Memorandum

City of Lawrence

Utilities Department

 

TO:

Diane Stoddard – Interim City Manager

Casey Toomay – Assistant City Manager

FROM:

Beth Krishtalka – Assistant to Utilities Director

CC:

Dave Wagner – Utilities Director

Mike Lawless – Utilities Deputy Director

Bryan Kidney – Finance Director

DATE:

June 10, 2015

RE:

Proposed 2016 and 2017 Water and Wastewater Rates

 

Background

City Commission adopted the Water and Wastewater 2013 – 2017 Capital Improvement Program (CIP) on March 12, 2013. At the same time, the Commission approved the 2013 – 2017 System Development Charges (SDC) providing for scheduled annual SDC adjustments over the five-year period and approved 2013 annual water and wastewater rates. Subsequent CIP modifications have been reviewed and approved by the Commission as needed to address changing infrastructure needs, including in 2014 for Phase I Taste and Odor Improvements and earlier this year for the Wakarusa River Wastewater Treatment Plant (Wakarusa WTP).

 

During the 2013 adoption process, staff provided detailed information on revenues needed to support the CIP using the City’s rate model assumptions and forecasting, including tables showing the dollar value and percent increase changes in typical monthly bills over the CIP’s five-year period, based on customer type and usage volume. Staff also outlined the annual and combined five-year cost impact on a “typical residential customer.” Most recently reviewed in conjunction with the April 28, 2015 Wakarusa WTP construction contract award, the total additional cost over the five-year current CIP period based on typical residential customer usage of 4,000 gallons water and sewer is $519.84.

 

To date, water and wastewater usage rates supporting the current CIP have been developed within this framework and approved annually by the Commission, with changes typically taking effect as of November 15 of each year. A new rate model is under negotiation with Raftelis Financial Consultants for expected application in forecasting revenue needs for operations and maintenance and capital projects in years 2018 and beyond.

 

Proposed 2016 and 2017 Water and Wastewater Rates

The five-year SDC schedule approved in 2013 has provided certainty to new users in anticipating connection charges over time. For the remaining two years of the current CIP, staff proposes the Commission expand its scope of annual rate review to consider water and wastewater rates for years 2016 and 2017, with approved rates taking effect on November 15, 2015 and on November 15, 2016, respectively. Approval of such rates now would be an efficient approach to finalizing appropriate rates within the current proposed framework of anticipated rate changes in support of the 2013 - 2017 CIP. Multiyear rate schedules are one of the positive financial indices affecting debt issuance marketability in municipal bond markets. Finalization of such rates now would also expand opportunities over the next two years for consideration of the 2018 – 2022 Capital Improvement Program and supporting cost analyses provided by the new rate model.

 

The proposed 2016 and 2017 rates are contained in the attached Table 1, together with the current 2015 rates. Table 2 and Table 3 provide a comparison of typical monthly bills for 2016 and 2017, respectively. For typical residential customer usage of 4,000 gallons water and sewer, proposed 2016 and 2017 rates represent a $3.64 total annual cost increase (or 6.6% increase) between current 2015 and proposed 2016 rates and a $4.40 total annual cost increase (or 7.4% increase) between proposed 2016 and proposed 2017 rates.

 

Comparative Water and Wastewater Municipal Rates

In preparation of the rate recommendations, staff has surveyed other water and wastewater providers in the region. Most regional providers increased rates for 2015. Available information to date regarding future rate increases is summarized below:

 

·      Gardner is evaluating possible rate increases for 2016.

·      Johnson County Wastewater is evaluating possible rate increases for 2016.

·      Johnson County WaterOne is evaluating rates later this summer.

·      Lee’s Summit is evaluating rates, with reference to a projected 10-year schedule developed in conjunction with a 2013 cost of service study.

·      Bonner Springs increased rates by 5% effective as of April 1, 2015.

·      Olathe is evaluating possible rate increases for 2016.

·      Manhattan is evaluating possible rate increases in the 4% range for water and the 3% range for wastewater.

·      Topeka will be increasing rates pursuant to the three-year rate schedule applicable to calendar years 2015, 2016 and 2017.

·      Independence, MO has adopted five-year rate schedules, pursuant to which water and wastewater rates are increasing for 2016.

·      Kansas City MO increased rates effective as of May 1, 2015.

 

The attached graph shows comparisons between current area utilities’ rates and Lawrence’s current and proposed 2016 – 2017 rates based on a residential customer utility bill for 4,000-gallon water/sewer usage.

 

Action

Approve proposed water and wastewater rates for 2016 and 2017 and authorize staff to draft the rate ordinance for consideration and approval.