final treatment at Galesburg water plant, a modest ten percent premium over the equivalent inside rate. Two justifications exist for this policy: first, this rate reflects part of the compensation for the right-of way required by the pipeline; and second, the cost of pumping and processing the water prior to its arrival in Galesburg is lower.

According to City Manager Gary Goddard, the first rate offer to Monmouth was the existing pipeline rate and Monmouth officials declined. Monmouth's initial offer was reportedly a flat rate of $0.29 per ccf, a figure that is actually less than the water department's calculated cost to process and pump water half the distance to Galesburg. Public Works Director Larry Cox has calculated that the city's actual expense to the point where Monmouth would be tapping on the pipeline is $0.33 ccf.

In a memo sent by Cox to Goddard on May 31st, Cox states that the $0.43 ccf figure being proposed originated with an engineering firm working for Monmouth that coincidentally happened to have completed a water rate study for Galesburg just last year. Goddard has publicly denied this saying that Galesburg staff independently arrived at this figure by applying a 28.8 percent markup to the $0.33 ccf cost figure. Furthermore, Goddard dismisses any conflict of interest in the engineering firm's dual roles stating that this "familiarity" with the Galesburg water system is of mutual benefit to both sides during negotiations. Where the figure came from isn't the concern of the Aldermen; whether it's the proper figure is.

Almost unnoticed by most observers of this drama is the inclusion of a fifth rate tier in the proposed pipeline rates. Goddard is proposing that raw water users consuming between 532 ccf and 4532 ccf pay the present maximum pipeline rate of $0.73 ccf. This in effect means that the new lower raw water rate will not benefit any other pipeline customer. Out of the current 30 some pipeline customers only one consumes a substantial amount of water, Yorkwood School, and the school's consumption only barely reaches the existing fourth tier.

In any event, the new $0.43 ccf rate would be the absolute lowest rate offered to any Galesburg water customer regardless of size or location. And, at an estimated 2.6 million gallons of water to be consumed daily Monmouth would become Galesburg's single largest water user. The next largest water user is Abingdon but that community only consumes 330,699 gallons per day or 13 percent of Monmouth's estimated usage. The largest Galesburg water user is Maytag at 217,427 gallons per day followed closely by Henry Hill Correctional Facility at 215,357 gallons per day. Single user water consumption, even among the large water users, drops substantially after that.

A number of Alderman, most notably Rick Sundberg, have objected to offering Monmouth a water rate lower that that offered to Galesburg's largest inside customers. This is a position also taken privately by employees within the Galesburg Water Department as well as former Public Works Director Lyman Jensen (as reported by Cox in a memo to Goddard) and Cox himself privately to Goddard. The concern appears to be that Monmouth will simply turn to their second choice of reverse osmosis treatment of the existing well water if the Galesburg rate is too high.

As both Goddard and Cox have pointed out, the actual incremental additional cost to Galesburg to provide water to Monmouth is relatively small. Selling water to Monmouth, even at the rates proposed, will generate approximately $544,000 per year that can be used to help fund the planned construction of a second parallel pipeline between Galesburg and Oquawka. This project is currently estimated to cost upwards of $18 million. Additionally, instead of the typical tap-on fee Monmouth is being asked to contribute $1.865 million toward construction of a second Ranney collector at Oquawka. This second Ranney collector would greatly increase the supply of available water while obviating the need for two of the traditional wells currently located at Oquawka. From this viewpoint the Monmouth deal offers very real advantages to Galesburg.

However, fairness is a very real issue here as well. The water rate study completed by Farnsworth last summer made note of how the large number of small, mostly residential water customers presently pay a disproportionate share of the operating costs of the Galesburg water system. Due to a rate structure that greatly favors the large volume user the average Galesburg homeowner pays substantially more per gallon of water than any of the large water users. By offering this incredibly

low rate to Monmouth at their expected usage only exacerbates this differential. The Farnsworth study recommends that Galesburg gradually reduce the differences between the lowest and highest water rate tiers. This would increase the cost to the city's largest water users and could also result in a cost savings for the average homeowner. One way of doing this would be to distribute future annual rate increased toward the lowest rate tiers rather than across the board percentage increases. In time the discrepancy would naturally reduce gradually.

For example, a 10¢ increase in the third and fourth rate tiers would net an estimated $60,000 additional annually from just those water users who consume over 1,000 ccf quarterly. Among larger water users this would come out to between a 10 and 15 percent increase in water cost and that could be spread across two or more years. Contrary to the fears of some that such an increase would hinder economic development, the annual dollar impact of Maytag of such an adjustment would amount to slightly more than $10,000 annually in increased water charges.

What may be a small additional charge for most large water users would however be a significant additional cost to Monmouth. If we applied the present pipeline rates to Monmouth's estimated consumption the annual cost of water would rise $370,000 - 68 percent over the proposed rate. At Galesburg's current Inside Rate Monmouth would pay $282,000 more or a 52 percent increase. Clearly Monmouth officials might well balk at such increased costs but entering into such a long-term contract at the low proposed rate virtually assures that the greater rate parity proposed by the Farnsworth study never takes place.

Whatever the Council decides on this new contract and water rate will undoubtedly have a major impact on the finances of the Galesburg water system for decades to come. It will also say quite a bit about how the aldermen balance expediency and being a good neighbor against a philosophical move toward greater fairness in Galesburg's water rate structure.


Galesburg's largest Water Users
Galesburg's large users showing impact of a rate increase

Uploaded to The Zephyr website July 18, 2002

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