Q. Why did rates increase so much at one time?
A. Unfortunately, the downturn in our development revenues came suddenly, and contrary to our planning. Several developments kept postponing their payments and start dates. Some canceled their plans completely (M I Homes on 600 W. and US 40). One development of about 300 homes was scheduled to go on Gem and was filed with the county, changed at the last minute and re-filed with New Palestine instead. Our south plant which is only about 300 feet from that development has plenty of capacity, the developer just chose to change jurisdiction. So in short answer to the question, our revenue from development dried up very quickly, and was contrary to our best laid plans.
Q. Why do we have to pay your property taxes?
A. The taxes are taxes on the utility property, Gem Utilities, just like any business has to pay those taxes and pass them on to their customers. The unfortunate part of the property tax is that municipal utilities such as Cumberland and Indianapolis do not have to pay this tax.
Q. I came from Indianapolis, why are you so much higher?
A. There are several answers to this question. First Indianapolis has been in the utility business at least 10 times longer, and has built up a very large stable customer base. They have hundreds of thousands of customers, we have approximately 750 homes. Also, as I mentioned in a previous question, municipal owned utilities don’t pay the same property taxes that investor owned public utilities’ do. With that being said, even with the increase, we are still almost exactly the same price as Cumberland and McCordsville. At 7,000 gallons a month which is a good average for suburban homes, Cumberland is $58.20 per month, and McCordsville is $60.50 per month. Each utility has individual factors that necessitate their rates. Gem is not the highest nor the lowest in the state, but among investor owned rural utilities we are somewhere in the middle. That brings up another point, the fact that we are a rural utility makes our expences higher, since we have more pipe per customer to install and maintain. Each side of a rate debate can always find a comparison to shore up their opinion. We have simply made our rate decisions based on our expenses, income, and projections with the help of utility professionals.
Q. Have you done anything to reduce expenses?
A. Yes, we have laid-off an employee that dealt primarily with the development side of things. We are saving additional money where possible, while continuing to maintain the necessary standards that are expected of a public utility.
Q. You said that the monthly rates were subsidized by developers. Does this mean that the rates should have been higher all along?
A. The answer is that as a new utility, we chose to temporarily subsidize the monthly rates to keep them at a more affordable level until the utility grew to a certain size. The initial rates would have been somewhere around $79.00 per month if we hadn’t subsidized them. As the utility grows, economy of scale helps to bring down the monthly fees. While on the other hand, inflation causes all utility rates to increase with time too. We had hoped to gently raise rates as the utility grew, to finally reach a balance where new development wouldn’t be necessary to subsidize the monthly rate. The current rate is an equitable rate given the size, location and rural nature of Gem Utilities.
Q. Will the rates go up or down from here?
A. We will just have to see what happens. I wouldn’t expect a reduction in the near future, although that is possible sometime depending on growth and economies of scale. We actually kept the rate increase to a minimum of what the rate study indicated, and there are not any extras built into it.
Q. The timing of the increase (right before the election), and the tone of the letter sounded political, was it?
A. I would not have anticipated that question. No, we are not political, and the timing has everything to do with our balance sheet, and nothing to do with politics. The election was for Mayor of Greenfield, and we don’t even serve anyone that could vote anyway. Yes, political bodies do control growth somewhat, but Gem Utilities just tries to anticipate the growth, and we got caught in the results of government zoning to some extent. The first letter that was sent out addressed some of the reasons our development revenue fell short, and government changes had something to do with that. As a utility we are not taking a political stance.
