CITY: WATER BUYOUT GOOD BARGAIN

(Last in a series)

When Union Electric last year stated its intention to sell the city's water system, Cape Girardeau officials began in earnest to negotiate a deal for the utility.

Those negotiations yielded a proposal that officials now call a bargain for the citizens of Cape Girardeau, who will decide at the polls Nov. 5 whether to approve the transaction.

In that election, voters will decide whether the city should issue $11.8 million in revenue bonds to finance the purchase of the water system and various system improvements.

The price tag negotiated for the water system itself is about $8.5 million, which is 30 percent below its assessed value, city officials said.

Union Electric was willing to accept the lower cost for the water system because it was negotiated as part of a package that includes new 20-year franchise agreements with the utility company for operation of electric and gas utilities, city officials said. Voters will be asked to approve the franchise agreements in the Nov. 5 election.

Although the three issues were negotiated together, each issue will be dealt with separately on the ballot.

Assistant City Manager Al Stoverink pointed to five primary reasons why he thinks the water system purchase is a bargain for Cape Girardeau residents.

The first is that water is an essential public service that should be controlled locally, not by an outside, investor-owned utility company.

If a private company buys the water system, that company would likely come from outside the Cape Girardeau area with little or no stake in city issues or concerns, Stoverink said. Safe water for drinking, bathing, recreation, industry and fire protection are some of the services essential to the city, he said.

For nearly a century, the water system was managed locally through Missouri Utilities. But in late 1983, Union Electric merged with Missouri Utilities, which shifted key decision-making control to UE's St. Louis corporate headquarters.

If the system is sold privately, that control likely will shift across the state to Kansas City or some out-of-state location, said Stoverink.

Also, he pointed out, in most communities throughout the nation, cities own the water systems to assure local control and accountability.

The second purpose for the water system purchase is to save citizens the costs associated with a purchase by an investor-owned utility, Stoverink said. Operation costs with a city-run utility would not include company profits and state and federal income taxes.

Although a private company's water rates would be regulated by the Missouri Public Service Commission, it would pass on to customers costs associated with profit margins and income and property taxes, Stoverink said. Because the city is a non-profit, tax-exempt entity, citizens would be spared such costs should the city buy the system, he pointed out.

Stoverink said that as a general rule such costs can be expected to add a minimum of 17 percent to the charges included in the rates of an investor-owned utility.

Those costs, combined with a higher initial purchase price, would allow an investor-owned utility to file for a substantial rate hike, he said.

Under current Public Service Commission rules, a private company would be allowed an increase of 49.4 percent, which would increase by $6.51 per month the average Cape Girardeau residential bill of $13.20. The city purchase would include a 3 percent rate hike, Stoverink said.

Also, due to the city's tax-exempt status, lower interest rates are available to finance the purchase.

Stoverink said the lower cost of financing, when combined with the elimination of profits and taxes, could save citizens up to $1.4 million annually.

Despite the cost savings, he said, citizens shouldn't expect any rate reductions, as financing rates although lower than average still are significant enough to offset savings to citizens for several years.

The third reason for the city to purchase the system would be to provide local control over its development. The water system will need repairs and expansion in the future, and a city-owned utility will be better able to plan for orderly, citizen-influenced development that would be coordinated with other city planning efforts, Stoverink said.

During the past few years, the city has pursued efforts for comprehensive, long-range infrastructure planning. Master street, sewer and solid waste plans could be combined with a master water plan to better coordinate development, Stoverink said.

If the city owned the water system, it also would be able to expand and improve the system based on the city's needs not a large corporation's. This fourth advantage also would be tied to long-range master planning efforts, he said.

An engineering evaluation of the system conducted in July revealed some problems that need correction, but showed the system to be in good condition overall.

Repairs are slated for the Cape Rock treatment plant, and narrow, older sections of water main will be replaced.

But Stoverink said that regardless of who owns the system, the repairs must be made and the costs passed on to customers.

The fifth reason Stoverink cited for purchasing the water system is that the city would be able to provide a positive impact on overall economic development efforts.

The adequacy of a water system is one of the first factors that industrial prospects examine when looking for a home. Because most industries are large water users, water rates are particularly important, he said.

Water-system extension polices, improvements for fire flows and pressures, and adequate supplies and treatment capacity also are critical to industries and the city's industrial growth, he said.

Stoverink said a key factor in the city's effort to buy the water system is that Union Electric will sell the water system to another company if Cape Girardeau voters reject the city's proposal.