SUBJECT:
Title
PUBLIC HEARING: An Ordinance of the Town Council of the Town of Erie Adopting New Water Service Charges and Storm Drainage Fees
Body
DEPARTMENT: Finance Department
Utilities Department
Department
PRESENTER(S): Sara Hancock, Director of Finance
Todd Fessenden, Director of Utilities
First Name Last Name, Title
TIME ESTIMATE: 30 minutes
only required for non-consent items
POLICY ISSUES:
Based on detailed study, the proposed rates are needed to provide sufficient revenue to operate and maintain the Town’s existing water, wastewater, and stormwater systems.
STAFF RECOMMENDATION:
Recommendation
Approve the updated water rates.
End
SUMMARY AND BACKGROUND OF SUBJECT MATTER:
The Town of Erie Financial Policies require the Town to have a formal rate study performed on the utility fund (water, wastewater, and storm drainage) charges at least every five years. Bond indentures also require the Town to ensure that its fees are adequate to ensure compliance with all bond covenants. Staff conducted the last formal rate study for these funds in 2020. In 2020, the Council reviewed and adopted the results of those rate studies, setting rates and fees for the period 2020-2024.
Staff began the current rate study process in late 2023. The Town contracted with Raftelis Financial Consultants (Raftelis) in August 2023 to perform the formal rate study for water, wastewater, and storm drainage monthly customer charges, water and wastewater tap fees, raw water dedication fees, and storm drainage impact fees.
Summary of Rate Study
The goals of the rate study are to determine the revenue needed to cover annual operations and maintenance costs and capital improvement projects, meet debt service requirements, provide for sufficient operating reserves, and maintain the utility’s self-sufficiency over a 5-year period. Moving forward for as long as construction costs continue to escalate rapidly, staff recommends evaluating fees every two years, with a more in depth study every 4-5 years to address capital projects and rapid growth.
The key assumptions used in the rate study are as follows:
• Residential growth: 650 taps per year
• Target Reserves: 90 days of operations plus one year’s depreciation expense
• Debt Service Coverage: As required by the respective debt covenants
Monthly Utility Customer Charges
The rate study develops a financial plan and the cost of providing water, wastewater, and storm drainage services to its customers. The financial plan identifies the revenues and expenses over the study period and determines if the current rates generate the revenue necessary to cover operating costs, debt service payments, capital improvement projects, reserve requirements and provide the necessary revenue to meet bond covenants.
The study also develops the cost of service by customer class (residential, commercial and irrigation) and it recognizes the differing service characteristics based on the meter size and service demands. Based on the cost-of-service information, the study recommends minimal increases water storm drainage, with no change to wastewater rates. These changes were proposed to ensure that each customer type covered their cost of service and to provide incentives for water conservation.
Below are the changes for each of the three different water services. Combined, the different services are proposed to have an average rate increase of 4.5% for customers. These tables show the current and proposed fees for residential water customers by each service (single-family, townhomes, and multi-family):
Water Rates - Operating
The monthly service charge is the base charge for all utility customers.
The customer class tiers are not changing. These rates are increasing 8.5%.
Wastewater Rates
There are no changes to the wastewater rates.
Storm Drainage Rates
Storm drainage rates are increasing 7%.
Summary
Quantifying customer impact of these changes can be difficult, as customer water use varies based on property size and features, as well as customer conservation efforts. As an example, a customer who uses 8,000 gallons of water, generates 4,000 gallons of sewer water, and one storm drainage charge, the total bill would increase from $127.85 to $133.65, or $5.80 (4.5%).
Overall, staff worked diligently to ensure reasonable rate increases while still providing core services, infrastructure maintenance, and planning for future needs. Importantly, staff also worked in parallel to ensure that utility fees (tap, dedication) ensured growth paid its own way. Those fees have a corresponding positive impact on rates; by ensuring growth pays for growth, we are able to ensure residential rates are not exacerbated. As noted earlier, to continue to keep rate changes strategic, staff will increase the frequency of studying water rates from 4-5 years to every 2 years. This will support more strategic analysis of the current state and needs for water, wastewater, and stormwater management.
COUNCIL PRIORITY(S) ADDRESSED:
ü Safe and Healthy Community
ü Effective Governance
ü Environmentally Sustainable
ü Fiscally Responsible
ATTACHMENT(S):
1. Ordinance 042-2024