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HomeMy WebLinkAboutA005 - Council Action Form dated March 25, 2008 a ' a f t Old ITEM # 4�� C AF DATE March 25, 2008 COUNCIL ACTION FORM SUBJECT: SEASONAL WATER RATE STRUCTURE BACKGROUND: On March 4 2008, staff presented a conceptual water rate structure intended to encourage conservation during the summer peak demand season. The structure included a seasonal inclining block structure for "Residential" and "Irrigation" classes and a seasonal flat rate for "Small Commercial," "Large Commercial," and "Industrial" classes. During the presentation, staff indicated some areas where additional detail still needed to be developed. Council also indicated its desired modifications to the rate structures. The discussion below describes those areas that have been added or modified following the March 4 presentation. Attachment A is a draft ordinance that is intended to enact the new seasonal water rate structure. No formal action on the ordinance is requested at this time. The purpose is for Council to have an additional opportunity to review the concept before being asked to take action. It is anticipated that the ordinance will be placed on the April 8, 2008 Council meeting for a public hearing and first reading. The second and third readings will take place on the subsequent Council meetings. This will allow the third reading and adoption at the May 13 Council meeting, with the effective date of the rate structure change being June 1, 2008. Residential Rate Class Definition. Staff indicated that additional work was still necessary to distinguish between residential and commercial accounts and suggested the possibility of establishing small residential customer accounts (generally single- family houses) and large residential customer accounts (multi-plexes). Staff reviewed other Iowa municipalities' rate structures to learn how other communities have made this distinction. Only three utilities were identified that differentiate residential accounts from other types of accounts. — Cedar Falls Utilities. Defines a residential account as a "single-family residential dwelling." All others are treated as "general water" accounts. — Cedar Rapids. Defines domestic accounts as "services having a meter of one inch or smaller in size set in a private dwelling." All others are classified as "commercial" accounts. — Newton. Has separate rates for residential and non-residential but does not have a formal definition of what constitutes a residential customer. All others are treated as "commercial/industrial" accounts. After much evaluation, staff now suggest that the following definition of a "residential" account be included in the ordinance. "A residential account is defined as customer accounts serving properties that are intended for occupancy by a single family as defined by the Ames Zoning Ordinance, provided that such accounts consist of no more than two dwelling units being served by a single water meter." This definition would include multi-plex buildings where each dwelling unit has a single water meter. Where there is a single master meter serving the entire property, staff recommend that the service account be treated as a commercial account instead of a residential account. Non-residential Classes. During the presentation on March 4, staff showed possible rate structures for three non-residential classes; namely, "Small Commercial," "Large Commercial," and "Industrial." Staff is now recommending that a single, "Non- residential" class be used instead of the three separate rate classes. The rate proposed is 1.35 times the base rate; currently, that would be $1.88 per hundred cubic feet. The reasons are threefold. 1. The seasonal demand profiles vary considerably among these types of customers. This makes setting block sizes difficult, even when accounts are grouped based on their winter demand patterns. 2. Staff were concerned about having different classes of non-residential accounts charged different rates. 3. Other Iowa communities which use block structures have not attempted to distinguish between types of non-residential users, presumably because of reasons 1 and 2 above. Large Customers with Flat Demand Profiles. Several Council members expressed concern that large customers with a flat demand profile not be subject to the seasonal flat rate. There was no direction provided as to the desired definition of "large customers" or how "flat" was "flat enough." Staff offer the following definition of a "Non- peaking Industrial" class for Council consideration. "The `Non-peaking Industrial' rate would apply to those non- residential users who meet both of the following requirements. 1. Have an average winter demand of greater than 100,000 cubic feet per billing cycle for meter reads during the months of December, January, and February. 2. Have a peaking factor of no greater than 120%. Peaking factor is defined as the largest single monthly demand for billing cycles with meter reads during June, July, August, and September divided into the average winter demand." Using billing data for the months of December 2006 through February 2007 for the average winter demand and the months of June 2007 through September 2007 for the peak month demand, currently five customers would qualify for this "Non-peaking Industrial" rate category. Customers who would qualify for "No -peaking Industrial" Customer Winter 2006/07 Summer 2007 Peaking Average, cf/mo Peak, cf/mo Factor, % Flummerfelt Mobile 101,498 100,699 99 Home Park Old Orchard Mobile 146,153 145,500 100 Home Park Sauer-Danfoss 277,067 325,500 117 Barilla 378,000 445,200 118 Ames Power Plant 527,733 425,000 81 From the same data, the following five customers would meet the first criteria but have a peaking factor of greater than 120% and would not meet the second criteria. Customers who would NOT qualify for "Non-peaking Industrial" based on the proposed "Peakin Factor" criteria Customer Winter 2006/07 Summer 2007 Peaking Average, cf/mo Peak, cu/mo Factor, % USDA— National Veterinary Services 124,000 190,000 153 Laboratory Ball Plastics 182,333 455,000 250 Mary Greeley Medical 186,334 373,418 200 Center University Village 284,500 409,100 144 USDA—National Animal Disease 795,159 1,141,664 144 Center So that Council knows which customers would be just below the threshold proposed for consideration as a "large customer," the table below identifies those customer accounts who had a winter average demand of between 75,000 and 100,000 cubic feet per month. Customers with an average winter demand of between 75,000 and 100,000 cubic feet per month Customer Winter 2006/07 Summer 2007 Peaking Average cf/mo Peak, cf/mo Factor, Ball Plastic 79,070 375,000 474 Hach Chemical 79,570 86,840 109 Arctic Iowa 90,968 279,864 308 The staff recommendation is that, for each facility with an average winter consumption above 100,000 cubic feet per month, the City will calculate a summer peaking factor annually and will automatically assign those with a peaking factor of 120% or less to the "Non-peaking industrial" rate class for the following summer. Similarly, those accounts with a summer peaking factor greater than 120% will be assigned to the general "Nonresidential" rate class for the following summer. New customer accounts with an anticipated winter demand of more than 100,000 cubic feet per month would be evaluated on a case-by-case basis and may be assigned to the "Non-peaking Industrial" rate with supporting justification. Based on discussions at the March 4 Council meeting, staff is also proposing a revision to the Municipal Code clarifying the number of billing cycles per year and the maximum volume for which the exemption from the sewer use charges would be allowed. This change would bring the ordinance language in line with the original intent of the sewer use exemption, which was for one-time occurrences. While limiting the exemption would generate revenue for the Sewer Fund and not the Water Fund, it is staff's belief that the additional total expense would serve as a deterrent against excessive watering for these accounts. It also eliminates a loophole where the sewer use exemption can be used in lieu of establishing a yard meter water account. ALTERNATIVES: 1. Indicate that no additional changes are desired. The ordinance will then be placed on the April 8 Council meeting for public hearing and first reading. 2. Indicate that "minor" changes to the proposed rate structure are necessary. This would include changes that Council is comfortable reviewing at the time the ordinance is presented for first reading. Staff will make the changes and place the revised ordinance on the April 8 Council meeting for public hearing and first reading. 3. Indicate that "major" changes to the proposed rate structure are necessary. This would include changes that Council would prefer to review again in draft form prior to holding a public hearing and a first reading. Staff will make the changes and bring the ordinance back in a draft form at the April 8 Council meeting. The ordinance could then be placed on the April 22 meeting for the public hearing and first reading. This schedule would still allow the third reading and final adoption prior to June 1, 2008. MANAGER'S RECOMMENDED ACTION: Reducing the seasonal peak demand for drinking water is an important goal for the water utility. Voluntary conservation continues to be promoted through the Smart Water program, which encourages conservation as a socially responsible action. The proposed revisions in the water rate structure provide a financial incentive for customers to conserve water. The ordinance presented in draft form here is intended to implement the Council's direction from the March 4 discussions. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative No. 1 , thereby directing staff to place the draft ordinance on the April 8 Council meeting for public hearing and first reading.