WILLMAR — Willmar Municipal Utilities water customers could see a significant increase in their bills over the next four years if recommended rate increases are approved by the Municipal Utilities Commission and the Willmar City Council.
Based on a rate study completed by Dave Berg Consulting, water rates need to increase more than 50 percent in the next four years to keep the water utility in the black.
"It is a lot, no question there," said Berg, who presented the rate study and his recommendations Monday to the commission. Commissioners approved a motion to adopt the rate study and direct Willmar Municipal Utilities staff to begin writing the ordinance for the rate increases. That ordinance will need to go through several steps before final approval.
If the increased rates are approved by the commission and the City Council, water rates will increase 20 percent in 2020, another 20 percent in 2021, 5 percent in 2022 and 5 percent in 2023.
The average residential water bill of $19 a month would increase to just over $30 per month in 2023 if all four increases are implemented — the total change from start to finish over the four-year period would come to a 59 percent increase, according to the study.
"The percentages are big in water," Berg said.
The good news is Berg is not recommending any rate increases for the electric utility for at least the next four years. The electric utility has significant cash reserves to help pay for any additional capital expenses. Electric also brings in a lot more revenue than water does, helping keep the utility in the black.
The same cannot be said for water.
"There are two things that are driving what is happening in water. It is the additional expenses coming from the city, as well as the new water plant and the debt service associated with it," Berg said.
In October 2018 a memorandum of agreement between the utilities and the city was approved. The agreement requires the utilities to now pay for all water main replacements as well as pay for street repairs caused by water main breaks. This means approximately $470,000 more in expenses per year for the water utility, starting in 2021.
"The first 20 percent increase is associated with this change," Berg said.
When it comes to the water plant project, Berg is assuming the utilities will have to take out at least $22.5 million in bonding to pay for the project and the debt service charges.
"There is no chance of paying for a $17 million water plant out of available cash reserves in the water utility," Berg said.
For years Willmar Municipal Utilities has been planning on a significant project at the northwest water treatment plant, to ensure the utility continues to provide high-quality water to its customers. There are also federal regulations pertaining to salt levels in wastewater that will eventually need to be addressed. While the project has been delayed, it will eventually need to be done.
If the rate increases are not approved, the water utility would find itself over $2 million in the red by 2023.
"We need to have rates in place by Jan. 1, 2020," General Manager John Harren said, to meet those additional costs.
Other recommendations from Berg's study include changing the utilities' air conditioning load control program from an opt-in to an opt-out. This would mean all Willmar Municipal Utilities electric customers would be enrolled in the program, which allows the utility to turn off people's air conditioning units for up to 15 minutes per hour during peak energy usage times during June through September.
Currently, the program is entirely voluntary, and about 2,500 people are enrolled. If the opt-out language is approved, those not wanting to participate could decide not to, but they would pay an $11-per-month flat fee during those summer months.
Water rates have been going higher for the past few years. There was a 5 percent increase in 2018 and 2019, the first since 2015. In 2018 the utilities also implemented an electric franchise fee, which is used to pay the intergovernmental transfer, or payment in lieu of property taxes, to the city. The last time electric rates went up was in 2015.