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Agenda Item: 15(c) |
Prepared By: Jeffrey E. Poteet, General Manager, Water & Sewer |
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Business: Presentation |
Department: Water & Sewer |
Subject:
Title
Water and Sewer Rate Study Discussion and Council Direction - Jeffrey E. Poteet, General Manager, Water & Sewer
Body
BACKGROUND:
City Council has expressed an interest in discussing a potential water and sewer rate study. The purpose of this agenda item is to provide background on the different types of utility rate analyses available, provide a staff recommendation, and obtain City Council direction regarding the scope of a potential study.
While the City's water and sewer rates have changed over time, the fundamental rate structure used to distribute costs among customer classes has remained largely unchanged since 2006. Because the City's existing Water and Sewer Rate Schedule is detailed and can be difficult to interpret without additional context, the September 2026 Water and Sewer Departmental Report includes a section titled “Understanding Our Existing Water and Sewer Rate Structure.” This write-up provides a simplified explanation of the base facility and consumption charges for the primary water and wastewater customer classes and has also been included as a cover sheet to the current Rate Schedule (also known Exhibit A in the May 2020 resolution) for this agenda item.
The attached discussion paper explains the differences between a Revenue Sufficiency Study, Cost-of-Service Study, and Rate Structure Study and how each may be incorporated into a broader Rate Study. At a minimum, staff recommends completing a Revenue Sufficiency Study to evaluate whether projected utility revenues are sufficient to meet current and future operating, capital, debt, and reserve requirements. City Council may also wish to expand the scope to include a Cost-of-Service Study and/or Rate Structure Study.
No changes to water or sewer rates are proposed as part of this agenda item. Staff is seeking direction on the desired scope so that proposals and associated costs can be obtained from qualified utility rate consultants and brought back to City Council for consideration. Because the study was not included in the FY2027 budget, Water and Sewer unrestricted reserves would be the proposed funding source, subject to subsequent City Council approval.
FUNDING SOURCE / FISCAL IMPACT:
Funding for a rate study was not included in the FY2027 budget. Regardless of the final scope selected by City Council, the City will need to engage a specialized utility rate consultant to perform the analysis. Therefore, staff recommends funding the study from Water and Sewer unrestricted reserves, with the final amount dependent upon the scope authorized by City Council and the resulting consultant proposal.
RECOMMENDATION:
Staff recommends that City Council direct staff to proceed, at a minimum, with a Revenue Sufficiency Study to evaluate the Water and Sewer Utility's long-term financial requirements and determine whether projected revenues are sufficient to support operations, capital improvements, debt obligations, and reserve requirements.
City Council should also provide direction as to whether the scope should be expanded to include a Cost-of-Service Study and/or Rate Structure Study. Based on Council's direction, staff will develop the appropriate scope of services, obtain a proposal from a qualified utility rate consultant, and return to City Council as necessary for authorization.
The study was not included in the FY2027 budget; therefore, staff recommends that the consulting services be funded from Water and Sewer unrestricted reserves.
POTENTIAL MOTION:
Option 1 - Revenue Sufficiency Study Only
“I move to direct staff to develop a scope of services and obtain proposals for a Revenue Sufficiency Study, with the proposals and associated costs to be brought back to City Council for consideration and approval. The proposed funding source would be Water and Sewer unrestricted reserves.”
Option 2 - Revenue Sufficiency and Cost-of-Service Studies
“I move to direct staff to develop a scope of services and obtain proposals for a Revenue Sufficiency Study and Cost-of-Service Study, with the proposals and associated costs to be brought back to City Council for consideration and approval. The proposed funding source would be Water and Sewer unrestricted reserves.”
Option 3 - Comprehensive Rate Study
“I move to direct staff to develop a scope of services and obtain proposals for a comprehensive Water and Sewer Rate Study, including a Revenue Sufficiency Study, Cost-of-Service Study, and Rate Structure Study, with the proposals and associated costs to be brought back to City Council for consideration and approval. The proposed funding source would be Water and Sewer unrestricted reserves.”