HomeMy WebLinkAboutA001 - Staff Report on sanitary sewer utility rates Staff Report
Sanitary Sewer Utility Rates
April 8, 2008
Background
Funding the five-year Capital Improvements Plan (CIP) approved by the City
Council and the adopted FY 2008/09 Budget will require rate increases for all
City utilities over the term of the CIP. In addition to rate increases, we have
proposed a new rate structure for the water utility for FY 2008/09 and will likely
be implementing a new rate structure for the electric utility within the five year
CIP planning horizon. The impact of changes in rate structure will vary between
customers, but will result in increased utility costs for some of our customers.
The amount and timing of rate increases will depend on decisions made after
review of studies related to future improvements for both the Electric Plant and
the Water Plant. Currently, we expect that rate increases or changes to rate
structure will be required as provided in the table below.
Sanitary Storm
Water Sewer Electric Sewer
FY 08/09 X X
FY 09/10 X X X X
FY 10/11 X X
FY 11/12 X X
FY 12/13 X
Sanitary Sewer Rates
The timing of the rate changes can also vary based on the scheduling of CIP
projects and implementation dates of rate increases. Implementing a rate
increase prior to additional utility funding need can result in slightly lower
percentage increases in the rates. In the case of sanitary sewer rates, the 10%
increase that is currently anticipated for FY 09/10 could be implemented as an
8% increase in FY 08/09.
There are some unknowns that could impact sanitary sewer rates and that would
tend to favor waiting until FY 09/10 to implement a sanitary sewer rate increase.
The new water rate structure will impact sanitary sewer revenues. If the
new water rate structure is successful in reducing peak demand for water,
sanitary sewer revenue will be reduced because it is based primarily on
metered water sales. After the new water rate structure has been in place
for a peak season, we will have a better idea of the impact on metered
sales and rate change requirements needed to fund sewer improvements.
The new water rate structure is also expected to mitigate future water rate
increases to fund plant improvements, reducing the collective impact of
rate increases for multiple utilities in a single year.
The sanitary sewer rate increases will be driven primarily by the cost of
disinfection capital improvement and operations. As of late March, the
Iowa DNR has taken no action on the City's NPDES permit application,
and the possible regulatory requirements for this project have not been
fully determined. The rate increases for the sanitary sewer utility will be
highly dependent upon requirements for disinfection.
Conclusion
With the extensive capital improvement requirements for the City of Ames utilities
over the next five years, rate increases for multiple utilities in a single year will be
unavoidable. Due to rate increases in electric, the expected increase in the
energy cost adjustment, and changes in the water rate structure, some of our
customers will experience increases in their City utility bills of over 10% for FY
08/09. Implementing a sanitary sewer rate increase in FY 08/09 will add an
additional one to two percent to total utility bills. Utility samples for various
classes of customers are attached.
The initial reason for considering an acceleration of the sewer rate adjustment
was because a major water rate adjustment was anticipated in the summer of
2009. With the planned water rate structure change taking place in 2008, the
magnitude of the water rate adjustment needed in 2009 will be reduced. With a
lower water rate adjustment necessary next year, the combined water/sewer rate
adjustments will not have as large of an impact on customers as initially
anticipated.
City staff would like direction from Council on implementing an 8% increase in
sanitary sewer rates in FY 08/09, or wait until the FY 09/10 budget process for
further review of all utilities rates. The FY 08/09 budget does not include an
increase in sanitary sewer rates, and capital and operations will continue as
planned during the budget process with or without an FY 08/09 increase.
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