The Davis City Council approved a water rate study to develop a new rate structure, which kicked off at the Water Advisory Committee meeting on Feb. 16.
“A rate study is a common and typical undertaking for any water utilities,” said Assistant City Manager Paul Navazio. “Legally you’re only allowed to set rates to cover the cost of services, so the fees must be set so as to ensure that each customer class is paying their fair share. Every time you go in to relook at you fees, you have to do a rate study.”
“We can only set fees for five years at a time,” said Principal Civil Engineer Dianna Jensen at the Water Advisory Committee meeting on Feb. 9. “In five years we’ll have an opportunity to update the study.”
The goal of the study is to come up with a new rate methodology based on projected revenue, which the city council would have to approve. The council would then proceed with the Prop 218 process for setting rates, which includes sending out notices to all property owners in the city and holding a public hearing on proposed rates.
“The council did go through the prop 218 process once already, but the referendum paused the process and questioned the rate method and structure,” Navazio said. “The council rescinded the rates, formed the Water Advisory Committee, and is now walking through all aspects of the water project, which includes the rate study with the goal of having recommendation from the council.”
Bartle Wells Associates was hired to conduct the study, which includes analyzing cost of service, reviewing existing rate classes and structures, and submitting a draft rate model. Bartle Wells will present its findings at the committee’s meetings until a draft rate proposal is created.
“We will be developing 40-year cash flow projections, exploring financing alternatives for capital projects, and estimating the impacts of various alternatives as well as providing technical expertise on rate-setting,” said Doug Dove, principal consultant for Bartle Wells.
The city currently operates a two-tiered rate, in which ratepayers pay a flat rate regardless of usage, and after a certain amount of units are charged at a higher rate, in order to incentivize conservation.
“When you do rate studies, you figure out if it makes sense to continue tiers for very high water users, and where you set those breaks,” Navazio said. “We could look at other structures, such as water budgeting and flat rates.”
Though not the sole cause for the study, the surface water project would have a large impact on the revenue the new rates would be required to generate. Part of the study will be examining alternative sources of financing for the project.
“The only funding sources that could lessen what needs to come out of rate revenues is if by the luck of the draw we’re able to access some state and federal grants,” Navazio said. “But those are not easily obtained, and there’s not a lot of grant money out there for this type of work.”
Financing options other than grants include utility revenue bonds, which are repaid through rate revenues, and low interest loans through the state and federal government.
The study is scheduled for completion by May 24, when it will be presented to the council.
EINAT GILBOA can be reached city@theaggie.org.
