07. Water RatesIts 0 a IS
Incorporated 1892
Telephone (406) 752-6600
Douglas Rauthe
FAX (406) 752-6639
Mayor
Post Office Box 1997
Zip 59903-1997
Bruce Williams
Date: April 5, 1996
City Manager
To: Al Thelen, Interim City Manager
City Council
From: John Wilson, Assistant City Engineer,,_' L.
Members:
Re: Adoption of New Water Rate Structure
Gary W. Nystul
Ward I
Recommended Council Action Cliff Collins
This memo is a request for City Council action to adopt a new water rate structure, as Ward
recommended in the January 1995 Water Rate Study. Prompt action is important as we Barbara Moses
work to predict revenues and expenses for the FY 97 budget. Staff also requests Ward II
authorization to prepare ordinances to implement the new rate structure. Dale Haarr
Ward II
Staff proposes two ordinances, one to implement new water connection fees as soon as
Jim Atkinson
possible and another to implement the remainder of the rate structure in the late summer
Ward III
or early fall. This schedule would allow staff and the Council to update sewer rates, as
Lauren Granmo
necessary to coordinate with the new water rates. Time is also necessary to revise our
Ward III
computerized billing programs.
Pamela B. Kennedy
Ward IV
With the Councils approval, an ordinance to implement new connection fees will be
prepared for the April 15 Council meeting. Staff also requests direction from the
M. Duane Larson
Ward IV
Council to begin work on a sewer rate review to coordinate water and sewer rate
policies.
Costs Related to Fire Hydrants
One aspect of the water rates, which was discussed at the March 26 Council workshop,
is the method of recovering fire protection costs which have previously been allocated to
hydrant rental fees. At that time staff presented an option for recovering these costs
through a $2.11 increase to the proposed monthly minimum charge for all water
accounts. Several Councilmen expressed concerns that small residential customers
should not have to make the same contribution to fire protection as properties like the
High School or Kalispell Regional Hospital.
In response to those concerns, staff has prepared a schedule of bi-monthly minimum
charges and consumption rates to recover direct fire protection costs through the water
rates in a more equitable manner. Half of the cost would be recovered through the
minimum charge and half through the rate per thousand gallons. This dual approach
would compensate for the inequities that typically result from a single formula approach.
1 of 3
Please keep in mind that by recovering these costs through water rates we will receive
contributions from property owners who are exempt from property taxes and therefore
do not contribute to fire protection through a hydrant rental fee. Many of these tax
exempt properties are among those who benefit most from fire protection services.
By eliminating hydrant rental fees we will also provide a 3 mill savings to the General Fund. This
translates to approximately $11.60 from the annual tax assessment on a $100,000 home.
The cost to be added to the minimum charge increases with the size of the meter. Our formula
applies the same volume ratio method that was used to develop the water and sewer connection
fees. The added cost to the minimum charge would be 770 for a typical single family residential
customer and $1.97 to $7.85 for most commercial accounts. The few accounts with 4 inch water
meters would have an added cost of $31.41 per billing period.
An amount of 6¢ per thousand gallons would be added to the consumption charge to recover
costs in direct proportion to the amount of water used. A small family would have an added cost
of approximately 50¢ on a typical water bill, while a high consumption account such as the
Kalispell Senior High School would pay an extra $40 to $50. Our largest consumers, such as
Cavanaugh's and Kalispell Regional Hospital would pay an extra $75 to $150 per billing period.
Recommended Rate Changes
Staff recommends that the water rate structure be revised and implemented in accordance with
the January 1995 Water Rate Study. The proposed rate structure is developed in the bound
Water Rate Study document, while the proposed rate to effect a revenue neutral change over will
be shown in a handout to be distributed at the April 8 Council workshop. This handout will differ
from the one distributed at the January 8 workshop only in the recovery of direct fire protection
costs. The service charge will increase as described above and the cost per thousand gallons will
increase by 6¢.
From the customer's point of view, a water bill under the proposed rate structure would include a
flat fee to bring water up to the building plus a variable charge for that water which passes
through the. meter. Although the total revenue to the Water Department would not increase,
some customers would see a change, up or down, in their typical water bill because of the new
cost distribution.
Recommended rate structure changes include:
• Bi-monthly minimum service charges would be based on meter size and designed to
recover fixed costs such as billing functions, fire protection facilities and maintenance for
meters and service connections. In contrast to the present rate structure, this flat charge
would eliminate hydrant rental fees and would not account for a minimum volume of
water delivered to the customer.
2 of 3
• Charges for water usage would begin with the first gallon and would account more closely
for actual water used. The present rate structure bills the typical residential customer for a
minimum volume of 6000 gallons.
• The policy for irrigation billing would continue without change except for a rate increase
from 620 to 75¢ per thousand gallons.
• A two tiered rate structure would provide a reduced rate for consumption in excess of
30,000 gallons per billing period. This discount is justified by an analysis of peak demand
factors and the selection of 30,000 gallons as a consumption level to distinguish between
residential and commercial usage. Residential usage patterns, with higher peaking factors,
are shown to exert a greater demand on extra capacity services. The present rate structure
includes, but does not justify, a four tiered rate scheme.
• Because billing would be based on the actual cost to provide water, the current practice of
billing based on the number of dwelling units would be eliminated. The dwelling unit
policy has been difficult to justify, particularly with respect to professional and office
buildings.
• Water connection fees have been recalculated on the same basis as the recently adopted
sewer connection fees. The increased fees would charge new customers appropriately for
their demand on the system and build a capital fund for future plant upgrades.
After reviewing the Rate Study recommendations with Council and staff, we propose that the
following recommendations included in the Rate Study document not be adopted:
• The proposal to convert to a monthly billing system would not produce sufficient benefit
to offset the logistics and cost of implementation.
• The original recommendations with respect to direct fire protection fees are moot in light
our current recommendation to recover these costs through the water user fees.
• The recommendation to convert our meter reading system to modern electronic
technology, although important, should be delayed until the utility billing program is
upgraded to current industry standards.
3 of')
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