Consultant tells Columbiana of rate structures to help pay for water treatment plant
COLUMBIANA – There are a few ways city water rates can be adjusted to cover the cost of a 40-year loan for the new water treatment plant, and those ways were presented to council this week.
Josh Eggleston of the Ohio Rural Community Assistance Program (RCAP) led the nearly two-hour utility rate analysis workshop. He said his intention is not to increase rates drastically for customers.
“I’m not going to just come in and say raise rates eight percent,” he said. “I have never recommended a percentage increase. The first thing we look at is your rate structure and make sure that is working for you.”
Rates are currently based on the city’s monthly cost for power and other expenses and adjusted by the city manager as those costs fluctuate.
Council has agreed to pay Eggleston $18,000 to perform a rate analysis of both the water and sewer utilities. The analysis will help the city formulate a plan that demonstrates to the United States Department of Agriculture (USDA) that it will have money available to pay back the 40-year, two-percent interest loan. The loan is covering a majority of the cost of the roughly $15 million treatment plant that will replace the outdated plant at the southeast end of the city near Metz Road.
The agency has not ordered the city to raise water rates to cover the cost, but the city is responsible for demonstrating it will have the money available to pay back the loan.
Different rate structures Eggleston presented were a single block rate structure, decreasing block rate structure and increasing block rate structure.
In a single block structure, customers would be charged a constant price per gallon regardless of the amount of water used. In the second structure the price would decline as usage increases. The increasing block would charge customers more as they use more.
Eggleston said the single block structure is more commonly used in small communities.
Of the other structures he said charging less to those who consume more is beneficial to commercial and industrial users, thereby promoting economic development, while increasing rates for those who use more promotes conservation because it discourages high usage.
Eggleston will analyze the current rate structure over the coming weeks and present council with his findings in about 90 days. The findings will include more detail as to how much rates could be adjusted in the future.
In general, he suggested rates be adjusted upward slightly each year for several years to avoid a drastic increase toward the end of the loan payback.
“Do a favor for your customers, small incremental increases over time. Don’t play catch-up,” he said.
He also suggested customers pay separately for utility access and usage, which would be reflected through a base or minimum charge on their bills.
Customers are currently not charged a base or minimum fee.
He explained the base charge would be calculated to cover fixed operating expenses and capital cost of utility access. The usage charge would be calculated to cover the variable cost of production.
Council members are not obligated at this time to implement any one of the rate scenarios, but are taking Eggleston’s suggestions into consideration.
RCAP is a nationwide non-profit program administered in Ohio through the Wood, Sandusky, Ottowa and Seneca County Community Action Agency.
On a related matter, city manager Lance Willard suggested council approve hiring someone to perform a rate analysis for the electric utility.
Willard said someone from a for-profit agency already has shown an interest is doing a study for $15,000. The studies normally cost about $30,000, he said.
Councilman Bryan Blakeman opposed paying that amount for a study if it was going to be similar to the one already under way for water and sewer.
He said he was disappointed that during the workshop he didn’t hear that Eggleston had ever worked with a community and found their utility rates already were too high.
Blakeman has opposed increasing rates to pay for the cost of the project since the discussion began more than a year ago.
“I’d like to see a real rate study that is unbiased,” he said.
Willard responded that RCAP is unbiased and works closely with the USDA and Ohio Water Development Authority.
Although no formal action was taken, council members agreed not to go forward with an electric rate study at this time.