Subject: Important! Update on Leesburg Water and Sewer Rate Activities

To All Potomac Station Residents:

The following message was sent to our Board president, Henry Twentier, over the weekend by Brian Shiflett, our primary contact person for the utility rate lawsuit.  You will note that the Town Council’s proposed rate structure will affect both our Town and County residents. We encourage EVERYONE to contact Leesburg Town Council members, attend the public hearing next Tuesday, July 28, and/or discuss this issue with your neighbors who may not have Potomac Station website accounts.

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Just to let you know, today [Friday, 7/17] is the day the Town of Leesburg is due to file their petition for appeal with the Virginia Supreme Court.  Earlier this week, the Town Attorney reiterated that the Town is planning to file the petition for appeal as part of their two-track response to the April 17, 2009 Circuit Court order.  Assuming no change in the Town’s plans, we’ll have copies of the petition for appeal distributed in the next couple of days.  The other track is the rate adjustment activity that is now taking place in Town Hall.  Monday [7/13] night’s Town Council work session was the first public discussion of the Town’s rate making plans and consultant’s recommendations.  The Town retained Draper Aden Associates to perform a new rate study, one that will produce rates that the Town Council plans to approve August 11 in time to meet the September 1 date when the Town can no longer enforce its current rate schedule.

The Town plans to run a public notice in the Loudoun Times Mirror [this] Wednesday, July 22, which will advertise a set of proposed water and sewer rates and will invite public comment on those proposed rates at a public hearing on Tuesday, July 28.  We do not know what exactly the Town will propose, but on Monday night [7/13], the Town Attorney put the following numbers out for Town Council consideration (all of these numbers represent percentage increases over the current rates):

In Town Water Usage: +36%
In-Town Sewer Usage: +44%

Out-of-Town Water Usage: +10%
Out-of-Town Sewer Usage: +60%

Fixed Charges, Water and Sewer (all customer classes): +15%

Naturally, one will take offence at these numbers, depending on their perspective.  In-town customers will be shocked at the level of proposed increases in their rates, considering they just went through four annual increases beginning in 2006.  Out-of-town customers will wonder how these significant increases comply with the recent court order to decrease out-of-town rates.  Well, the Town believes that by simply doing another rate study, using the ‘utility method’ to calculate out-of-town rates, is sufficient to comply with the court order.  I think you can understand that they heaped a lot of crap on the cost pile to come up with the new set of out-of-town rates.  Our legal counsel has seen the video of the Town Council discussion, and they have a transcript of some of the more offensive portions of the rate presentation.  I will not delve any further into our legal strategy in this email.

We do need to begin communicating with our neighbors that they need to make their opinions heard by the Town Council on or before July 28. They can do so by submitting emails to the Town Council or speaking in person at the public hearing.  There is information and contacts posted on www.fairwaterrates.com.  Folks might look to us to guidance about what to say to the Town Council members.  Others may chime in, but in my opinion, the Town’s out-of- town rate proposal does not comply with the court order, because it is not consistent with the findings of the Court in the water rate case.  Obviously the Town thinks they have some sneaky legal tricks up their sleeve.  We need to tell the Town Council that the proposed rates are still unfair, unreasonable and inequitable.  We need to tell them to stop violating the law.  They need to know the out-of-towners still have fight in them.  While largely symbolic, our protest is necessary.  Thanks for your help in getting the word out.

Brian Shiflett
Representative of Loudoun Fair Water

The town’s water and sewer systems are financed using an enterprise fund, which has several requirements placed on it. It must operate independently of the town’s general fund, it must retain specific cash reserves, and until recently, it must be able to underwrite its own financing for capital improvements. In short, it is supposed to be a self-sustaining, independent business entity from the ongoing operation of the town. However, it is intertwined with the town’s finances, since it relies on town staff for things like payroll, maintenance, IT services, etc. It has also relied on the town to underwrite its last bond issues, ostensibly to obtain better financing rates, but the net effect is to make Leesburg tax payers liable for any default on the bond payments.

Many may not realize this, but Leesburg has cadillac of a water and sewer system. It’s much nicer than most of our neighbors, and has more than enough capacity to service all of Leesburg and a lot of the surrounding communities. State and federal requirements place some additional burden on the expense side of the water and sewer equation, with more stringent water standards leading to ongoing upgrades and expenses at both plants. And these expenses often come with little or no extra money to implement the mandate. Unfortunately, we are now in a situation where driving a cadillac and having to incur its maintenance costs is going to bite us if the town council and staff don’t find a credible way to reduce the costs.

With a downturn in home and new business construction, the system is far over the capacity requirements currently needed by the town. It is also not receiving hook-up fees and availability fees that would normally be paid by developers to offset the costs of providing this increased capacity. Consequently, we are stuck paying for all of the equipment, buildings, etc. to support a much larger user base that is actually using the 2 plants. While the incremental operational cost to provide this overcapacity is relatively small, there is no revenue currently being received from this excess capacity, so it’s a net loss to the town.

There are public hearings on July 28th and August 11th to discuss the proposed rate increases. The proposed rates are coming from an outside consultant whose business is advising local utilities, and it is working with the town staff to propose rates that will cover all of the revenue shortfalls and cover the current and planned capital projects. But there are very likely lots of ways to reduce expenses or increase revenue that are not being considered. If you plan on speaking at one of these public hearings, you might consider asking about the following.

• What capital projects are being cut or terminated to reduce costs?
• What reductions in staff have been considered to reduce costs?
• What overhead costs have been cut to reduce expenses?
• Has the town considered selling excess water and sewer capacity to the county or to private developments using wells and septic systems?
• Has the town considered selling a portion or all of the water and sewer plants to private operators or to LCSA in return for a share of operating profits?
• Has the town considered contracting operation of the plants to a private entity while retaining ownership?

At the end of the day, the bulk of the expenses behind these utilities comes from capital improvement projects and the bulk of the revenue was planned to come from an increased user base and fees, supplemented by the existing customers. In the absence of the increase in users and fees, it begs the question of why we have ongoing capital projects related to capacity. Inquiring minds want to know!