Willmar Municipal Utilities Commission delays action on 16% water rate hike
The Willmar Municipal Utilities Commission has delayed voting on a proposed overall rate increase of 16 percent in city water rates. Water rates were last increased in 2007 by an overall 8.5 percent. Before that, water rates were adjusted in 1999 by an average of 15 percent, according to utility officials.
An increase requires City Council approval.
The increase is needed to boost retained earnings to 5 percent and bring the utility into compliance with state law that requires public water suppliers to use a conservation rate structure, said Bruce Gomm, utility general manager.
He said water division revenue has fallen since 2007, due primarily to major conservation efforts by the utility's larger industrial customer, resulting in reduced water division retained earnings.
The utility has aimed for 5 percent retained earnings in each of the water, electric and heating divisions but earnings have declined for the past couple of years. Retained earnings are equivalent to the profit of a private business after all expenses are paid.
Gomm said retained earnings pay for future projects and unexpected expenses.
"If you don't have a reserve to fall back, you can run into cash flow problems if a project comes up you didn't have funds for,'' he said.
Gomm had proposed the commission vote Monday to recommend the increase to the council, and the council would hold a public hearing on Dec. 6. If the council approved the rates, the increase would take effect the first of the year.
The commission's vote was delayed, however, after commissioners Matt Schrupp and Dave Baker raised concerns about the effect of the increase on businesses.
Schrupp said there was no question rates should be increased. But Schrupp said he was shocked by the amount. He thought a flat across-the-board rate would have been proposed, and he asked what the utility could do to keep rates cost-neutral.
Baker also asked officials to look at other options and he asked if a committee could be appointed to discuss options. Both Baker and Schrupp agreed to meet with Gomm, Bart Murphy, superintendent of the water and heating divisions, and Customer Service Supervisor Larry Heinen to discuss options. They'll report their results at the next commission meeting in two weeks.
Murphy said the water division has deferred maintenance and some capital projects this year to hold costs in line. Commissioner Steve Salzer said he was concerned about deferring projects that would cost more in the future.
Commissioners received a comparison of water rates in 12 cities, including Austin, Montevideo and Pelican Rapids that have livestock processing plants. The comparison showed Willmar's rates were the lowest of the cities.
Commissioner Gary Myhre said he was surprised that Willmar was lowest.
Murphy said he did not know how other cities account for their rates. He said every city is different. Some have new treatment plants, which accounts for higher rates. Murphy said he was trying to follow a consultant's recommendation to implement rates that reflect cost of service and maintain a 5 percent reserve.