November 1, 2004

City Commission

City of Lawrence, Kansas

6 East 6^th Street

Lawrence, KS  66044

Dear Commissioners:

In response to your request during the Commission meeting on September 21, 2004, we have prepared additional information for your consideration.  This information includes:

• a five year projection of water charges under uniform volume charges by class (Table 1),
• a five year projection under a modified declining block rate structure (Table 4),
• respective typical bills by customer class (Tables 2 and 5),
• percent increases of these bills over existing rates (Table 3 and 6),
• a summary of the number of existing accounts by billed usage (Table 7),
• a direct comparison of alternative rates with existing rates for 2005 (Tables 8, 9, and 10),
• a five year projection of wastewater rates, resulting typical bills, and annual increase (Tables 11, 12, and 13), and
• summaries of revenues versus expenditures for each utility (Tables 14 and 15). 

Summary

Our analyses indicate the following:

• Uniform rates in comparison to the existing declining block rate structure generally favor very low to moderate volume users of each class.

• Modified declining block rates in comparison to the existing declining block rate structure favor very low volume users.
• In comparison to each other, the modified declining block rates are generally more favorable to the very low volume users and the large volume users, while the uniform rates are more favorable to the moderate volume users.
• Wastewater bills are currently higher than water bills and the cost gap is expected to significantly increase during the study period.

Water Rate Alternatives

The uniform volume charge alternative has been determined for each year of the five-year study  period without a planned phase-in of inverted residential block rates.  A summary of these rates is shown in Table 1.  Table 2 shows the monthly water bills under existing water rates and under the uniform volume charge rate structure for each year of the study period by customer class.  Table 3 shows the annual percentage increase in the selected typical bills. 

The modified declining block rate structure modifies the existing declining block rate structure by adding a new first block to provide lifeline assistance to the City’s lowest volume users.  This block is established for usage up to and including 2,000 gallons per month (the prior minimum bill monthly usage allowance) which is estimated to affect about 21 percent of the City’s residential customers and account for about 30 percent of billable residential water usage.  The remaining blocks are set at the existing breakpoints.  Table 4 shows the existing rates and projected modified declining block rates for each year of the five year study period.   The monthly service charge is identical to the proposed service charge under the uniform volume rate structure. The price break available to the low volume users will be recovered from all customer classes.  Table 5 shows the monthly water bills under existing water rates and under the modified declining block volume charge rate structure for each year of the study period by customer class.  Table 6 shows the annual percentage increase in the selected typical bills.  Table 7 shows the number of accounts by customer class within the usage amounts shown in Table 6 to indicate the relative number of accounts affected by the resulting typical bill increases.  For example, the 11.2 percent increase shown in Table 6 for residential customers using 10,000 gallons per month will impact about 27.2 percent of all residential customers.

The next three tables compare, for 2005, the existing rate structure with the two alternative rate structures.  This allows a direct comparison of the full impact of each set of alternative rates to the City’s existing rates.  Table 8 summarizes the existing rates and the alternative rates for 2005.  Table 9 summarizes the monthly water bills for 2005 under existing water rates and under each of the two alternative water rate structures while Table 10 shows the 2005 typical bill percentage increases for each alternative rate over existing rates. 

Alternative Water Rate Comparison Analysis

The modified declining block rates (Table 4) are generally more favorable to the very low and large water use customers and thus are more favorable to residential customers using less than 5,000 gallons per month.  The uniform rates (Table 1) are more favorable to the low and moderate (e.g. residential customers between 5,000 and 25,000 gallons per month) water use customers within each customer class. Commercial customers using less than 185,000 gallons per month and industrial customers using less than 1,350,000 gallons per month will typically benefit more from the uniform volume charges then the modified declining block rate structure. 

Wastewater Rates

The proposed wastewater rates are shown in Table 11.  As with the proposed water rates, the existing system of minimum charges will be replaced with a system of service charges.  Table 12 shows the monthly wastewater bills under existing wastewater rates and under the proposed rates for each customer class during the study period.  Finally, Table 13 shows the annual percentage increases in the selected typical bills for each customer class.

Revenue Comparison

Tables 14 and 15 present a simplified cash flow for each utility that compares total revenue to be collected under the proposed revenue increases for each year of the study period with the related revenue requirements.  The total revenues and expenditures are equal for each year and are presented similar to a balance sheet.  Additionally, for each year, the related level of capital improvement projects financed by the financial plans is shown to demonstrate how the annual increases in debt service are used to leverage the proposed financing of needed capital improvements.

                                                                        Very truly yours,

                                                                        BLACK & VEATCH CORPORATION

                                                                        Keith D. Barber

                                                                        Senior Consultant

AMW

Enclosure[s]

cc:     Mike Wildgen

         Debbie Van Saun

         Dave Corliss

         Ed Mullins

         Roger Coffey

         Chris Stewart