Title
Review Proposed Utility Rates
Recommended Action
Committee Recommendation:
Develop recommendation to forward to full Council.
City Manager Recommendation:
Review the 2015 Utility rate proposals and recommend the proposed rates to City Council for final review during budget deliberations.
Report
Issue:
Utility rates are considered annually as part of the Council's budget deliberations, with advance review and a recommendation from the Finance Committee.
Staff Contact:
Dan Daniels, Public Works Waste ReSources Director, 360.753.8780
Andy Haub, Public Works Water Resources Director, 360.753.8475
Presenter(s):
Dan Daniels, Public Works Waste ReSources Director, 360.753.8780
Andy Haub, Public Works Water Resources Director, 360.753.8475
Background and Analysis:
The proposed 2015 Utility rates focus on maintaining existing service levels and ensuring stable revenue. Emphasis is placed on minimizing rate increases while ensuring that essential Utility services are provided reliably and without interruption. Potential expenditures have been reduced and inflationary increases in costs absorbed in order to lessen rate increases.
2015 Rate Proposals
Storm & Surface Water Utility: 3% rate increase proposed
The proposed 2014 Storm and Surface Water Utility budget maintains current services. It seeks to meet the expectations in our community for flood mitigation, water quality improvement, and aquatic habitat enhancement as well as the regulatory requirements of the NPDES (National Pollution Discharge Elimination System) Phase II permit.
The proposed 3% rate increase covers a revenue shortfall of approximately $78,000. With the proposed rate increase, single family residences would see a $0.48 bi-monthly increase in their storm and surface water rates. Single family and duplex storm and surface rates in 2014 are $22.88 bi-monthly.
The proposed budget incorporates various inflationary increases and several regulatory requirements. It also acknowledges the need to increase funding for the maintenance of publicly-owned water quality treatment facilities at a cost of $40,000. In recent years, the Utility has installed numerous underground media filter systems for treating runoff. These systems require annual maintenance and filter replacement in order to function as needed.
Stormwater rates are based on a flat-rate monthly charge for single family and duplex residential accounts. Other accounts including commercial, multifamily, and institutional developments are charged based on the quantity of impervious surface on the site and the year of development. Older developments consistently provide less onsite stormwater treatment and storage infrastructure than newer developments. Therefore, non-residential accounts incorporate a three-tiered rate structure with older developments paying more than new developments.
The Storm and Surface Water Utility and its finances will be comprehensively evaluated in 2015 as part of updates to the Utility's 2003-2011 management plan.
Wastewater Utility: 2% rate increase proposed
The Wastewater Utility safely conveys wastewater from our home and businesses to the LOTT Clean Water Alliance treatment facility in downtown Olympia. The proposed operating budget for City-managed wastewater services reflects the guidance provided by the City's 2013 - 2018 Wastewater Management Plan. The Wastewater Utility generates stable revenues.
The 2015 proposed budget for the City's Wastewater Utility is anticipated to increase by approximately 2% or $92,000. Additional wastewater rate increases are proposed by the LOTT Clean Water Alliance as discussed in a following section.
Inflationary costs incurred by the City Wastewater Utility account for $20,000 of the proposed rate increase. The remaining rate increase ($72,000) is tied to the need to correct a financial imbalance between the Wastewater and Storm and Surface Water Utilities. Operations and maintenance staff are shared between the two Utilities. However, necessary repairs to wastewater pipe systems are dominating their work. The rate increase of $72,000 will provide funds to bring shared staff into the Wastewater program and subsequently allow the stormwater program to meet its staff needs.
The Wastewater Utility relies upon flat-rates for single-family residences and duplexes. Accounts, other than single-family residences, and duplexes are charged a minimum flat rate plus charges based on drinking water usage. City wastewater rates for single family residences and duplexes in 2014 are $38.56 bi-monthly.
Consistent with the Wastewater Management Plan, a tiered wastewater rate system is being considered for implementation in 2015 or 2016. The tiered system would provide a lower rate for consumers that use very low quantities of drinking water and therefore generate low volumes of wastewater. An additional tier level could encourage water conservation among high drinking water users.
Wastewater Treatment and Capacity Charges - LOTT Clean Water Alliance: 3% rate increase proposed
The LOTT Alliance collects revenue for its operations through the utility billings of the local jurisdictions. An inflationary adjustment in LOTT rates of 3 percent is anticipated for 2015. This increase continues to implement the long-term funding strategy of LOTT.
With the proposed rate increase, LOTT charges would increase approximately $1.05 per month for a single family residence. The current LOTT charge is $70.02 bi-monthly for single family residences. LOTT rates are approved by a Board comprised of local elected officials.
Drinking Water Utility: 6% rate increase
The City Drinking Water Utility provides us with healthy water. Services of the Utility are consistent with the 2009-2014 Water System Plan. The Plan is being updated in 2014 with adoption of the new plan by City Council anticipated in 2015.
The proposed 2015 budget reflects both increases due to inflation, taxes and debt service payments as well as fluctuating revenues. An ongoing dynamic for the Drinking Water Utility is the appreciable costs associated with meeting State and federal mandates and assuring a healthy water supply. Drinking water capital projects are costly. No non-inflationary or unmandated costs are proposed for 2015.
Drinking water revenues vary with summer water consumption, water conservation effectiveness, and wholesale water sales to neighboring jurisdictions. Subtle decreases in revenue coupled with increasing capital project costs can result in revenue needs well above inflation. While debt financing is critical to the Utility, annual loan payments are appreciable.
For 2015, the revenue shortfall is expected to be approximately $330,000. The Utility budget for 2015 is $11.6 million. The shortfall would necessitate a 4% rate increase. Additionally, staff recommends a 2% supplemental rate increase to begin covering the cost of loan payments for the Log Cabin Reservoir. Loan payments will begin in 2018 and will require a rate increase of 7.5%. The proposed 2% increase will begin offsetting future revenue and rate needs by generating about $138,000 annually.
The base water charge for a single family residence in 2014 is $42.42 bimonthly. Total charges vary with water use and customer class.
Waste ReSources Utility: Varying rate increases proposed
The Waste ReSources Utility provides a wide range of waste management services. It implements programs for residential, commercial, drop box, and organics customers. Policy direction is set by the Towards Zero Waste: Olympia's Waste ReSources Plan 2008-2013. Work to update the Plan in 2014 and 2015 is well underway.
The proposed 2015 budget is limited to inflationary increases including tipping fees, salaries, benefits, equipment, and fuel. Services will remain unchanged.
On the revenue side, recycle commodity values have not yet stabilized and, in some cases, continue to decline. Paper products are incurring the largest reduction in value. While processing and handling fees remain stable, the value of recycled commodities is projected to fall short of fees. Given this dynamic, staff recommends a $76,500 increase to residential special disposal fees.
Thurston County raised disposal fees for municipal solid waste (garbage) over 48% in 2010. At the same time, Olympia adopted an increase in the municipal utility tax. In an effort to minimize impacts to customers, excess reserves above minimum requirements were used to help smooth rate increases. These efforts continued up to and including 2014.
Based on projected 2015 revenue and expenditures, the Waste ReSources budget is out of balance by approximately $370,000. Staff recommends ending rate smoothing for municipal solid waste in 2015 and implementing rate increases for garbage in both the residential and commercial service classes. Conversely, continuing to smoothing rates for the organics program, as subscriptions continue to grow, is recommended.
Proposed rate increases for 2015 include the following:
· Drop box 0%
· Residential 6%
· Commercial 4%
· Organics 8%
The proposed rate increase for an average residential customer (65-gallon with recycle, bi-weekly) follows:
|
2014 |
2015 |
Difference |
Residential (65-gallon with recycle, bi-monthly) · 6% garbage rate increase |
$41.42 |
$43.90 |
$2.48 |
· 8% Yard Waste/Organics |
$16.36 |
$17.66 |
$1.30 |
Total bi-monthly with garbage, recycle and organics subscription |
$57.78 |
$61.56 |
$3.78 |
Neighborhood/Community Interests (if known):
City utilities provide essential public health services to Olympia residents.
The Utility Advisory Committee (UAC) will conduct a review of proposed Utility and LOTT Alliance rates during its October 2 meeting. The UAC will provide formal recommendations to the City Council.
Options:
1. Support draft staff recommendations for 2015 Utility rates and forward to City Council for their comprehensive review. Incorporate UAC and community input.
2. Provide additional guidance to staff regarding draft recommendations for 2015 rates. Forward to City Council.
Financial Impact:
None at this time. Financial implications of the proposed rate increases will be further evaluated by the Utility Advisory Committee and City Council.