Facts don’t support veto on Blue Mound water

Posted Monday, Jul. 01, 2013  comments  Print Reprints

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Gov. Rick Perry tells us he vetoed Rep. Charlie Geren’s bill on Blue Mound water service in order to support infrastructure investment in Texas. The facts do not support that excuse.

This is very important to me as a customer of Monarch Utilities, and as an officer on the board of Texans Against Monopolies Excessive Rates

To be clear: Monarch has made or purchased from its predecessor, Tecon, water and sewer infrastructure investments that serve Blue Mound residents. But those investments would have been protected by the bill the governor vetoed.

The bill specifically made Blue Mound’s right to offer water and sewer service contingent on (a) its prevailing in a condemnation action to acquire the water and sewer infrastructure and (b) its having paid Monarch the value.

The governor’s statement that the bill made “no provision for the value [to Monarch] of lost business” is “pants on fire” not correct. Condemnation principles plainly allow the income-earning capacity of infrastructure to be considered in determining the amount to be paid if the infrastructure is condemned.

There is no legitimate infrastructure-related rationale for the veto. The veto increases the likelihood Monarch will be able to continue to foist off on Blue Mound’s residents all manner of expenses that just would not exist if the city were allowed to serve the residents itself.

Texans eager for at least semi-rational government need to know:

• Monarch’s Blue Mound rates are not based on Monarch’s cost of serving Blue Mound residents. Blue Mound has roughly 800 water “accounts” (households) and 2,400 residents.

The rates are based on the costs Monarch hypothesizes it incurs to serve its entire “system” of 24,327 water accounts (roughly, 73,000 residents) scattered throughout 25 counties, from Medina County (southwest) to Chambers County (southeast) to Wise County (northwest) to Grayson County (north) and to Marion County (east).

• Typically, infrastructure-intensive businesses, like utilities, try to fund at least half of their capital investments with borrowed money, which typically costs much less than equity, i.e., investor, money. Monarch has chosen to fund more than 68 percent of its capital investments with equity money, so its infrastructure costs are much higher than they should be.

• Monarch in its most recent rate increase application claimed $7.4 million in annual “miscellaneous” expenses. That was 25 percent of all expenses. Of that $7.4 million, $3.9 million was for “Utility Group Fee Allocation” and $1.7 million was for “Corporate Management Fee Allocation.” Who knows what those fees may be?

In any event, can you imagine a city of 73,000 residents (say, Baytown or Harlingen) incurring $5.6 million of yearly administrative overhead to provide water and a little bit of sewer service?

• Monarch has a parent company, SouthWest Water Co. Utilities, that owns some small utilities that together serve another 9,433 water accounts in Texas. Were Monarch and SWWC Utilities combined, their entire “system” would serve 33,760 accounts, or about the number of accounts in a city like Odessa or Richardson (roughly 100,000 population).

Monarch and SWWC Utilities no longer have to report their chief executive’s total income, but in the last years that cost did have to be reported the top guy got $572,497 (2008) and $321,528 (2009). Can you imagine the director of public works in Odessa or Richardson making anything like that much?

The bottom line is that Monarch’s outrageously high rates have very little to do with anyone’s infrastructure needs. They have a lot to do with management decisions that stick it to ratepayers.

The bill the governor vetoed would have made it easier for Blue Mound to rein in this problem for its own residents.

His veto re-enforces the public’s cynicism about who really runs government.

Cyrus "Cy" Farver lives in Aurora and is secretary of the TAMER board. http://www.tamertx.org

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