Utility rate study, possible hikes mulled

In 2017, the FCS Group entered into a contract with the City of Auburn, obligating the company to complete a water, sewer, and stormwater rate study so city leaders could assess the adequacy of existing rates and, where appropriate, propose new ones.

At the study session at City Hall on Monday, FCS’ Principal, Angie Sanchez, and Project Manager, Sergey Tarasov provided City Council members their first look at the findings.

“The overall arching goal is really to develop a four-year schedule of rates for each of the utilities that would generate the right level of revenue and make sure we are covering our overall costs. But we also want to look at eliminating existing rate inequities, if there are any,” Sanchez said.

Among the study elements FCS has completed so far are:

• A review of revenue requirements for each utility that encompasses the costs the City needs to recover on an ongoing basis from utility ratepayers;

• A cost-of-service analysis that determines the relative burden each customer class places on the utility. A comparison of existing revenues with the cost of service results then indicates whether each class of service is paying its fair share of costs for each utility system, and;

• The last task is to review the rate structures for each utility in the context of the cost-of-service findings and the City’s rate-policy goals, and develop a set of proposed rates for 2019 to 2022. Sanchez said capital costs are generally the largest costs a utility incurs, and over the four-year period the study examined, 2019 to 2022, the total revenue needed to meet the obligations of the water calls for varying increases per year over the revenue the city collects at the existing rates from the customer classes.

According to the study, the single-family and multi-family classes of water customers are essentially at the cost of service in terms of the fees the city charges them today, versus the cost of service the city has identified. The commercial class is slightly overpaying in terms of its costs of service, but manufacturing and irrigation are below their costs of service at the existing rates, the former paying 80 percent of the cost of the service it receives, while the latter pays 86 percent.

According to the study, an across-the-board increase without a change in the current rate structure would only prolong any iniquities between customer classes, while fixing the iniquities by moving rates toward cost of service over several years aligns with cost recovery and would result in larger rate increases for manufacturing and irrigation and smaller rate increases for the single-family customer class.

Varying base rates with meter size, according to the study, would address intra-class inequity, as larger meters demand additional infrastructure upsizing, higher maintenance and replacement costs. Also, customers with larger meters pay more.

According to the study, for the sewer utility over the same four -year period, the total revenue needed to meet its obligations is a cumulative $10.5 million, facilitated by a 2.4 percent increase per year over the revenue the city collects at the existing rates. As a whole, the customer class of single-family residences is overpaying for the sewer services it receives by 22 percent, while the non-single family class – commercial – is picking up 86 percent of the cost of the services it receives, according to the study.

According to the study, an across-the-board increase in sewer utility rates without a change in the current rate structure would prolong whatever inequities now exist between the customer classes. Fixing the inequities by moving rates toward the cost of service using a phased approach over several years, however, aligns with cost recovery and would result in smaller rate increases for the single-family residential class, according to the study.

For the stormwater utility over the same four-year period, the revenue goal is $9.2 million, which calls for a 1.7 percent increase each year between 2019 and 2022.

An across-the-board storm water utility rate increase without a change in the rate structure, the study concludes, would prolong iniquities between customer classes, leaving current, single-family rates higher than they are in most other area cities. On the other hand, fixing inequities by reducing the size of non-single family rate credits aligns with cost recovery and would be phased in over several years, resulting in rate reductions for single-family residences, and rate increases for the non-single family class. It could also have oversized effects on some non-single family customers.

According to the study, moving toward rates based on usage and eliminating the base rate is the most common approach to storm utility rate structures.

Here are the next steps the study recommends: for FCS to incorporate feedback into the next iteration of the study; that it present rate design and effects to the City Council and the public in June; and for the council to review and adopt the new rates by August or September.

The four-year study of rates goes into effect on Jan. 1, 2019.

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