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HomeMy WebLinkAbout~Master - Special Meeting of the Ames City Council Water and Sewer Workshop 03/29/2005 MINUTES OF THE SPECIAL MEETING OF THE AMES CITY COUNCIL AMES, IOWA MARCH 29, 2005 WATER & SEWER RATE WORKSHOP The Ames City Council met in special session at 5:00 p.m. on the 29th day of March, 2005, in Conference Room 235 of the City Hall, 515 Clark Avenue, pursuant to law with Mayor Tedesco presiding and the following Council members present: Cross, Mahayni, Vegge, and Wirth. Council Member Goodman arrived at 5:15 p.m. Council Member Goodhue was absent. City Manager Steve Schainker explained that this Workshop would serve to inform the City Council about different rate structures in an attempt to assist them in making a decision on how to fund an approximate 10% increase that will be needed by July 1, 2005. Water and Pollution Control Director Tom Neumann summarized the guidance given to staff since 1992 pertaining to water and sewer rate adjustments. He stated that sewer rates had not been increased since 1995, and water rates had not been increased since 2000. Mr. Neumann explained the steps taken by staff to determine rates, i.e., forecast of customers, volumetric sales, and revenues; forecast of expenditures and determination of revenue needs; and, equitable allocation of the revenue requirements to customer classes. Mr. Neumann advised that Ames currently charges a flat rate to the different classes of customers (residential, commercial, and industrial). He pointed out that not all customers consume service in the same manner or require the same facilities to be served. The City was informed that cost classification was determined by dividing all costs among average capacity (commodity), peak capacity (capacity), number of customers, and public fire protection (water only). Mr. Neumann advised that many municipal utilities have different rate arrangements for metered customers and contract customers. The basis for the differential is based on cost of service, wholesale vs. retail, and inside/outside city limits. There are options for designing the rates: fixed vs. variable charges or customer/commodity rates could be adjusted so that the end result of revenue would be the same, e.g., a base rate plus a certain amount per 100 cubic feet of water consumed. According to Mr. Neumann, last year, the City had approximately 100 customers/month who did not use any water (were not at their residences); however, their meters still needed to be read each month. He said that without a minimum rate, expenses would be incurred without any revenue being generated. Mr. Neumann described the financial policies for “minimum” reserve levels: operating reserve, capital reserve, emergency reserve, and bond reserve. He reviewed the types of rate designs and gave the positive and negative aspects of each. According to Mr. Neumann, June thru September is the time of year when Ames incurs the highest demand for water; that is also the time when overhead is the highest due to the cost of electricity being higher. It was stated that Ames has never adopted a seasonal rate. The Council was advised that water and sewer rate surveys have been conducted every two years from Iowa cities over 10,000 population. Eighteen (18) cities assess a minimum bill with an allowance, and 17 cities charge a service charge without an allowance. Mr. Neumann stated that Ames has a median usage of approximately 550 cubic feet/customer. Eighty-five percent (85%) of Ames’ customers use less than 1,000 cf/month. It was pointed out that 31 of the 35 cities surveyed have a flat-rate structure; four cities have other rate structures, such as minimum bills with either declining or inclining blocks. Ames assesses a minimum bill of $5.50/month with no allowance. John Dunn, Assistant Director of Water and Pollution Control, reviewed data for Ames and fund projections. Seventy-nine percent (79%) of the sewer fund projected revenues in 2004/05 came from metered sales. According to Mr. Dunn, the growth rate in customer accounts is more than five times the growth rate in billed volume. Assistant City Manager Bob Kindred explained that that was an outgrowth of the apartment-to-condominium conversions. Mr. Dunn briefly explained the 2004/05 Sewer Fund projected expenses and Sewer Fund balances for years 2001/02 thru 2009/10. He described several options for sewer rate adjustments. Still unknown are the requirements for WPC Plant renovations/expansion that may be imposed on the City after receipt of the NPDES permit. Mr. Dunn advised that the current sewer revenue (FY 2003/04) is generated from assessing a minimum bill of $5.50/month and $1.41/100 cf. With a ten percent increase, $340,000 in additional funds would be generated. He then reviewed estimates for cost of service based on average capacity, peak capacity, and the number of customers. Potential rate structures were explained, as follows: 1. Raise minimum bill from $5.50 to $7.10/month and keep unit rate at $1.41/100 cf 2. Keep minimum bill at $5.50/month and increase unit rate from $1.41/100 cf to $1.61/100 cf 3. Allow cost of service to determine allocation, which would raise the minimum bill to $7.35/month and decrease the unit rate to $1.38/100 cf Comparisons of Alternatives 1 through 3 had been made and were explained by Mr. Dunn. Finance Director Duane Pitcher described the overall impacts on utility bills for each of the three options. Mr. Dunn said that it would also be possible to raise the minimum bill by ten percent (10%) and increase the unit rate by ten percent (10%) to yield the desired increase in revenue. Staff did not include this option in the comparison of alternatives, but could get information on this option to the City Council if they so desired. Mr. Dunn explained that they were requesting guidance from the City Council in establishing rates that would generate an additional ten percent (10%) increase in revenue. Staff would then prepare an ordinance and present it to the Mayor and Council. According to Mr. Dunn, Option 3 would most closely meet the criterion that the minimum bill be set to closely recover actual costs. Mr. Schainker suggested that the City Council members review the prior guidance that they had given staff to ascertain if they still agreed with that direction. Moved by Mahayni, seconded by Goodman, to reaffirm the Council guidance that was given since 1992. Vote on Motion: 5-0. Motion declared carried unanimously. Mr. Schainker informed the City Council that a decision on the specific rate structure needed to be made at their next meeting. Moved by Cross, seconded by Mahayni, to direct staff to present an alternative rate increase that would allow for a ten percent increase in the minimum bill and a ten percent (10%) increase in the unit rate. Vote on Motion: 5-0. Motion declared carried unanimously. COMMENTS: Moved by Wirth, seconded by Goodman, to place the issue of the Octagon billing on the next agenda. Vote on Motion: 5-0. Motion declared carried unanimously. ADJOURNMENT: 7:12 p.m. ___________________________________ ____________________________________ Diane R. Voss, City Clerk Ted Tedesco, Mayor