A recurring issue is whether Crestview’s rate structure is fair, properly allocates costs between groundwater and imported water, raises enough revenue to cover costs and build reserves, and advances conservation goals. Last month, the board wrestled with whether lowering rates would imperil critical conservation goals.
In November 2015, there was board discussion about “whether the Company is charging enough for Tier 1,” and it raised the Tier 1 rates for 2016. Three months later, the general manager completed a Cost of Service Study finding that “Tier #1 and Tier #2 are subsidizing Tier #3.”
The Cost of Service Study explains how well depreciation and pumping costs are allocated differently among the three tiers than are operators’ compensation, and differently from general overhead expenses like liability insurance premiums. Some or all of these costs could rationally be allocated differently than they have been. Different allocations, different tier pricing, and the respective volumes of groundwater and imported water sold can have big effects on revenue. For example, if the budget calls for 15% of water to be sold in Tier 3 and then conservation measures are implemented and no water is sold at the high Tier 3 rates, there will be a big revenue shortfall.
We recommend this clearly-written three-page report to directors and interested shareholders.
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