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2004-10-04 CITY COUNCIL PUBLIC HEARING MEETING MINUTESMINUTES OF A PUBLIC HEARING OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, HELD ON OCTOBER 4, 2004, AT 6:30 P.M., IN THE COUNCIL CHAMBERS, CITY HALL, 3519 LIBERTY DRIVE, PEARLAND, TEXAS. The meeting was called to order with the following present: Mayor Mayor Pro -Tem Councilmember Councilmember Councilmember City Manager City Attorney Tom Reid Charles Viktorin Woody Owens Larry Marcott Kevin Cole Bill Eisen Darrin Coker Absent: Councilmember Richard Tetens. Others in attendance: Deputy City Manager Alan Mueller; Executive Director of Community Services Nick Finan; City Engineer Doug Kneupper; Plan & Plat Administrator Richard Keller; Engineering Secretary Betty Foreman; Deputy City Secretary LaKeisha Cannon -Scott; Project Director Joe Wertz; Project Assistant Jennifer Phan; Planning & Zoning Board Members; Planning Manager of Community Development Lata Krishnarao; and Senior Planner Theresa Grahmann. PURPOSE OF HEARING — TO RECEIVE PUBLIC COMMENT REGARDING THE APPLICATION FOR A RATE CHANGE FILED BY WALKER WATER WORKS, INC. Mr. Darrin Coker, City Attorney. STAFF REVIEW OF THE SERVICE PLAN City Attorney Darrin Coker stated over the last few weeks he has been communicating with the Council regarding this upcoming Public Hearing. He stated the purpose of the hearing is to discuss the request to increase rates made by Walker Water Works, an independent operating utility that operates in City's extraterritorial jurisdiction and the City Limits. Pursuant to the Water Code, the customers of Walker Water Works that reside in the City belong within the City's jurisdiction in regards to water rates. The City does not have jurisdiction over the customers that reside in the extraterritorial jurisdiction. Approximately 60 residents are within the City Limits. The City did receive a rate increase application from Walker Water Works. In accordance with the Water Code, if certain residents actually complain of the proposed increase, then a Public Hearing has to be held. The City received complaints from approximately 50% of the 60 customers that are served by Walker Water Works. The proposed increase by Walker Page 1 of 8 —10/04/2004 Water Works was for 54% over the existing rates. The City later took action to freeze those rates. The rates have not increased, pending the outcome of the Public Hearing and future Council action. Subsequent to the freeze of the proposed rates, the City retained the services of RW Beck to prepare a report based on the application provided to the City by Walker Water Works. In response to that, Walker Water Works filed a response to the consultant. Both individuals are present to make short presentations to the City Council regarding their positions on the proposed increase. He stated the attorney for Walker Water Works, Steven Dickman, will make a brief presentation. Following Mr. Dickman will be the City's consultant, Jack Stowe of RW Beck. Attorney Steve Dickman representing Walker Water Works addressed Council and stated he is an attorney with the Kelly, Hart, & Hallman Law Firm in Austin, Texas. Mr. Dickman gave a brief description of the company Walker Water Works. He stated the company has a Certificate of Convenience & Necessity (CCN) to serve a certain geographic area here in Brazoria County. He stated 1123 water customers belong to Walker Water Works, approximately 60 reside in the City Limits of Pearland. He stated the remaining customers will have their rates determined by the Texas Commission on Environmental Quality. This application is identical to the application that was filed with the City of Pearland. The process for the rate increase had to start with the City. If the City does not wish to approve the increased rates, then Walker Water Works has the opportunity to appeal it through the Texas Commission on Environmental Quality. He gave brief information regarding rates being possibly adjusted by the Texas Commission on Environmental Quality if the City chooses to increase the water rates at a charge other than what is requested by Walker Water Works. This would be a hardship to the customers. Mr. Dickman stated it is fair for the customers if only one rate is set versus having several rate changes. The rate case was filed because there has not been a rate increase over the last five years. The company needs to recover the increase in cost of service that has been experienced over the last five years. System improvements have been made as well over the last five years. He stated Walker Water Works has spent approximately $500,000 over the last five years making water system improvements. The new rates would generate a revenue increase of approximately $200,000. He gave some brief information regarding the debt component for Walker Water Works. He stated Walker Water Works has 100% equity and no debt. Walker Water Works is currently seeking to move to a system of unified rates. He explained that due to Home Land Security, the company was mandated to conduct increase inspections of the water facilities, which caused the overtime. He briefly stated the company also had corporate fees. In closing, Mr. Dickman stated that if the requested rates are not accepted by the City of Pearland, then it is better to just send the requested rates to the Texas Commission on Environmental Quality and let them set the rates. Page 2 of 8 —10/04/2004 Jack Stowe of RW Beck addressed. Council and stated he is in disagreement with the rate increase request presented by Walker Water Works. The statutes state in Chapter 13 that when a utility files its rate application, they must be prepared to go forward into a hearing, if so noted, with the evidence in support of the submitted application for the proposed increased rates. When RW Beck reviewed the application, they came up with a set of different criteria and a different set of results based on the analysis. A report was give to Council recommending the same base rate requested by the company, but recommended that the volumetric charge be lowered. There has been some suggestion in letting the Texas Commission on Environmental Quality take over the jurisdiction through the process of appeal. Mr. Stowe stated he just came out of a rate case regarding an appeal of Municipal action. The City of Tyler was the municipality and Timbers Utility Company was the utility. In the proposal for the decision, the judge noted that the Texas Commission on Environmental Quality had taken no action on that application. They let the rate increase go into effect over the passage of time. He stated while the Texas Commission on Environmental Quality had approved the rate increase over the passage of time, the City Council's action on the recommendation by RW Beck to lower the existing rates was determined valid by the judge based on the evidence within the records. Mr. Stowe stated you cannot be assured that the Texas Commission on Environmental Quality is going to take care of the citizens within Pearland; this is a responsibility of Council. RW Beck's recommendation is based on information that was contained within the application. He gave clarification regarding the rate of revenue and rate of return. He stated Walker Water Works is 100% equity; however, the equity of Walker Water Works does not trade on the open market. The Walker Water Works equity is supplied by American Water Works. American Water Works does not trade on the open market. The equity for American Water Works comes from RWE. He gave a brief description regarding the debt, capital, and financial affairs of RWE. The numbers used to complete the report by RW Beck were based on the financial structure of RWE. He stated the adjustments made by RW Beck are made due to a clear lack of support in documentation provided by Walker Water Works. He stated there was also a discrepancy in the percentage of overtime stated in the application. In looking at the response, the letter from Walker Water Works stated they are asking for a uniformed rate. That is correct, but the way it is applied is incorrect. He stated a preferential treatment is taking place regarding the customers of Walker Water Works. City Attorney Darrin Coker stated this is just a Public Hearing and no action will be taken on tonight's agenda. This is an opportunity to hear the testimony and gather thoughts regarding the proposed rate increase. Action will be considered on a future Council agenda. Page 3 of 8 —10/04/2004 CITIZEN COMMENTS Cindy Fraley, 6125 Sharondale, addressed Council and stated the water is not drinkable because it is brown. Bottled water is used for drinking. The water is brown when bathing and washing clothes. This is throughout the whole neighborhood. Ms. Fraley stated once in a while it might be clear, but the majority of the time it is brown. She has called regarding the water. The company comes out and flushes it. Everything is left smelling like ammonia and clops of stuff come out in the water. She stated then the water is clear for a day or two and then it is back to brown. It is like this at all time. The water bill always fluctuates. Her family pays approximately $50.00 a month for water. She stated that is a lot of money for water that her family cannot drink. The company sends out test kits for the family, but it is hard to believe that the water is o.k. when you see chunks of stuff in the water. The ice -maker makes ice with chunks of stuff sitting in the ice. James Mise, 9230 West Sterling, addressed Council and stated he knows exactly what the previous speaker is talking about. The ice cubes leave crud in the glass when it melts. He stated he would like for some of the Walker Water Works people to try some of the water. He stated the improvements that Mr. Dickman spoke of were not made on his street. Nothing in their area is improved. He told Council that the residents need help from the City of Pearland. Joan Gardner, 2330 Sterling Drive, addressed Council and stated she agrees with the two previous speakers. When she received the letter from Walker Water Works regarding the proposed rate increase of over 50%, she was very upset. This is not right. John Cummings, 2341 Sterling Drive, addressed Council and stated he agrees with a lot of what has already been stated. He disagrees with Mr. Dickman representing Walker Water Works as a small water company. It is owned by RWE, which is one of the largest utilities in Europe. As such, it is a large utility with separate corporate entities. He stated the proposed cost increase should happen gradually over time. There are lower income people, retirees, and young families that will be affected. Dramatic changes like this to a budget are hard to withstand all at once. He encourages Council to reject this proposed rate increase. Nancy Mise, 9230 West Sterling, addressed Council and asked if their community would be able to receive City utility services. The community was annexed a few years ago, and this would eliminate a lot of the problems. The surrounding subdivisions in the area have City utilities. The water produced by Walker Water Works is not drinkable. They Page 4 of 8 —10/04/2004 have to purchase drinking water and that is an expense. She stated the increase should be gradual and not all at once 50%. Tom Freely, 6125 Sharondale, addressed Council and stated he and his wife took a petition around in opposition of the proposed water rate increase. He stated every home they visited had one horror story after another in regards to the billing system, quality of water, and everything to do with Walker Water Works. No one on Sharondale or Sterling Street had anything nice to say about the company. There were only two to three homes with no one at home during their petition route. Christy Jones, 9134 West Sterling, addressed Council and stated she agrees with everyone. She stated she goes to Wal-Mart to purchase several gallons of drinking water. Walker Water Works should not expect a 54% increase on water that is not drinkable. She stated her family does not want to bathe or brush their teeth with the water, but they really are not left with a choice. The laundry, dishwasher, dishes, and washing machine are stained because of the water. They do not care about equity and rate of return. She is a middle class mom raising a family on one income. This is just really unfair. She asked for Council's help. She stated Walker Water Works has not improved their area and they do not expect to see any. James Jones, 9134 West Sterling Drive, addressed Council and asked when would City services be available to their area. He understands that there are certain State guidelines for areas that are annexed into the City. He understands that there may be some circumstances regarding Walker Water Works owning certain utility rights in regards to their area. He knows the City would most likely have to purchase those rights from Walker Water Works. He questioned why would Walker Water Works want to sell when they do not have to do anything extra for them, but could raise the rates. He asked for City sewer services and the timeframe it would take for that to take place. He stated he would just rather not deal with Walker Water Works. His intention is to drill his own well if satisfaction cannot be provided by the City of Pearland. He stated the community would appreciate anything that can be done for them by the City. COUNCIUSTAFF DISCUSSION City Attorney Darrin Coker stated in 1999 the City expanded its CCN (Certificate of Convenience and Necessity). This is the certificate that insures the City or possessor there of the right to provide water or sewer depending on the type of CCN based on the boundaries of that CCN. At the time the City expanded its CCN, the City had to notify existing CCN holders in the City regarding the expansion. Notices went out to each independent operated utility located within the City and its extraterritorial jurisdiction. The City was seeking to serve an area where someone already had a CCN. This would Page 5 of 8 —10/04/2004 be considered dual jurisdiction. This would then create a competition. During the time the notification went out and the objections were filed, negotiations took place with different CCN holders. The end result was holes within the City's CCN area where the City agreed not to seek overlapping jurisdiction. He stated the Texas Commission on Environmental Quality frowns on dual certification because it ends up putting someone out of business. He stated the City did try to do dual certification with the West Lee Water Company and was denied by the Texas Commission on Environmental Quality. The City ended up approaching that case in a different way. However, in this particular case, the City does not have a CCN for the area being served by Walker Water Works. As a result, the City cannot provide water service to the area. He does not believe that this would apply to sewer services. He stated in regards to annexation, the annexation laws have changed in the past years. In the time that this property was annexed, the City was required to provide full municipal services to the area annexed within a certain time frame. He stated full municipal services are defined under that law in existence at that time, which are those services that are tax supported. He stated water and sewer services are part of the City's Enterprise fund. They are user supported and not tax supported. As a result, the City was not required at that time under the annexation laws to provide those services within the timeframe that are outlined in the Local Government Code. He stated the City's exclusive jurisdiction applies to rates and service issues, but does not apply to water quality. The Texas Commission on Environmental Quality has jurisdiction over the water quality. Councilmember Cole asked if the City's consultant is using the same rate determination as that of the Texas Commission on Environmental Quality. Mr. Stowe stated RW Beck used the same rate determination, but different numbers. Councilmember Cole asked for clarification on why Walker Water Works waited five years for rate action. Mr. Dickman stated he could not respond to that in a complete manner because a lot of it has to do with corporate policies. Councilmember Cole asked for clarification regarding the $500,000 improvements made in regards to the utility system. Mr. Dickman stated these improvements were to the entire Walker Water Works system. Councilmember Cole asked for the amount of improvements that went towards the area being discussed. Page 6 of 8 —10/04/2004 Mr. Dickman stated there were some improvements to the discussed area in the amount of approximately $9000 and another amount that he does not have at the time. Councilmember Cole stated this is a very small percentage in regards to the citizens being affected by the proposed rate change. Mr. Dickman stated Walker Water Works took whatever system upgrades necessary in order to get into compliance with State standards. Councilmember asked for the age of the Walker Water Works system. Mr. Dickman stated the system is comprised of various components, so it is hard to discuss the age of the system. Some components have been replaced, but there may be older portions of the system that have not been replaced. He stated some of the problems could be leaks or infiltration of the residents' systems. Councilmember Cole asked if any testing was done to see if leaks or infiltration was taking place within the system. Mike Merker of Walker Water Works addressed Council and stated within the Sterling system there was an excess of about $18,000 that was spent on a second water well, tanks, fences, and phosphate systems. He stated when calls are made regarding the problems with system, they go out and flush it. If there are any other problems and the residents choose not to call back, then the problem is not addressed and the company does not know. He stated if the residents continue to call and report problems, they would be out there everyday to fix them. He thinks the system went in during 1970's, but some of the components are fairly new. He stated those new components went in after the company was purchased. When the company purchased the system, it was in bad shape. Mayor Reid stated there is a concern that maybe the City could provide the water. He stated the City has done this in other areas, but the City was able to purchase the company. He stated one of those companies was in the West Lee Subdivision. He gave a brief explanation regarding the process of annexation and providing City services. General services of the City are covered by taxes and there are services covered by revenue. Water and sewer are covered by revenue. He stated the City does understand the problems taking place. Councilmember Owens stated he has known RW Beck for a number of years and trust the report given. He is concerned about the 12% return requested and the possible Page 7 of 8 — 10/04/2004 determination of the Texas Commission on Environmental Quality. He stated RW Beck has done an outstanding job on the report. He stated there is a concern when someone turns on their water faucet and good water does not come out, whether the company supplying the water is a private company or city. There is a duty and responsibility upon that water utility provider to make sure the water is quality. Councilmember Marcott stated the company representative stated that if there is a problem to call them. He suggested to the residents that they call and call. He stated the residents of the West Lee Subdivision had this same problem. The City was able to purchase the water utility services and fix the problem for those residents. Councilmember Viktorin stated he agrees with Councilmember Marcott and wants to know what kind of response is given by Walker Water Works when the calls are made. City Attorney Darrin Coker stated the next step for the City Council would be to actually address the rates. Council will have the opportunity to do so during the October 11, 2004, Regular Council Meeting. Council then would have a chance to agree to the proposed rate increase of 54%, go something less than that, or leave it at the current existing rates, which have been suspended. Regardless, Walker Water Works has made it clear that if it is anything less than the requested rate increase, then the company would appeal to the Texas Commission on Environmental Quality. He would provide Council with more information prior to the next Council meeting. ADJOURNMENT Meeting was adjourned at 8:25 p.m. Minutes approved as submitted and/or corrected this the 25th day of October , A.D., 2004. r Tom Reid Mayor ATTEST: moi_ • • •, ,lj ��� ► / l Page 8 of 8 —10/04/2004