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The original item was published from 1/14/2009 11:22:58 AM to 3/1/2009 12:00:09 AM.

News Flash

Finance

Posted on: January 14, 2009

[ARCHIVED] Utility Rates Clarification

In the January/February 2009 issue of the Roseville City News, an article regarding the City’s change to a conservation-based rate structure generated questions from residents wanting to learn more about the impacts on homeowners.

The information presented below addresses those questions and provides additional information on the new rate structure.

The change to a conservation-based rate structure was in response to requirements in a new State Law, but also reflects the societal belief that water is a limited resource and as such, the City ought to encourage conservation. The concept of encouraging water conservation was also emphasized by citizens and stakeholders during the Imagine Roseville 2025 process.

Under the new rate structure, a typical home would see an increase of 5% from 2008 as measured over an entire calendar year. This is comparable to increases in prior years. However, those households that typically have less-than-average water usage, say 10-15,000 gallons per quarter, will see a higher percentage increase. This paradox did not go unnoticed by City Officials. The reason is due to an implicit subsidy that was present under the old rate structure. In short, higher-volume users subsidized lower-volume users – and had been for decades. For some homeowners, the subsidy amounted to $10 per quarter or more. Under a conservation-based rate structure, this subsidy must be eliminated.

To explain further, we must look at how the City accounts for its water and sewer operations.

Like most municipalities, the City incurs both fixed and variable costs in providing water and sewer services to homeowners. The City’s rate structure was designed to recoup these costs using both a fixed or ‘base’ fee that is charged equally to all homeowners, as well as a variable or ‘usage’ fee that fluctuates depending on how much water each household uses.

Conceptually, the base fee should be set at an amount that is commensurate with the cost of simply ensuring that water and sewer services is available; i.e., to maintain existing water and sewer mains. Historically however, and for reasons that aren’t entirely known, the City’s base fee was set at a level that did not generate enough revenue to maintain these mains including those that lead up to individual homes. The difference had to be made up with the usage fee.

This rate-setting practice doesn’t necessarily present a problem as long as households continue to use the same amount of water they always have. However, under a conservation-based rate structure households are encouraged to use less water, which in turn means that they will pay less in usage fees. But because the usage fees helped defray the costs to maintain and replace water and sewer infrastructure, a decline in water consumption would result in less money available to replace that infrastructure. To avoid this, the City needed to increase the base fee to an amount that was sufficient to meet the City’s infrastructure needs. At the same time, this enabled the City to lower the usage fee because it no longer had to help fund infrastructure and could now be used exclusively to pay for the variable costs.

With the 2009 Utility Rate Structure, the City’s base fee now reflects the true cost of making water and sewer service available, and the usage fee reflects the sole cost of actually purchasing the water and treating the wastewater. With these changes, the savings realized from homeowners’ water conservation efforts will now be transparent.

For most homeowners the 2009 Rate structure will amount to an increase of approximately $5-15 on your quarterly bill, assuming your household consumption is unchanged. Homeowners can minimize this increase by employing water conservation measures such as; fixing any water leaks, reducing the water used for lawn and garden irrigation, taking shorter showers, and installing newer household appliances that are designed to minimize water use.

If you have any further questions on the impact of these rate changes, please contact Chris Miller, Finance Director by email at: chris.miller@ci.roseville.mn.us, or by phone at: 651-792-7031.

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