Has Council Lost Its Way?

We were encouraged last November when council made the decision to move towards full cost recovery for county-owned utility systems within the next three years.  We support full cost recovery for county-owned utilities – it doesn’t make sense to use general tax revenues to subsidize services that only benefit a subset of ratepayers.  However, we struggle with the council majority’s recent direction on this initiative.

As we noted in a previous update, we were concerned by contradictory motions in the budget approval process that delayed moving utility rates to the levels needed for full cost recovery. If you recall, Council rejected Administration’s recommended 5% increase in utility rates, initially planning to freeze rates but subsequently approving a 3% increase for 2024. 

Now, at its June 25^th council meeting, Reeve Kissel, Deputy Reeve Kochan, and Councillors Boehlke and Schule have taken, what is in our opinion, an unnecessary and expensive detour.

To understand our growing concerns, a review of the information received by council over the last few months is important.

March 2024 Governance Committee Meeting

In response to council’s November 2023 direction to move to full cost utility rates, Administration hired a consultant, Myron Moore, to help pull together the necessary information.  Moore presented his report at the March 2024 Governance Committee meeting.  His report included all the information council needed to make a decision on how to move to full cost utility rates.  He identified missing costs, such as utility billing, that other municipalities typically include in the full cost accounting of their utilities.  In aggregate, these additional costs totalled $2.8 million.  Adding these to the $10.5 million already identified by staff as utility costs for 2023, Moore concluded that the full cost of the County’s utilities in 2023 were $13.3 million.  (The report also identified $1 million in corporate overhead that could be allocated to utilities; but Moore noted that most municipalities do not include corporate overhead in full cost recovery rates since those costs continue regardless of the utility systems.)

The March Governance Committee presentation also outlined options for structuring rates to achieve full cost recovery.  The basic choice is whether the county maintains system-specific rate structures or moves to county-wide water and wastewater rates for all the systems it operates.  Since the impacts on rates differ significantly depending on which of these choices is made, details on the impacts for utility users in each of the county-owned systems were also provided.

May 2024 Governance Committee Meeting

At the May 2024 Governance Committee meeting, council received a report from Jonathan Huggett, a consultant hired directly by council to provide them with advice on county-owned utility systems.  He identified issues he believed Administration needed to address as part of this initiative.  Huggett’s report was critical of staff and Moore’s approach and their ability to achieve council’s objectives.  He was particularly critical of the fact that the county does not prepare stand-alone financial statements for its utility operations. 

June 25^th Council Meeting

At the June 25^th council meeting, Administration outlined the steps being taken to address the issues Huggett identified in his report, most of which they agreed with.  Regarding Huggett’s emphasis on stand-alone financial statements, staff noted that full cost accounting financial information for county-owned utilities had not been prepared because they typically do not prepare stand-alone financial statements for any of the county’s operations.  They made it clear that the information was available in the county’s financial system and that if council wanted stand-alone financial statements, all they had to do was ask and staff would prepare them.

Staff made it clear that, from their perspective, the most significant outstanding issue was for council to decide between maintaining separate rate structures for each of the county-owned utilities or establishing county-wide water and wastewater rates that reflected county-wide costs for its water and wastewater systems.  They emphasized that the information is available to achieve full cost recovery by 2027 under either option, but that they needed direction from council regarding which option to use for establishing the rate structures. 

During the discussion, Councillors Hanson, Samra, and Wright focused on the rate structure options.  However, the other four did not appear to hear either what their colleagues were saying or what Administration was telling them.  Instead, they focused on details emphasized by their own consultant – the creation of stand-alone financial statements. 

Kochan, supported by Kissel, Boehlke and Schule, rejected moving forward with Administration’s recommended next steps, or even asking Administration to bring back further information to help council understand the options.  Instead, they put Administration’s work on hold and directed their outside consultant, Huggett, to prepare a Request for Proposal to obtain an accounting consultant to prepare full cost financial statements for the county-owned water and wastewater utility systems.

Boehlke appeared confused by what council would get from Kochan’s motion.  He clearly wanted a “road forward” that might include his long sought after municipal utility corporation, Aquaduct.  Although Administration made it clear that was not what Kochan’s motion would produce, Boehlke still supported the motion.  Kissel’s support also raised questions since she acknowledged that financial statements might not be what they needed and that the initiative to move to full cost recovery utility rates by 2027 “gave her heartburn”.

From our perspective, staff made it clear that the accounting information needed for full costing is available and ready to be used for rate formulation. It may not be in the format of stand-alone financial statements, but it is what is needed to reach full cost recovery rates for the county’s utilities. 

Stand-alone financial statements are only needed if the county is bringing in a third party to operate the utilities – a totally different initiative than what is supposed to be underway.  However, that is exactly what council’s private consultant recommends which may explain the majority’s obsession with obtaining stand-alone financial statements.

We seriously question why council is giving a single-sourced consultant the job of drafting an RFP to hire outside accountants to prepare financial statements when staff made it clear that they can do the work in-house? 

We agree with the unease expressed by Hanson and Samra regarding council’s decision to hire a consultant who appears to be second-guessing and challenging the advice they receive from staff.  In response to a question asked by Samra near the end of the discussion, Administration confirmed that Huggett’s critique of staff’s June 25^th report had not been shared with them.  It is not clear how blind-siding Administration can possibly be a productive way to move forward with any initiative, let alone one as complex as utility rate structures.

We also share the concerns raised by Wright that having outside experts prepare financial statements won’t provide direction on what a full cost recovery rate structure should look like.  Those experts can’t decide whether to maintain system-specific rates or move to county-wide water and wastewater rates, what customer classes make sense, or any of the other rate structure details – those are all decisions council will still need to make.

We sincerely hope that council realizes it has seriously wandered off the path to achieve their stated objective of full cost recovery for utilities by 2027 and can find a way to get this initiative back on track.  Or, if their real objective is to privatize Rocky View’s water and wastewater utilities, they need to demonstrate the accountability and transparency council claims to support and make that clear and explain why that would be better than continuing to have the county operate its own utilities.