Utility looks at multi-step cost hike for water rates
WILLMAR -- The Willmar Municipal Utilities Commission is recommending a water rate increase of 9 to 10 percent per year in 2011 and 2012 to address a variety of needs in the Water Department.
The commission voted Monday to approve the increase and to hold a hearing at the Dec. 13 meeting to take comments from the public. Actions of the commission require final approval by the City Council. If the increase is approved, the new rate would take effect by Feb. 1, 2011.
Utility General Manager Bruce Gomm said staff finished work on preliminary budgets and is proposing a multi-step increase that will take place over two years.
Gomm said Water Department retained earnings -- the amount remaining after all revenue, expenses and intergovernmental transfer are calculated -- are projected to be zero at the end of 2010.
The city-owned utility uses retained earnings generated by each of the electric, water and heating departments to pay for improvements and projects in each department.
Without the increase, retained earnings are projected to have a 12 percent loss of $232,800 in 2011 and a 16 percent loss of $296,100 in 2012.
Gomm said the Water Department faces continually increasing costs. Many of these expenses are unavoidable, such as requirements from state and federal regulatory agencies for studies, audits and plans involving chlorine use, wellhead protection and groundwater monitoring.
He said the Water Department has deferred maintenance on a booster station where the roof is leaking, the floor is breaking up and doors are rusting. Gomm said chlorine leak detectors are past their useful life (a safety issue), departmental trucks are entering their 13th year of age, water tower paint coatings are aging, and there is some deterioration of treatment plant filter materials.
Last month, utility staff recommended a single increase covering two years, but the commission delayed action. Staff reconsidered the increase and decided to recommend a two-tier approach after talking to commissioners Matt Schrupp and Dave Baker who had expressed concerns about the increase.
During discussion Monday, Schrupp suggested the utility implement a one-year increase and determine revenue and expenses at the end of 2011. He said that if the utility had a larger than anticipated deficit, due to an unexpected expense, a larger increase would be required.
Gomm said his preference "was to implement what the utility knows it needs and address needs after that.''
The resolution to recommend the increase was moved by commissioner Marv Kray and seconded by commissioner Gary Myhre.
Kray and Myhre favored spreading the increase over two years. In an interview, Kray said the two-tier increase is needed because the Water Department will have projected deficits in 2011 and 2012.
"It's not always necessary to make up the whole deficit in one year,'' said Kray. "You can spread it over a couple of years, especially on the Water Department. We're not talking about as many dollars as the electrical (department).''
Myhre said the two-tier approach is a little easier for residential and industrial customers to budget and plan for.
"Otherwise it would have been a larger increase right up front in the first year,'' said Myhre. "But it's obvious when you look at the bottom line for the department that something has to happen. Expenses have been cut as far as they can and some of the water consumption is down. Rates have to increase.''
Kray said that if after one year water usage is up and the utility ends the year with a balance instead of a deficit, the commission could always review the rates at the end of 2011 for 2012.