MEMORANDUM

 

To:     Mike Wildgen

          City Manager

 

From: Debbie Van Saun, Asst. City Manager

          Ed Mullins, Finance Director

 

Re:     water rate alternative

 

Date:  November 29, 2004

 

Commission Direction

The attached tables (A, B, & C) reflect the declining block water rate option that was requested at the November 9, 2004 City Commission meeting.  Additionally, attached is a representative sample of usages for some residential water customers with irrigation systems.  More information regarding both attachments follows.  In response to additional direction from the Commission, staff has spoken with Chamber staff regarding their plan to set up a “large users” meeting It is our understanding that the Chamber is contacting various stakeholders to attend this meeting on Wednesday, December 1st.  We have offered our “top 25” users list for the Chamber to use to determine the invitees.

 

Declining Block Rate Structure

The three tables that are attached (A, B, and C) represent a declining block rate option.  This option follows previous Commission direction to eliminate the “minimum” billing structure and replace it with a service charge that is then added to a volume charge.  In the table below are the typical bills for the residential minimal user (0 – 2,000 gallons/month) under the current structure and the three most recent Commissioner requested rate options

·      declining block (current structure with rate increase – shown in Table A attached),

·      modified declining block (lower rate structure for the <2,000 gallon user), and

·      uniform volume (same per/gallon rate for each customer class):

 

2005 Bills - Residential minimum user (0-2,000 gals./month)

Monthly usage

Current  

Declining Block

Mod Declining

Uniform Volume

0 gallons

6.55

1.95

1.95

1.95

1,000 gallons

6.55

4.64

4.26

4.62

2,000 gallons

6.55

7.33

6.57

7.29

 

The next table below compares the current rate structure with the three options for residential customers with mid to high range usage.  This table illustrates that the uniform volume structure favors the mid range users while the modified declining block and declining block continue to favor the higher end users.

 

2005 Bills - Residential mid to high range user (20,000 to 100,000 gals./month)

Monthly usage

Current

Declining Block

Mod Declining

Uniform Volume

20,000 gallons

51.91

55.75

58.59

55.35

30,000 gallons

71.11

75.25

78.09

82.05

50,000 gallons

109.51

114.25

117.09

135.45

100,000 gals.

205.51

211.75

214.59

268.95

note – shading indicates most favorable option

 

Although all three options contain a volume charge component, the system availability issue is not addressed for the lower volume users.  According to Black & Veatch, in order to address the system availability issue (raised by Commissioner Schauner), we could potentially add an amount to the monthly service charge and lower the volume charge for the first rate block (0 – 20,000 gallons).  However, this type of charge would need to be set by City policy, since there are no specific costs that could be identified as only serving this purpose.  If such a rate structure were to be considered, it would increase the monthly costs more disproportionately to the lower volume users.

 

The following table compares the current rate structure with the three rate options for commercial and industrial customers with high usage (200,000 gallons or more).  Raising the water rates without changing the rate structure currently in use results in rates that favor the largest users in the system.  This is because the volume rates in this structure don’t have to be slightly higher to make up for the lower rate applicable to the low volume user (0 – 2,000 gallons/month) under the modified declining block rate structure.  This rate structure also allows the larger users of any customer class to obtain a lower average cost per unit of usage than would be provided under the uniform volume rate structure.

 

2005 Bills - Commercial or Industrial high range user (>200,000 gals./month)

Monthly usage

Current

Declining Block

Mod Declining

Uniform Volume

200,000 gallons

421.96

416.80

419.64

422.00

300,000 gallons

613.96

611.80

614.64

627.00

500,000 gallons

1,005.96

1,004.80

1,007.64

1,040.00

1,000,000 gals.

1,895.96

1,904.80

1,912.64

2,065.00

2,500,000 gals.

4,565.96

4,604.80

4,627.64

4,715.00*

5,000,000 gals.

9,034.96

9,111.80

9,159.64

9,422.00*

note – under the declining block option, high usage commercial/industrial customers will actually be paying less in 2005 than 2004 unless they use over 500,000 gals or more per month

*bills assume industrial rate for these customers; all other bills in this rate category assume commercial rate

 

Residential Irrigator Usages

As noted in the attached spreadsheets, of the 27 customer accounts reviewed, 20 rarely or never exceeded the 30,000 gallon per month average.  One might assume that 30,000 is the breaking point between mid and high range residential users. 

 

Assumptions/Conclusions

Given the above assumption for residential irrigators and applying it to the 2003 customer billing data already provided by Black and Veatch, the following conclusions might be appropriate:

o       the 5,639 residential customers using between 0 and 2,000 gallons per month in 2003 (21.2% of the billings generated) would be favored most by the modified declining block and uniform rate structures;

o       the 19,109 residential customers using more than 2,000 but less than 20,000 gallons per month (72.2%) would be favored most by the uniform rate structure;

o       the 1,195 residential customers using between 20,000 and 30,000 gallons/month with majority of residential irrigators (4.5% of the billings generated) would be favored most by the declining block rate;

o       the 532 residential customers that exceeded 30,000 gallons/month (2% of the billings generated) would be favored most by the declining block rate structures;

o       for 93% of the residential users, the uniform volume rate would be most favorable.

 

Additional conclusions for non-residential customers:

o       the 141 commercial customers (8%) using 200,000 gallons/month or more would be favored most by the declining block rates;

o       for 92% of the commercial customers, the uniform volume rate would be most beneficial;

o       the 7 industrial customers (9%) using more than 300,000 gallons/month would be favored most by the declining block rates;

o       for 91% of the industrial customers, the uniform volume rate would be most favorable.

 

c:       Dave Corliss, Asst. City Manager

Roger Coffey, Utilities Director

 

att.     Tables A, B, and C – Declining Block Rate Structure Option

          Spreadsheets – Residential Irrigator Usage and Averages