Tuesday, May 01, 2012

New Utility Rate Ordinance Released - Updated

Rates will go down for the biggest users, up for everyone else.

By Dan Schroeder

The Ogden City Council has a busy agenda for tonight’s meeting, much of it in preparation for the start of a new fiscal year on July 1. And looming large on the agenda is the presentation of the new proposed water rate ordinance and related reports and documents.

The full agenda packet weighs in at 38 megabytes, so I’ve extracted three manageable excerpts for the convenience of those who are following the water rates issue:
There’s a wealth of fascinating information in these documents, at least for numbers geeks like me. I’ll write about more of these details in a future article. For now, though, let’s just cut straight to the “bottom line” and answer the most obvious question: What’s going to happen to your water bill?

The nominal (proposed) water rate increase for the first year (effective this July 1) is 7.8%, composed of a 5% real increase plus 2.8% for inflation. This will be followed by another 5% increase next year, and a 3% increase the year after next, plus cost-of-living increases (tentatively set at 2.5%) every year.

But the initial 7.8% increase is accompanied by a major restructuring (and simplification) of the water rate system, and any major restructuring inevitably produces winners and losers. Who are the winners, and who are the losers? That is, whose rates will initially increase by more than the nominal 7.8%, and whose will increase less?

The answers are on page 19 (pdf page 20) of the consultants’ report, where you’ll find a table of percentage increases arranged by type of customer and amount of monthly water use. For those who (like me) prefer a more visual representation, I’ve produced this graph of percentage changes for residential customers (click for a larger version):

I apologize for this graph’s complexity, much of which is due to the complexity of the old water rate system. To figure your rate increase, you need to know whether your property is also served by secondary water; if so, look at the purple lines. Otherwise you should look at the blue lines, except during summer (May through October) if your monthly use is above 12,000 gallons; then look at the green lines. Finally, you should choose the dashed line if you’re one of the 7% of residents who has an extra-large one-inch connection, but look at the solid line if you’re among the other 93% of us with 5/8 or 3/4 inch connections. Whew!

The graph’s horizontal axis shows the amount of monthly use. Notice that the scale of this axis becomes more and more compressed as you go to the right. The grid lines go by hundreds up to 1000 gallons, then by thousands up to 10,000, and so on. The median residential indoor use is about 4,000 gallons, while the median use during the summer for those who irrigate with culinary water is about 10,000 gallons.

And now you can see that the “losers” include everyone whose water use is below these median levels, and quite a few of those above. This is because the “base rate,” which you pay even if you use no water at all, is rising by 17% (or almost 20% if you have a 1-inch connection). The “winners,” on the other hand, include those who use a lot of water for summer irrigation, as well as the few whose monthly usage is truly enormous—hundreds of thousands of gallons. Most of these customers will actually see their bills decrease by about 5%.

Don’t pay too much attention to the big purple and blue spikes near the middle of the graph. While these large increases will affect certain customers, they are the results of eliminating some unfair discounts that these customers were getting under the old water rate system.

I’ve also produced a similar graph for commercial water customers, with larger connections (click for a larger version):

Again, you can see that this proposal would shift some of the revenue from the few who use a lot of water onto the many who use less. There are some interesting differences among the various connection sizes, but I won’t take the time to explain them in detail here.

It’s unclear to me whether the selection of “winners” and “losers” in this rate restructuring was mostly accidental or mostly intentional. Nothing in the report indicates that anyone was trying to shift the burden from large water users to small ones, and I never heard anyone state such a goal explicitly during the many meetings I attended. However, the consultants have consistently expressed a preference for higher base rates, in order to produce a more stable revenue stream. And some city council members have pushed for a bigger discount for those who irrigate with culinary water during the summer. That sentiment seemed to drive the council's informal decision, on April 10, among the options put before them.

On the other hand, almost everyone involved in this process has expressed at least some desire to discourage wasteful water use and encourage conservation. That's the fiscally prudent approach for the long term, because it lessens the need to develop new water sources and expand the system. Besides, it only seems fair to charge customers based on their actual water use. The new rate structure would be a step backward in this respect.

Update 5/1/12 7:03 p.m.:  Dan S. is now live-blogging from the City Council Chambers. Click "comments" to follow his real time posts.

Update 5/2/12 7:00 a.m.:  The Standard carries a short Mitch Shaw story this morning, briefly summarizing the probable outcome of last night's meeting:
Comments, anyone?

Update 5/10/12 9:00 a.m.:  For the benefit of those WCF readers attentively following the water rates revision issue, here's a link to the 5/1/12 Ogden City Council Regular meeting, where the supporting data for the proposed new utility rate ordinance were discussed in minute detail:


Jim Hutchins said...

Correct me if I'm wrong, Dan, but wouldn't the ideal conservation scheme give a curve with a monotonic (i.e. unbroken, smooth) rise as we read from left to right?

I understand that with the "old" system, there were weirdnesses, so a peak here or there would be okay, but what bothers me most about these graphs is that they go *down* from left to right. They should go *up*.

Just to take my particular case, as a single person with secondary water and a 5/8" meter line, I only use 1500 gal/month. I don't mind the 20% (or so) rate increase I'm gonna get, but I don't understand why those using 10 or 100 times the amount of water I do (and no secondary water) will get a rate *decrease*.

Dan S. said...

Perhaps it's worth elaborating on the process that led to this (likely) outcome. During the many council work sessions, the consultants have asked the council to "give direction" (through a consensus of head-nodding, since no "votes" can be taken in such a setting) on a variety of details that go into the design of the financial model and rate structure. So, for instance, the council was asked whether it wanted to build each new infrastructure project according to the recommended schedule. Earlier, the council was asked how many days' worth of operating cash it would like to keep on hand at all times. But in asking these questions, the consultants never attempted to explain what the big-picture consequences would be. The consultants (and the bureaucrats on the "steering committee") surely had an idea of these consequences, but the council was mostly kept in the dark. (I did the best I could, but I was partly kept in the dark as well, and of course I wasn't allowed to speak during the work sessions.)

More recently, the council was asked what percentage of all revenue it would like to recover from base rates. That's how the question was phrased. The question was accompanied by some numbers showing what the base rates would be, but without any comparisons to the current rate structure. Importantly, nobody thought it necessary to inform the council that the percentage for residential customers would be much higher than the overall average (and the percentage for commercial customers correspondingly lower). So the council "gave direction" on the basis of partial information.

There have been other problems with the process as well, which I'll try to describe later.

Dan S. said...

Jim, you're right to focus on the overall trend: down from left to right. Of course, this is in comparison to the old rate system. If you think the old system charges the small users too little and the big users too much, then a downward trend is what you want.

Each "corner" in the graphs is due to a rate change at some threshold, either in the new system (upward bends) or the old (downward bends). The number of corners is large because the thresholds are being shifted. The new rate system would have four tiers for summer use by those without secondary water, and three tiers for everyone else. I was pushing for just two tiers, for the sake of simplicity, but my suggestion was apparently ignored. As for smoothness, I suppose you could have a continuously variable rate structure, but nobody would understand it.

OgdenCitzen said...

Water conservation should be a primary goal in our Mountain Desert Climate

Why do Ogden City Council members  not know this?

Bob Becker said...

And of course Dan's latest raises [yet again] the question of why this sort of article --- analyzing Council fiscal decisions and how they will impact actual homeowners and ratepayers, and looking at the process by which are made by the Council --- is appearing on WCF [thank you again, Rudi] and not, as a matter of course, regularly, in Ogden's daily paper....

From_Utah said...

Good ol' Republican economics. Give the breaks to the large corporations and organizations that don't need it and stick the majority of the increase to the regular guy. Why do you people keep electing Republicans? When will you learn? Or will you ever learn?

Dan S. said...

Coming to you live from the Ogden City Council chambers...

I've just arrived in the middle of tonight's meeting. The council has unanimously passed the Annual Action Plan (required for HUD grants, as I understand it). Now the administration is making a presentation on the Home Exterior Loan Program. After that will be the presentation of next year's proposed budget, followed by an amendment to the current year's budget related to Lindquist Field. Then will be the presentation of the utility rate proposal (what I came for) and the utility infrastructure master plans. Finally there will be a presentation on the city's capital improvement plan for the coming year. All of the utility and capital improvement stuff will be finalized on May 15; tonight the council will merely set a public hearing on that date.

All council members are present. Mayor Caldwell is absent; CAO Mark Johnson is representing the mayor's office.

Dan S. said...

The resolution on the home exterior loan program passed unanimously.

Mark Johnson is now at the podium, presenting the budget via a slide show that was not part of the council packet. He says the budget represents the department directors' views more than in any prior year. He apologizes to council staff for being late getting information on the draft budget to them.

Johnson is now digressing into the story of the January 4 shooting and the subsequent funeral parade. Moral of the story: We can endure anything.

Johnson met with "our congressional leaders" last week. In coming years, Ogden and the state will lose a lot of federal subsidies. "We have to pull together."

Revenue challenges (according to Johnson): sales tax revenue (decreased by online purchases and a car dealership moving out of Ogden in response to tax increment incentive from another city); property tax "head room"; road funds coming from fixed per-gallon gasoline tax; not all job creation brings revenue to city, yet we still spend money on infrastructure for those who commute to jobs in the city.

Dan S. said...

Expenditure challenges (still from Johnson): health insurance for employees; payments to employee retirement fund; fuel costs (Johnson spends over $100 to fill his own vehicle); fleet management and replacement (has been postponed in prior years);  declining and negative fund balances; delayed infrastructure improvements; under-performing assets (golf courses, pools, airport); other increasing expenses.

It's remarkable how much he's criticizing (without naming) Godfrey for bad decisions in prior years.

Dan S. said...

Budget highlights:

One-time 1% bonus to employees (no merit increase).

30 new police cars.

Property purchase for new Fire Station 3.

Move Animal Services to the Police Department (from Community and Economic Development).

Move Emergency Services from Risk Management to the Fire Department.

More Risk Management to Human Resources.

New Fire Training/Emergency Battalion Chief.

Dan S. said...

Budget numbers: 1.2% increase in general fund; 8.4% increase overall, including enterprise funds.  2.9% increase in RDA.

Revenue pie chart does not break out "fiscal charges" that come into general fund from the utility funds.

We will not hit this year's projected revenue.

Winco, Walmart, and Junction businesses have added significantly to sales tax, according to Johnson. (But he can't really disentangle their effect from what the overall economy has been doing.)

Property taxes are pretty flat. A lot of the building taking place in Ogden is happening in RDAs, so we're not yet realizing the property tax benefit [in the general fund].

Franchise taxes have been increasing.

He shows a table of major revenue sources, comparing 2012 to 2013. But again the utility "fiscal charges" are hidden.

Dan S. said...

Expenditures: (Johnson shows list of capital improvement projects.) Employee compensation is 64% of expenses. Health insurance and retirement are increasing rapidly with no end in sight.

Draft budget will be available online tomorrow.

Johnson thanks department heads and council staff for their help with the budget.

Dan S. said...

Johnson's budget presentation has ended. Stephens commends employees for continually doing more with less. Council votes unanimously to accept budget for review and set public hearing for June 5.

Now for the budget "opening" (amendment) for repairs to Lindquist Field (boiler, roof, window vandalism, leaks). Total cost is about $46,000. Money would be transferred from 31st Street entryway project, which failed to get state matching funds. Council passes the amendment without delay, unanimously.

Dan S. said...

Finally (at 7:30 pm) we come to the utility rate proposal. Council staff person Glenn Symes steps up and outlines all the utility stuff on tonight's agenda:  Online survey results; rate study presentation; draft ordinance; rate policy resolution; water and storm drain master plans; and the capital improvement plan (which includes non-utility stuff as well).

Symes now describes survey results. 129 responses. First question was whether current bill provides enough information (about 40% disagreed). Question 2: 43% of participants have secondary water. Third question: About 75% agree that rate structure should encourage conservation. The rest of the questions were about landscaping requirements and related educational materials.

Dan S. said...

Consultant Cody Deeter is now presenting the rate study results, boring the council to tears repeating things hs's told them numerous times before.

Recommendation is for a $17.8 million bond in 2014, of which $13.4 million is for water projects and the rest for storm drain.

Dan S. said...

Gochnour asks an excellent question about how the proposed rate breakdown compares to what it is currently. Wicks asks a similar question. Deeter gives only a vague, approximate answer, saying it's approximately the same. Neither council member presses him on it at this time.

Dan S. said...

Gochnour asks about fund balances as they affect bonding. Deeter clarifies that since bonds are for both water and sewer, what matters (for the bond rating) is the total balance in both funds combined.

Van Hooser asks Deeter to clarify cash reserve. He says it's for emergencies, etc. One year's worth of operating cash on hand is ideal (according to Deeter).

Wicks up the proposal to base a small part of the sewer charge on winter water use. (This is a new feature which many of us lobbied for.) Deeter clarifies that this proposal affects both the "Ogden City" portion of the sewer charge and the "Central Weber Sewer" portion; they worked only with the combined amount.

Dan S. said...

Gochnour asks whether we have any users exempt from the storm drain charge. Attorney Mark Stratford says no, but there is a provision for a 50% reduction for some properties.

Deeter concludes with some examples of how someone's total utility bill would change under this proposal. The effect of the water rate increase is diluted in these percentages, because he's figuring in all the other utilities as well and those don't change much.

Dan S. said...

Now Stratford steps up to explain the new ordinance itself, and also the policy resolution. He starts with the latter.

(These documents are available at the link in the article above. I don't think I'll try to summarize here.)

Dan S. said...

Hyer asks Stratford how set in stone the ordinance now is. Stratford says that increasing any of the rate numbers might be problematic because of hearing notice, while decreasing something would create financial problems.

Hyer says the system still discriminates against those who irrigate with culinary water. He wants to change some of the numbers a little.

Stratford: The proposed rate structure, compared to the current structure, eliminates a couple of irrational discrepancies in the rate structure.

Dan S. said...

Hyer whines about how much water he has to use (76,000 gallons in a really hot month) to keep his corner lot green. It sounds like he thinks he should get unlimited irrigation water for $150 per year, as is typical for those with untreated secondary water.

Wicks finally speaks up and says there are costs to providing all that water and somebody has to pay for it.

Dan S. said...

The council has now formally set the public hearings on the utility ordinance and resolution for May 15. Time for a short recess before the meeting resumes (time is 8:40).

Dan S. said...

Back in session, planning director Greg Montgomery makes a brief presentation on the water and storm drain master plans, which outline needed infrastructure improvements over future years.

Looks like the consultants have gone home, so they'll miss my incisive three-minute presentation during the public comments at the end of the meeting.

Dan S. said...

Janene Eller-Smith (council staff) is now presenting on the capital improvement plan. This is the last agenda item before public comments and then the end of the meeting. Unless you hear otherwise, assume that the council dutifully set the public hearing for May 15.

A question comes up about the amount of money budgeted for water meter replacements. They've decided to upgrade the meters over just two years, so this amount rises to $1.5 million for the upcoming year.

rudizink said...

On behalf of the citizens of Ogden City and the readers of Weber County Forum, we express our special thanks to Professor Schroeder for his continuing, robust coverage of Ogden's water rate revision fiasco.

Dan S. said...

For archival purposes I'd like to clarify one detail about this article. Although the consultants' stated goal was to raise per-customer revenue by 7.8% (from the current fiscal year to the next), their proposed rate structure translates into an average rate increase that's about twice as high. More details here: http://www.wcforum.blogspot.com/2012/05/for-reasons-unknown-dr.html

Dan S. said...

For archival purposes I'd like to clarify one detail about this article. Although the consultants' stated goal was to raise per-customer revenue by 7.8% (from the current fiscal year to the next), their proposed rate structure translates into an average rate increase that's about twice as high. More details here: http://www.wcforum.blogspot.com/2012/05/for-reasons-unknown-dr.html

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