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Water, sewer rate hikes proposed for village users

by CJ Carnacchio

April 23, 2014

Water and sewer bills in Oxford Village could be increasing significantly under a proposed new rate structure, the goal of which, officials say, is to be fair and simply cover system costs, not earn a profit.

"The reality is, it is what it is," said Councilman Bryan Cloutier. "At the end of the day, it is a black and white cost. You've got to be able to pay for it."

Under the proposed new rate structure, an average household that uses, for example, 4,000 gallons of water per month and has a -inch water meter would go from paying $47.77 to $68.22 a $20.45 (or 42.8 percent) increase on its monthly water/sewer bill.

A household that uses an average 4,000 gallons per month, but has a 1-inch water meter would go from paying $47.77 to $71.47 a $23.70 (or 49.6 percent) increase on its monthly water/sewer bill under the proposed new rates.

Village officials are considering raising water and sewer rates in order to pay debts, cover increased operating costs and finance future system improvements.

Over the last two years, the village water system has lost $317,119, while the sewer system has lost $119,274. For the current 2013-14 fiscal year, which ends June 30, the water system is projected to lose $180,000, while the sewer system is expected to lose $109,728.

On top of these losses, each system has a large amount of debt to pay.

The water system has $420,000 in annual bond debt payments to make. Built in 2008, the new water treatment plant on S. Glaspie St. was financed by a $2.5 million bond issue.

Add to the bond debt the fact that the water system owes the sewer system $500,000 for cash transfers made to it in 2011 and 2012.

With regard to the sewer system, the Clinton-Oakland Sewage Disposal System, of which the village is a part, is projecting charging the municipality an additional $100,000 annually for capital outlays financed by bond issues over the next 19 years.

On top of the debts, the water system is going to need $3.6 million in infrastructure improvements over the next 15 years, while the sanitary and storm water sewer systems are going to need a combined $1.28 million in infrastructure improvements.

"I've always been one to try to treat government like business, the corporate sector," Cloutier said. "Whether you get the service from the government or you get the service from the corporate sector, you get the service and you've got to pay for the service."

Fairness

"The fairness of the rate structure was our biggest concern," explained Mike Engels, a water circuit rider for the Michigan Rural Water Association, who conducted the rate studies for the village, free of charge, and came up with the proposed rates. "That's all we're trying to do, establish the fairest rate for everybody connected to the system."

Engels presented his water and sewer rate studies to the village council at an April 16 workshop and again, at an April 22 special meeting seeking public input.

In his rate studies, Engels wrote that the village's current water and sewer rate structure is "unorthodox" and "does not distribute the cost of operating and maintaining the water system in an appropriately fair manner."

Council agreed it wants a fair rate system.

"It's a matter of fairness. I think that's what it comes down to," said Councilman Elgin Nichols. "There's some that aren't paying (what) they should be paying. Some are paying too much."

"It should be fair for everybody," said Councilwoman Sue Bossardet.

"In the past, I'll say it, in some ways (the village's rate structure) hasn't been fair and equitable," Cloutier said. "Do we continue to work that way or do we make it right once and for all? We have a responsibility to make it right once and for all, as tough as it is, because we haven't been fair and equitable."

"In this case (with the proposed rates), we're not looking to make a profit necessarily, we're looking to cover the cost of what a service costs (the village)," Cloutier noted.

Current rates

Right now, all village water customers pay a base, fixed rate of $18.10 per meter per month, which includes up to 2,000 gallons of water, whether they use it or not. They then pay $3.41 for each 1,000 gallons above the initial 2,000.

Village sewer customers pay a monthly base rate $22.85 per Residential Equivalent Unit (REU), which includes up to 8,333 gallons of sewage. They then pay 51 cents for every 1,000 gallons above 8,333.

An REU is a unit of measurement equal to the average water usage of a single family home. A home is assigned a value of 1 REU whereas a business, such as a restaurant or car wash, can be assigned multiple REUs.

Starting from zero gallons

Under the proposed rates, the base rate would no longer include any gallons of water or sewage.

"Every month you start at gallon zero and you only pay for what you use," Engels said.

Engels explained to council the base rate is designed to pay the water and sewer systems' fixed costs, which are not related to usage such as bond debts. The base rate is basically the cost to have water and sewer systems in place.

Under the current rate structure, Engels said there are a number of businesses in the village that are paying the minimum sewer bill each month and not paying for any of the sewage they produce. That's because they are assigned multiple REUs, so they pay the base rate $22.85 per REU and for that they're allowed 8,333 gallons of sewage per REU.

Increasing the per-1,000 gallon cost

Under the proposed rate structure, both residential and commercial customers would pay $4.44 per 1,000 gallons for the water they use and $3.19 per 1,000 gallons for the sewage they produce. This represents a $1.03 per 1,000 gallons increase for water and a $2.68 per 1,000 gallons increase for sewer.

"Your cost per 1,000 gallons should be related to those expenses incurred in producing that water like running the electricity for the well pump," Engels said.

But it's not just the per-1,000-gallon rate that village officials are considering increasing.

Increasing the monthly base rates

The rate structure proposed by Engels calls for increasing the monthly water base rates according to meter size. Basically, the larger the meter, the higher the base rate.

In his study, Engels called this a "common practice and an equitable practice."

The only water customers who won't see an increase in their monthly base rate under the proposed structure are those with -inch and 1-inch meters.

Those with a -inch meter would see their base rate decrease to $16.45 per month, while those with 1-inch meters would see their base rate remain at $18.10.

Right now, the village has 922 water customers with 1-inch meters and 362 with -inch meters.

Everyone else would pay increased monthly base rates determined by the size of their meters. Under the proposed structure, a 1.5-inch meter pays $53.47, a 2-inch meter pays $92.96, a 3-inch meter pays $201.54, a 4-inch meter pays $359.48 and a 6-inch meter pays $793.82.

The village currently has 27 water customers with 1.5-inch meters, 21 with 2-inch meters, five with 3-inch meters and four with 4-inch meters. Right now, there are no customers with 6-inch meters.

Engels proposed increasing the monthly sewer base rates according to meter size as well.

As with the water rates, sewer customers with a -inch meter would see their monthly base rate decrease to $21.25, while those with 1-inch meter would see their base rate remain at $22.85.

Everyone else would pay increased monthly base rates determined by meter size. Under the proposed structure, a 1.5-inch meter pays $69.07, a 2-inch meter pays $120.08, a 3-inch meter pays $260.35 and a 4-inch meter pays $464.38.

The above are the proposed sewer base rates that don't include the annual Industrial Waste Control (IWC) charge that the Detroit Water and Sewerage Department currently assesses the village. It currently amounts to $37,362 annually.

Right now, the village absorbs the IWC charge. However, under the proposed rate structure, it would be passed along to non-residential sewer customers only via the monthly base rate.

Thus for non-residential customers, the proposed sewer base rates would be as follows a -inch meter pays $34.53, a 1-inch meter pays $44.98, a 1.5-inch meter pays $117.75, a 2-inch meter pays $190.88, a 3-inch meter pays $388.68 and a 4-inch meter pays $641.38.

In his rate study, Engels explained the rationale behind charging higher base rates for larger meters.

"Larger water/sewer users take up capacity of the system," he wrote. "The system has limited capacity (gallons) therefore if one large customer takes up the capacity of 10 residential homes, they should pay a base rate equivalent to the 10 residential homes.

"Larger volume users also drive the size of certain components of the water/sewer system. For instance, having several large buildings that house factories or schools will require larger water mains and a larger water tower to provide firefighting ability for these larger buildings. It is thus fair that they pay a larger portion of the debt and some fixed expenses compared to a homeowner who uses 3,000 gallons per month. This is especially true of fixed system cost and debt cost."