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2. Water and Sewer Rate Increases and Metersof Kalispell Post Office Box 1997 • Kalispell, Montana 59903-1997 • Telephone (406) 758-7700 • FAX (406) 758-7758 REPORT TO: Mayor and City Council FROM: Jim Hansz, Director of Public Works SUBJECT: Water and Sewer Rate Increases, Establishment of a Meter Replacement Fee MEETING DATE: July 31, 2000 City Council Work Session BACKGROUND: Water and Sewer Rates: City water and sewer rates were last increased in 1991. In 1996 the rates were adjusted to eliminate the minimum monthly use component of the rate structure and, in order to maintain a revenue neutral position, the rates were reduced. Except for this downward adjustment, water and sewer rates have remained unchanged for ten years. Over this period of time City operating costs have increase substantially to the point that revenues are no longer adequate to cover the cost of providing service. The fiscal year 2000/2001 budget itemizes the operation, maintenance, repair and replacement needs for the water and sewer utilities owned by the City of Kalispell. The proposed expenditures are considered to be normal and routine. In the water fund there are two significant items of capital facility replacement: replacement of the 18 inch diameter main in Main Street at a cost of $660,000.00, and replacement of failing roofs on the City's two underground reservoirs on Buffalo Hill at a cost of $400,000.00. There are no items of similar size or significance in the sewer fund. However, it should be recalled that the City is presently engaged in a comprehensive analysis of the water, sewer and storm drainage utilities. The results of this work are expected to identify items in critical need of replacement and improvement. This may add significant cost to future utility fund budgets. The Finance Director has analyzed the financial condition of the water and sewer utilities with respect to the proposed budget. On the basis of this analysis it is clear that an increase in rates is needed to cover the basic costs of providing utility services at their current levels. The changes needed are as follows: 990"�MMV Current Rate Increase New Rate % $1.26 / 1,000 gal. $0. 13 / 1,000 gal. $ 1. _3 ) 9 / 1000 gallons 10% SEWERFUND Current Rate Increase New Rate % $2.98 / 1,000 gal. $030 / 1,000 gal. $3.28 / 1,000 gal. 10% we have reviewed the City's current procedures for meter replacement and the funding of these replacements. At the present time there is no comprehensive or systematic program for replacement of meters once they have reached the end of their useful life. At the present time, meters are replaced only when they actually fail to register or begin to register so slowly that the change is immediately obvious. The average age of meters in our system is 15 years. Industry- wide experience indicates that typical life expectancy of meters is 15 years, at which point accuracy quickly declines and they begin to register slowly. Our meter vendor has confirmed this. Inaccurate metering causes several problems, some obvious and some not so obvious. Significant costs are incurred to produce and deliver the water. Costs are again incurred to clean up the water at the wastewater treatment plant. Inaccurate meters result in lowered revenues to meet these required costs. In addition, inaccurate metering prevents us from knowing whether system losses are the result of poor measurement, leakage or other causes. Customers of the system are also inconvenienced when inaccurate meters eventually fail and are replaced. The new meter accurately records water use and the customer is then confronted with a sudden increase in the utility bill that may be difficult to manage. replacement meters. We currently have specific replacement funds for other components of the system. Therefore we believe the most direct and efficient method of funding meter replacement is through the initiation of a specific meter replace fee rather than attempting to fund replacements via line item appropriation. The recommended annual replacement fee, based on a 15-year meter life, is shown in the following table. The fee per two -month billing cycle is also shown: Meter Size Annual Meter Fee Fee Per Billing Cycle 5/8" and3/4" residential $6.00 $1.00 F" $10.00 $1.67 1 1/2" $20.00 $3,33 2" $28.00 $4.67 3" $105.00 $17.50 4" $148.00 $24.67 The City's current connection schedule includes sizes and hook-up charges for service connections of 6", 8" 10" and 12". At this time there are no installations in these categories. Therefore, we recommend establishing a replacement fee based on a 15 year life the replacement cost determined at the time such connections are made. water meter replacement fees outlined above. FISCAL EFFECT'S® Annual increases in fund revenues sufficient to allow continuation of the present level of utility service and to cover the cost of providing the service. ALTERNATIVES: As suggested by the City Council Respectfully submitted, James-C. Hansz, P.E. Director of Public Works / C Chris A. Kukulski City Manager