Council considering three water rate change options

New water options were presented to the city council Thursday which included some lowered base rates, but also some higher rates for wholesale and local high-usage users.

The council decided to table action on a new rate structure across the board in May, due to concerns brought up at a public forum May 2. City Manager Brandon Anderson said then that implementing one of the two options from consulting company La Costa Environmental’s rate study would have had a negative effect on consumer usage.

“We didn’t like the two options that were given to us because it escalated even past 50,000 gallons usage and while it is discretionary use and people should have to pay a higher rate for that, the original options that we were given of paying $12 or $11 for a thousand of gallons would end up having a detrimental effect to us as city, because people would just flat quit using water altogether,” Anderson said.

The city’s wholesale customers – rural water providers Graham East Water Supply Corp. and Fort Belknap Water Supply Corp. – could see their costs nearly double, to a rate that is the actual cost of treating and supplying the water.

Numbers from 2016 show 3,483 of the city’s 4,213 retail customers use 5.8-inch meters. The second most popular size is 1-inch meters, with 398 customers, followed by 1.5-inch meters, used by 181 customers, then 2-inch meters with 130 customers. There are only 21 customers total using either 3/4-inch, 4-inch or 6-inch meters.

Option I

Under Option I of the three presented Thursday, the city would have a base rate that would decrease from where it is currently at all meters except 4- and 6-inch meters. For 5/8- and 3/4-inch meters the charge would lower from $38 to $26 and the 1- and 1.5-inch meter rates would lower from $62.50 and $105 to $36.40 and $46.80, respectively.

The 4- and 6-inch meters are the only ones that would have a higher base rate, increasing from $244 to $364 and from $318 to $546, respectively.

The first 2,000 gallons of water, originally included in the base rate, will be charged for at $3.42 per thousand gallons, and will be measured from 0-4,000 gallons of usage for the first tier for retail users. The second tier is measured from 4,000-10,000 gallons per thousand gallons used and would cost $4.86 per thousand for all meter sizes.

The third tier for retail users will be for 10,000 gallons or more, and would cost $6.90 per thousand of gallons used for all meter sizes.

Options 1 and 2 offer the same two choices for wholesale customers.

The first is to charge based on the actual of cost of production for wholesale water, which would be a flat rate of $6.35 per thousand gallons. The second option will be more than the actual cost of production: $6.58 per thousand gallons.

“As I am preparing budgets and looking where we need to be, the option I would lean towards is Option I and it depends on how we want to view our wholesale rates, if we want to sell the wholesale water at cost, which is $6.35 per gallon, or cost-plus, which would be approximately $6.88 per thousand. But Option I is what I am leaning towards,” Anderson said.

Option II

Under Option II, the base rate would also decrease on all meters except 4- and 6-inch meters. For 5/8- and 3/4-inch meters, the charge would drop from $38 to $23; 1- and 1.5-inch meter base rates would drop from $62.50 and $105, to $32.20 and $41.40, respectively.

The 4- and 6-inch meters would have a higher base rate, rising from $244 to $322 for 4-inch meters, and from $318 to $483 for 6-inch meters.

The first 2,000 gallons, which are currently included in the base rate, will cost $3.42 per thousand gallons, and will be included in the first tier, 0-4,000 gallons. The second tier, from 4,000-10,000 gallons, will cost $4.86 per thousand for every meter size.

The third tier – 10,000 gallons and up – would cost $6.90 per thousand gallons for every meter size.

For wholesale customers, Option II has the same two choices as Option I.

Option III

Under Option III, the base rate would also decrease. For 5/8- and 3/4-inch meters, the cost drops from $38 to $10. For 1- and 1.5-inch meters, the costs, $62.50 and $105, drop to to $14 and $18, respectively.

“Where that becomes risky (in Option III) for us as a city is during those times when people don’t use water, it is hard to cover our fixed costs, if we don’t have a base rate that covers that,” Anderson said.

All water would cost $6.35 per thousand gallons under Option III. The $6.35 rate is lower than the actual of cost of production for retail customers, which is $7.35 per thousand gallons.

There is only one option for wholesale customers under Option III: the actual of cost of production for wholesale water, which is $6.35 per thousand of gallons used.

Future

With these options the city will continue to set aside a water system reserve fund for emergencies, but Anderson said he doesn’t want to push too hard for a reserve at this time.

“It sets aside about a 2 percent reserve and some people would say that you need to set aside more of a reserve than that, but I don’t want to make that big of a jump now in water rates especially if our citizens feel more comfortable with our current situation and go back to using the water they need and whatever water fits within their budget,” he said.

As of June 30, the city’s water department revenue was more than $770,000 lower than projected when last year’s budget was approved in September. The city’s new water meters, which came online in mid-June 2016, sparked an outcry from some citizens who found their bills skyrocketing. Council temporarily lowered rates in September, then raised some of them in May of this year to the rates currently in effect.

Anderson said the city had record low water usage during the past year. He said he hopes one of the three rate option plans will be a solution to both the city and public’s concerns.

“We have had some growing pains with the new meters and yes, we have had some growing pains with setting these rates, but I hope that everyone, once they look through this information, sees that this is, I think, the best trade-off of getting what we have to have for the city without also penalizing our retail customers,” he said.

The Graham Leader

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