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Letter to the Editor: Alexandria Renew CEO on Rate Hikes

Alexandria Renew Enterprises CEO Karen Pallansch responds to recent Patch article.

To the editor:

From reading the comments on Dana Damico’s article in the Patch on the recent increases in water cleaning rates, I can see there is a certain amount of misinformation and confusion about the water, wastewater and collection system billing and rates that I hope to clear up. I can’t speak for Virginia American Water, but I can discuss Alexandria Renew Enterprises.

First, let’s accept the fact that rate increases are driven solely by one thing: environmental mandates, driven by public desire for a clean and safe water environment. In November 2006, the Virginia Department of Environmental Quality (VDEQ) informed wastewater treatment plants throughout the Commonwealth that they would have to remove more nutrients—primarily nitrogen and phosphorus—from their treated water before it is released back into the Chesapeake Bay watershed. 

I certainly agree with one of the comments regarding pollution sources. It’s true, agriculture runoff, leaking septic tanks, pet waste, air deposition and the destruction of wetlands that act as natural filters to contaminants also contribute to the pollution that enters the Chesapeake Bay Watershed. 

But the law is the law. For wastewater treatment plants, known as “point sources,” these stringent and legally binding regulations require Alexandria Renew Enterprises to remove 62 percent more nitrogen from our treated water than before, requiring cutting edge and expensive infrastructure and technology. Contrary to what is implied in one of the comments, our facilities are not designed with the ability to get to that lower level today. Even though we employ nationally recognized best operational and business practices, it is impossible to reach the mandated removal requirements without technology and infrastructure investment.

To achieve this new level of nutrient reduction, Alexandria Renew had to embark on a massive and expensive upgrade of our already award-winning facility so we can continue to operate in compliance with federal and state mandates and not face steep fines. For us, non-compliance is not an option. Other wastewater treatment utilities in the region are confronting similar challenges, and their customers are also facing rate increases. I would like to note that in the most recent Virginia wastewater rate survey conduct by Draper Aden Associates, Alexandria Renew’s rates fell just under the statewide average of residential wastewater charges.

The largest of Alexandria Renew’s projects—the State-of-the-Art Nitrogen Upgrade (SANUP)—will cost more than $150 million. Our Capital Improvements programs—constructing facilities that support SANUP—accounted for 45 percent of our FY 2013 budget—almost $38 million. Capital investment to attain and to continually meet regulations is our biggest line item. Overall, these projects, which include upgrading our pump stations, managing our solids residual material in a sustainable way and developing a water reuse program, will cost approximately $222 million over 10 years.  It is these programs that drive the Bay Protection charge seen on your bill—regardless of the amount of wastewater generated, our facilities must have capacity reserved for each of you to use whenever you call upon it. That flat fee funds the debt service and cash investments needed to meet new regulations and update this equipment when it is at the end of its life cycle. It is just like your home—you have a mortgage to pay, which constitutes a set amount of your paycheck. Then you have monthly maintenance to keep your home functional. It is exactly what we do with your rates, but our home is appraised at $750 million!

I would also like to address the issues of transparency and public notification of the upgrade and the rate increase. There were numerous public meetings and hearings on the upgrade going back to the City of Alexandria Planning Commission Meeting in 2007. The City Council later approved this request, and last year also approved our overall plan for the new facility. We held community meetings and invited the public to comment on the plan. That process yielded some very good suggestions.

We also informed the City Council about the rate increase when it was first proposed and then yearly as the approved increases took effect. It was approved by Alexandria Renew’s Board of Directors, who are appointed by City Council. Here too, we held an advertised public meeting and hearing at our facility in 2010 and requested public comments but received none.

I understand that no one likes a rate increase. Rate increases are the only option Alexandria Renew has to pay for the mandated upgrades that we all hope will play a part in reversing the declining health of the Chesapeake Bay and continue the positive health of the Potomac River we have seen in the last 40 years. A healthy water environment fuels successful cities.

If you are interested in learning about the whole process of treating wastewater, we hope you’ll arrange for a tour of our award-winning facility, located right off of Eisenhower Avenue. Visit our website to learn more.

Sincerely,

Karen L. Pallansch
Chief Executive Officer
Alexandria Renew Enterprises

Tom Van Wagner December 28, 2012 at 04:03 PM
Tim- Thanks for the comments and the questions. You are correct that cutting water usage will cut down on monthly bills but not in a straight-line proportion to the total bill. The car analogy you use is a good one, if I may carry it a bit further. My own car usage costs– (gas, tolls) account for only about 15% of total car ownership cost; the total cost includes the purchase price, maintenance, repair, taxes, registration, inspections etc. Over the life of my car (its a prius, not a lexus) - I figure it comes to about $300-400/month before I even buy a gallon of gas. Similarly, cutting down on water usage will reduce the monthly cost of AlexRenew bills, but the largest portion of the bill contributes to infrastructure. Renew must pay for the buildings (plant), equipment and labor in order to meet increasingly stringent environmental laws, while providing service to all of its customers 24/7, in a city that is still growing. The line item “Bay Protection Charge” is our name for the fixed charge that helps recover capital expenses needed to upgrade the infrastructure, which contributes to the health of the Chesapeake Bay Watershed. Again, thanks for the questions, Tim. I know I didn't answer all of them in the limited space here, but the website alexrenew.com has a lot of good info, including the full budgets, annunal reports and an explanation of the billing charges. The customer service staff is available to answer questions as well.
Mark Williams December 28, 2012 at 06:08 PM
The "minimum charge" has little to do with the water actually consumed. It relates to the rate base assets -- the cost of the actual water distribution system -- that has to exist to provide service, allocated to each user as a minimum rate base. Alexandria Renew is required to treat all water that passes through the sewer system, and Alexandria Renew's rate base includes the cost of not insubstantial plant that is divided among the metered customers. The "Bay Protection" charge is a mandated contribution to the overall cost of treating water that can and does indirectly enter the bay from Alexandria. Cutting water use does not mean that facilities don't need to be there for peak-time service.
NoBS December 28, 2012 at 06:52 PM
Mark - you said that the "Bay Protection" charge is mandated. Mandated by VA law or something else?
Lee Hernly December 28, 2012 at 08:07 PM
Gail - The ASA/Alexandria Renew Board of Directors approved a new fixed "Bay Protection Charge" to recover capital expenses needed to upgrade infrastructure. These upgrades are required in order to meet new regulations focused on protecting the health of the Chesapeake Bay Watershed. The upgrade was mandated by law, the 'bay protection charge' was not.
Tom Van Wagner December 28, 2012 at 09:36 PM
Gail- Mark and Lee are both correct. The Bay Protection Charge is described of p 19 of the 2010 Annual report (http://alexrenew.com/wp-content/uploads/Final-2010-Annual-Report.pdf "...the cost of treating water is going to increase in the coming years. One reason is more stringent environmental regulations that call for cleaner wastewater that will help restore the health of the Chesapeake Bay. This requires ASA ... to upgrade our facility so that we can continue to operate. Plans are well underway for SANUP, which will cost an estimated $129 million over the next seven years. Other capital projects are planned to upgrade pump stations, manage biosolids in a sustainable way, and develop a water reuse program. These projects will cost approximately $222 million over ten years, and are necessary steps to allow ASA to continue to serve y ou – our customers. To achieve upgrade projects of this magnitude, and comply with Virginia DEQ and EPA regulations, a rate revenue increase was needed. After a detailed rate study, ASA’s Board opted to approve a 3-year phased approach to the Board: with the first increase going into effect October 1, 2010, and subsequent increases in 2011 and 2012. The rate increase does not affect the per gallon charge for water consumption, but it does increase the ASA account service charge by roughly $0.25/month and adds a new Bay Protection Charge – a fixed charge to recover capital expenses needed to upgrade ASA infrastructure.

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