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Home My WebLink AboutA034 - Staff Presentation on FY 2025/26 Water and Sewer RatesITEM #:39 DEPT:W&PC April 8, 2025 Staff Report STAFF PRESENTATION ON FY 2025/26 WATER AND SEWER RATES BACKGROUND: Each year as part of the annual budget process, staff updates a model for the Water and Sewer Funds that reflects current and projected operating and capital expenses over the next ten years, and the resulting annual ending fund balances in each of the two separate funds. This model is used to establish a long-range pattern of rate increases that will fully finance these self-funded enterprise utilities, including an operating reserve that is slowly being increased to a target of 25% of the annual operating budget. During the development of the FY 2025/26 budget, staff determined that a three-and-one-half percent (3.5%) increase to water rates and a five-and-one-half percent (5.5%) increase to sewer rates would be needed, effective July 1, 2025. While the need for an increase was shared with Council during the budget presentations, no formal action has yet been taken by Council to adopt these new rates. Staff will present a summary of the fund balance analysis in a format that is very similar to what has been used in prior years. Highlights from the attached slides will be shared at the Council meeting in a brief presentation. STAFF COMMENTS: The presentation is informational only at this time . An ordinance to adjust the water rates by three-and-one-half percent (3.5%) and the sewer rates by five-and-one-half percent (5.5%) will be brought forward at the April 22 City Council meeting for first reading and a public hearing. ATTACHMENT(S): Council Handouts FY 25-26 Water and Sewer Rates.pdf 1 4/4/2025 FY 2025-26 Water & Sewer Rates April 8, 2025 Outline National & State-wide Trends in Rates Projected Need for Revenue Increase Translating Revenue Needs to Rates Projected Future Rate Trends Customer Perspective Council Direction 1 2 2 4/4/2025 National and State Trends Data sources include: •2023 Cost of Clean Water Index National Association of Clean Water Agencies •2023 Water and Wastewater Rate Survey American Water Works Association •2024 Iowa Water and Wastewater Rate Survey City of Ames Water and Pollution Control National Trends Average annual wastewater bill has doubled nationally in last 17 years ($588 in 2023 versus $295 in 2006) Average annual wastewater charges increased by 3.2% from 2022 to 2023 After 21 straight years where sewer charges outpaced inflation, this was the third consecutive year where rates increased at a lower rate than the CPI. 3 4 3 4/4/2025 •Water utilities continue to shift away from declining block rate structures (14%) and towards inclining block structures (50%) •Wastewater utilities are predominately uniform block structures (75%) •Monthly billing intervals are most common (80%), followed by quarterly (11%) and bi-monthly (8%) •98% of Water systems and 99.8% of Sewer systems have a monthly base or minimum fee National Trends National Trends 2019-2024 Sources:2019 Water and Wastewater Rate Survey, AWWA/Raftelis Financial Consultants 2024 Water and Wastewater Rate Survey, AWWA/Raftelis Financial Consultants Nationwide average for residential service, 1,000 cf/mo., 5/8” meter, Water National Average Annual Increase: 4.42% Sewer National Average Annual Increase:3.91% Average Annual Increase in CPI: 4.43% 5 6 4 4/4/2025 •Drinking Water: 88% •More than 5%: 73% •More than 10%: 39% •Wastewater: 77% •More than 5%: 63% •More than 10%: 35% 2024 versus 2022 Iowa Water & Sewer Rate Survey, City of Ames, Iowa Percent of Iowa Utilities serving >10,000 with a rate increase in past two years: Iowa Trends Iowa vs. National Trends 2020-2024 Water National Average Annual Increase: 4.42% Iowa Average Annual Increase:5.31% Sewer National Average Annual Increase:3.91% Iowa Average Annual Increase:3.74% Average Annual Increase in CPI: 4.43% Iowa Sources:2020 Water and Sewer Rate Survey, City of Ames, IA 2024 Water and Sewer Rate Survey, City of Ames, IA Iowa average for residential service, 600 cf/mo., 5/8” meter, 7 8 5 4/4/2025 Recent Rate Adjustments in Ames SewerWater --6%FY 20/21 5%--FY 21/22 --8%FY 22/23 7%--FY 23/24 3.0%3.5%Annual Average Ames vs. Iowa & National Trends 2020-2024 Water National Average Annual Increase: 4.42% Iowa Average Annual Increase:5.31% Ames Average Annual Increase:3.50% Sewer National Average Annual Increase:3.91% Iowa Average Annual Increase:3.74% Ames Average Annual Increase:3.50% Average Annual Increase in CPI: 4.43% 9 10 6 4/4/2025 Iowa Trends in Water Rates 2 0 0 4 -2 0 24 , C it ie s w it h p op u lat ion >1 0 ,0 0 0 w it h lim e s of te n ing , 6 0 0 cf p e r m ont h Statewide Median Ames Rates ** Ames is at the 19th Percentile, based on 2024 rates ** $0 $10 $20 $30 $40 $50 $60 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Water Rates in Iowa, 2005-2024 Cities >10,000 600 cubic feet per month Iowa Trends in Sewer Rates 2 0 0 3 -2 0 23 , C it ie s w it h p op u lat ion >1 0 ,0 0 0 , 6 0 0 cf p e r m ont h Statewide Median Ames Rates ** Ames is at the 21st Percentile, based on 2024 rates ** $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 2004 2009 2014 2019 2024 Sewer Rates in Iowa, 2005 -2024 Cities >10,000 600 cubic feet per month 11 12 7 4/4/2025 Forces Impacting Projected Expenses •Increased Regulatory Requirements •Risk and Resiliency Improvements •Infrastructure Renewal/ Replacement •Increases in equipment and commodity prices 8% -30,000 -25,000 -20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 23-24 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase Water Fund Ending Balance With No Adjustments 13 14 8 4/4/2025 Sewer Fund Ending Balance With No Adjustments 7% -40,000 -35,000 -30,000 -25,000 -20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 23-24 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 En d i n g B al a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase Approach to Rates: Timing & Magnitude •Meet debt coverage requirements •(SRF requires 110% coverage) •Meet operating reserve target •Gradual increase over time until achieve 25% of each Fund’s annual operating expenses •Proposing a long-term rate approach that adjusts both water and sewer annually, as opposed to staggered adjustments of a larger magnitude 15 16 9 4/4/2025 Water and Sewer Rate Projections Year 10Year 9Year 8Year 7Year 6Year 5Year 4Year 3Year 2Year 1Current Year Last Year 34-3533-3432-3331-3230-3129-3028-2927-2826-2725-2624-2523-24 3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%8%Water Fund 5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%7%Sewer Fund 8%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5% -5,000 0 5,000 10,000 15,000 20,000 23-24 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase Water Fund Rate Model 17 18 10 4/4/2025 Sewer Fund Rate Model 7%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5% -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 23-24 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 En d i n g B a la n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase Rate Projections vs. Statewide Trends $33.99 $35.66 $37.42 $39.26 $41.20 $43.24 $45.38 $47.63 $49.99 $52.48 $55.10 $105.00 $110.88 $117.09 $123.66 $130.61 $137.96 $145.73 $153.95 $162.65 $171.85 $181.58 $59.39 $61.55 $64.12 $67.09 $69.89 $73.12 $76.18 $79.71 $82.67 $86.51 $89.71 $78.44 $82.63 $87.05 $91.72 $96.64 $101.84 $107.32 $113.11 $119.22 $125.67 $132.49 $- $25.00 $50.00 $75.00 $100.00 $125.00 $150.00 $175.00 $200.00 $225.00 $250.00 $275.00 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Statewide Range Ames Residential Statewide Median Projected Monthly Water and Sewer Bill 600 cubic feet per month 19 20 11 4/4/2025 Proposed Water Rates 3.5% NewIncreaseExisting Winter $0.0288 $0.0010 $0.0278 All customers; all consumption Summer Residential Block 1 (First 1,000 cf) $0.0288 $0.0010 $0.0278 Block 2 (Next 1,500 cf) $0.0508 $0.0017 $0.0490 Block 3 (Over 2,500 cf) $0.0763 $0.0026 $0.0737 Irrigation & Yard Water Block 1 (First 2,000 cf) $0.0415 $0.0014 $0.0401 Block 2 (Next 3,000 cf) $0.0763 $0.0026 $0.0737 Block 3 (Over 5,000 cf) $0.1270 $0.0043 $0.1227 Non-Residential $0.0376 $0.0013 $0.0364 All consumption Non-Peaking Industrial $0.0288 $0.0010 $0.0278 All consumption Proposed Sewer Rates 5.5% TotalIncreaseExisting $13.73 $0.72 $13.01 Minimum Charge All customers, per month $5.27 $0.27 $5.00 Prorated Minimum $3.51 $0.18 $3.33 Consumption, per 100 cubic feet All customers, all consumption Interior framing inside new Administration Building, looking towards the offices and control room (Taken March 28, 2025) 21 22 12 4/4/2025 •Fees found in Appendix Q will be adjusted by the same respective percentage •Meter setting fees will be adjusted based on actual cost recovery •Happens as a part of the City-wide fee schedule adjustment later in the spring Associated Rates and Fees Sample Customer Bill –July 1, 2025 Median Use Residential WaterStorm Electric TotalSewerSummerWaterSummerElectric / Water Use 5.5%3.5%0%0%Planned Increase $149.38$32.99$30.88$5.20$80.31600 kWh and 600 cf -$0.90-$0.90Electric ECA $148.48$32.99$30.88$5.20$79.41Totals $2.89$1.81$1.08$0.00$0.00Increase Due to Rate Change $151.37$34.80$31.96$5.20$79.41Totals 1.95%% Impact on Total Bill 23 24 13 4/4/2025 Sample Customer Bill –July 1, 2025 Commercial (LP) WaterStorm Electric TotalSewerSummerWaterSummerElectric / Water Use 5.5%3.5%0%0%Planned Increase $2,600.12$179.51$210.40$10.40$2,199.8120,000 kWh and 5,000 cf -$30.00-$30.00Electric ECA $2,570.12$179.51$210.40$10.40$2,169.81Totals $17.23$9.87$7.36$0.00$0.00Increase Due to Rate Change $2,587.35$189.38$217.76$10.40$2,169.81Totals 0.67%% Impact on Total Bill All FY 2025/26 Utility Rate Adjustments ( S a m p l e b i l l s b e l o w i n c l u d e e l e c t r i c , w a t e r, s e w e r, s t o r m w a t e r ) June 1, 2026 (New Electric –Summer in effect) November 1, 2025 (New Electric –Winter in effect) July 1, 2025 (New Water & Sewer in effect) Existing (June 1, 2025)Customer Type $65.50$63.39$65.12 (2.34%) $63.63 Minimum Use Residential 100 kWh and 100 cf $152.57$139.91$151.37 (1.95%) $148.48 Median Use Residential 600 kWh and 600 cf $222.25$201.13$220.38 (1.86%) $216.36 Large Residential 1,000 kWh and 1,000 cf $333.63$286.07$329.80 (0.94%) $326.73 Small Commercial (GP) 2,000 kWh and 600 cf 716.05$601.59$706.93 (0.61%)$702.61 Small Commercial (GP) 5,000 kWh and 1,000 cf $1,470.37$1,232.54$1,452.44 (0.77%) $1,441.41 Small Commercial (GP) 10,000 kWh and 3,000 cf $2,620.35$2,387.06$2,587.35 (0.67%) $2,570.12 Commercial (LP) 20,000 kWh and 5,000 cf $7,459.89$6,763.04$7,365.76 (0.67%) $7,316.47 Commercial (LP) 60,000 kWh and 15,000 cf $12,014.81$10,892.85$11,859.19 (0.57%) $11,792.38 Commercial (LP) 100,000 kWh and 20,000 cf Percentages listed are comparisons versus the June 1, 2025 rates 25 26 14 4/4/2025 Recommended Action & Timeline Approve on April 22 the first reading of an ordinance that will: •Adjust Water Rates by 3.5% •Adjust Sewer Rates by 5.5% •New rates effective for bills due on or after July 1, 2025 Timeline •First reading on April 22 •Second reading on May 13 •Third reading and adoption on May 27 Questions & Direction 27 28 15