City Completes Water Rate Analysis
(A Re-print from 07-25-09)
Over the past 2 months, the City of Chaska has been in the process of completing a water rate analysis. The purpose of this study was necessitated because of several reasons, including:
The State of Minnesota, through the DNR, is requiring all municipalities by January 1, 2010 to have an inclining block water rate to encourage water conservation. Currently the City of Chaska charges the same flat rate per thousand gallons of water no matter how much water is utilized.
With the dramatic decline in our growth rate, there is a short-term need to analyze our current debt obligations in our water utility to make sure all of our financial obligations are able to be met With much of our water system aging, there is a need to analyze and understand our future operation and maintenance cost, to ensure that our rates are structure so as to keep our water system sustainable into the future.
Currently the City of Chaska has in place a flat water rate of $1.17/1,000 gallons of water. This means that no matter how much water a resident uses, they will always be charged the same rate per unit of water. With Chaska’s water rate being significantly lower than average rate of not only surrounding cities, but also those in the metro area, this has not created the incentive that the State has wanted to see put in place to help promote the conservation of water in our system. On an average winter day, the City of Chaska will pump approximately 2.5 million gallons of water into our system. On a peak summer day, that number will jump to over 8 million gallons of water per day. This incremental difference is primarily accounted for through the addition of residents and business irrigating their lawns. With so much water being used to supply irrigation systems, the State felt there was a need to mandate municipalities to implement inclining block water rate structures so that users would pay more for the more water they utilize.
In addition to needing to complete an analysis of our water rates to look at how to implement the State mandates for water rate structures, the City also utilized this study to look at our entire water system to determine if our rate structure was sufficient to maintain and operate a sustainable water system both in the short term, and into the future as we start needing to reinvest into our aging infrastructure system. As mentioned previously, Chaska is one of the lowest water rates in the Twin Cities Metro area, and is significantly lower than any of the surrounding municipalities.
Looking at the surrounding municipalities, the average water rate and customer service charge is $3.92/1,000 gallons of water, with the lowest rate being at $2.36/1,000 gallons. With Chaska’s currently at $1.17/1,000 gallons of water, and being an outlier compared to other municipalities, it was important to understand whether we were charging enough to both accommodate the costs we will have in the short term, and those we will have in the future to keep our water system sustainable. This becomes especially acute given the slowdown in the building market, and the effects the slowdown has on our entire water systems revenues.
To analyze this, the City consulted with PCE, a firm specializing in providing expertise to municipalities to financially plan their water systems. Looking at our current water rate structure, our project water trunk fund revenues, anticipated growth in the future, and the capital needs of our water system, PCE was able to help quantify if the City of Chaska’s water system would be sustainable into the future, and what it would need to do to become financially sustainable. What PCE found is that if the City continued to raise its current rate of $1.17/1,000 gallons of water even by 5% annually for the next 10-years, the system would be in deficit by $7 million at the end of this 10-year period. Given Chaska’s very low water rate compared to other municipalities, this financial strain on our water system has been evidenced in recent years by the Cities finding the funding of infrastructure maintenance such as painting our water towers and utility replacement in our street reconstruction program difficult to afford. As the study found, Chaska, under its current rate structure is not putting enough money into our system to make it sustainable-instead it is depleting it. What the findings of the study show is that if the City were to meet its current and future obligations, the rate of the water for the average residential customer (7,000 gallons/month) should be at $2.01/1,000 gallons. In addition, unlike other cities, Chaska has never recouped its fixed costs such as utility billing and meter replacement, and that to cover these fixed costs, a fixed customer service rate should be charged. The rate determined to be necessary to cover these costs was 2.27/month. This compares to the average of surrounding cities which is $7.94 as a fixed charge/month on a utility bill. While the water rate analysis did determine that there were changes that need to be made to our water system to keep our system financially and functionally sustainable into the future, the City of Chaska was able to find that this could be accomplished while still keeping our water rates the lowest the surrounding cities.
When fully implemented, an average resident would pay $2.32/1,000 gallons of water per month, including the monthly fixed service charge. Again, the average of both the usage and fixed service charge for surrounding cities is $3.92/1,000 gallons, with the next lowest being at $2.36/1,000. In this respect, the City feels it can take care of the financial needs it has to maintain its system, while still keeping our rates lower than other surrounding cities. To help ease the implementation of the proposed new water rates to our customers, the City is proposing to implement 50% of the increase on January 1, 2010, with the other 50% coming on January 1, 2011. For the average user of 7,000 gallons per month, this would increase their bill by approximately $4 per month in 2010 (from $8.19 to $12.23), and $8 per month in 2011, with this ultimate rate going to $16.27 in 2011 for 7,000 gallons of water per month.
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