HomeMy WebLinkAboutA002 - Council Action form dated March 24, 2009 ITEM #: 35
DATE 03-24-09
COUNCIL ACTION FORM
SUBJECT: OPTIONS FOR WATER REVENUE ADJUSTMENT
BACKGROUND:
A long-standing practice for the Water Fund has been to look forward 10 to 15 years at
the anticipated fund balance and to make rate adjustments pro-actively in order to avoid
rate increases of an exceptional magnitude. Previous guidance from Council has
indicated a preference for more frequent increases of a smaller percentage as opposed
to less frequent but larger percentage increases. The past practice has been to try to
keep rate increases to no more than 15 percent where possible.
The last across-the-board rate adjustment made to the Water Fund took place in July
2000 when a 10 percent increase was enacted. Last summer, Council implemented a
seasonal inclined block rate structure but did not adjust the underlying base water rate.
The implementation of the seasonal rate structure did not result in an increased water
cost for a large percentage of Ames residents. For those who were impacted, the
increase was only experienced during the summer.
The Water and Pollution Control Department is in the process of developing a long-
range master plan for the Water Treatment Plant. While specific conclusions and
recommendations have yet to be made, it is clear that a significant re-investment in the
treatment plant infrastructure will be necessary within the next five years. Whether the
ultimate course involves a rehabilitation and modernization of the existing facility,
beginning anew with a new treatment plant, or some hybrid option, the cost of the
project will exceed the funding capability of the current rate structure.
During last month's budget overview, Council was informed that is it likely that revenue
increases will be necessary in the Water Fund in each of the next four fiscal years.
Spreading the increases over multiple fiscal years should allow the magnitude of the
individual adjustments to be kept in the 10 to 15 percent range. A revenue increase of
10 percent is recommended effective July 1, 2009. The magnitude of future rate
increases will be better known when the on-going Infrastructure and Capacity Needs
Assessment Study is completed later this spring.
The attached staff report outlines three possible options for implementing the 10 percent
revenue increase. All three options generate approximately the same level of revenue.
The options vary in how the additional revenue is spread among the seasonal inclining
blocks established last summer. Council's guidance on the preferred option is
requested. Staff will then prepare ordinance language for Council approval in April.
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ALTERNATIVES:
1. Implement a $0.0018 per cubic foot increase to the winter rate, the summer Block 1
rates for Residential and Irrigation accounts, and the summer Non-Residential and
Non-peaking Industrial rates. Do not increase the Residential and Irrigation Block 2
and Block 3 rates. (Option 3 from the staff report)
2. Implement a uniform $0.0017 per cubic foot increase for all rate blocks. (Option 2
from the staff report)
3. Implement a uniform 10 percent increase for all rate blocks. Individual block
increases will range from $0.0014 to $0.0070 per cubic foot. (Option 1 from the staff
report)
MANAGER'S RECOMMENDED ACTION:
The seasonal inclining block rate structure was designed to recover the cost of
providing additional treatment capacity from those customers whose pattern of use was
leading to the need for additional capacity. The rate increases that will be necessary
over the next four years will be to cover the cost to rehabilitate or replace the existing
treatment capacity, as well as to cover general cost increases in the operations and
maintenance budget. These are expenses that are attributable to all water customers.
Option 3 from the staff report outlines a method to adjust the minimum bill charges by
ten percent, and to generate a ten percent increase in revenue from consumption by
adjusting the unit rates from all blocks except the summer Block 2 and Block 3 rates for
Residential and Irrigation accounts. Assigning the necessary revenue increase to the
winter rates and to the summer Residential and Irrigation Block 1 rates, Non-Residential
rates, and Non-Peaking Industrial rates allows the costs to be shared equitably by all
customers. Therefore, it is the recommendation of the City Manager that the City
Council adopt Alternative No. 1, thereby identifying Option 3 from the staff report
as the preferred method of generating a ten percent increase in water revenues.
Staff will then prepare the appropriate ordinance revisions for City Council
approval.
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