Source: Sherman Publications

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Meager public turnout for water/sewer rate presentation

by CJ Carnacchio

April 30, 2014

Only four people showed up to a special April 22 Oxford Village Council meeting meant to garner public input on a proposed water/sewer rate structure that, if approved, would significantly increase monthly bills based on meter size and actual usage.

Of the citizens in attendance, no one expressed any opposition to what was proposed.

"I like this," said village resident Suzanne Ardelan, who also owns a downtown commercial building. "At least if you're going to have a bigger system and run more water, you're going to be paying for it."

Ardelan estimated her downtown building's water/sewer bills would increase by approximately $400 annually.

Genevieve Otlewski, a township resident who lives outside the village limits, said initially, she was worried about how the proposed rates might impact folks who are still struggling financially.

"But once you look at the numbers, it's really not that much," she said. "This needs to happen."

Under the proposed rate structure, water and sewer users would pay a fixed, base rate that corresponds to meter size basically, the larger the meter, the higher the rate and the cost per 1,000 gallons would increase from $3.41 to $4.44 for water and from 51 cents to $3.19 for sewage.

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

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 on its monthly water/sewer bill under the proposed rates. That's an increase of $23.70 (or 49.6 percent).

Village officials are considering raising water and sewer rates in order to cover operating costs, pay debts and finance future system improvements. The village owns and operates a water system, but the municipality sends all of its sewage to Detroit for treatment.

"We need to have the rate structure provide the cash so that we can keep the system up and running," said village Manager Joe Young.

Council has yet to make any decisions on the rate issue. "It's a nasty job, but somebody has to do it," said Councilman Elgin Nichols. "I guess it's going to be us."

"We just want to make sure we're covering (the village's) cost. We're not looking to make a profit here," said Councilman Bryan Cloutier. "It's a service. This is what the raw cost of it is and this is what we're trying to cover not anything more or less."

In a nutshell, the current water and sewer rates are not producing revenues sufficient to meet the systems' expenses.

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. Add to the bond debt the fact that the water system owes the sewer system $500,000 for loans made to it.

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 work.

"I'm not going to say we were in denial, but we weren't really doing ourselves a favor by having the (rate) structure in place that we had," Cloutier said. "Yes, it may have kept our (bills) down, but long-term our revenue was not covering our expenses.

"We were kind of postponing the inevitable and the inevitable is one day, we are in a situation where we really have to be covering those costs. And we've reached that day."

The proposed rate structure was created by Mike Engels, a water circuit rider for the nonprofit Michigan Rural Water Association, who conducted the rate studies for the village, free of charge.

"Ideally, our rates are going to generate exactly what our budget is not a penny more, not a penny less," Engels said.

He noted the proposed rates are not designed to generate a surplus of funds for the village to spend on other services or projects.

Engels made it clear any decisions regarding rates are strictly up to council.

"I'm not trying to dictate that this is what you have to do," he explained. "This is just an option the most common option across the State of Michigan as far as collecting your water and sewer rates."

Engels said the goal is simply to collect enough money to maintain the systems and do it as fairly as possible.

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.

Engels noted a big problem with the sewer rate is that the village charges users 51 cents per 1,000 gallons whereas Detroit is charging $2.75 per 1,000 gallons to treat it.

"The more sewage we send them, the more money we lose," he said. "It's just a recipe for disaster."

There's also an equity issue given that water users pay the same amount via the base rate to help cover the system's $420,000 in annual debt payments.

"That's not necessarily fair for someone using 2,000 gallons a month, living (alone), to pay the same on that loan payment as say the restaurant over here using 100,000 gallons a month," Engels said.

Starting from zero gallons

Under the proposed rates, the base rate would no longer include any gallons of water or sewage. Every month, users would start at "gallon zero" and only pay for what they use.

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.

Engels said some people argue that customers should only pay for the water they use on a per-1,000-gallon basis and nothing else. In other words, no base rate.

But he said that method presents serious problems. For example, say the village experiences a "wet, rainy summer" and sells a third less water as a result.

"Our expenses didn't change, but our revenue just did," Engels told council. "Now, we got a real problem on our hands. We're not financially stable."

That's why the village needs to charge a base rate and collect money up front before one drop of water is sold, according to Engels.

"We got to guarantee that revenue," he said.

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.

Increasing the monthly base rates

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

"It's commonplace in most communities that the larger the water meter, the more that base rate is on a monthly basis," he told council.

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, village records indicate the municipality 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 a 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 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 with the IWC charge included 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.

Why pay more based on meter size?

Engels cited two reasons for basing the base rate on meter size.

The first is larger buildings require larger water systems larger water towers, larger-diameter water mains, etc. for firefighting purposes.

The state has guidelines regarding how much water is needed to fight fires. While residential houses require 1,000 to 1,500 gallons per minute (gpm), commercial buildings require 2,500 gpm and industrial buildings require 3,500 gpm, according to Engels.

Larger systems cost more money to build and incur more bond debt.

"It's going to cost you more money because instead of having a 250,000-gallon (water) tower, now, we've got to have a 500,000-gallon tower," Engels said. Likewise, instead of 6-inch water mains, now, 12-inch mains are required.

"It costs more to build the water tower and water mains because of that larger building because we got to fight those fires," Engels said.

The other reason is capacity.

"If you double the size of the pipe, you quadruple the flow that can go through there," Engels said. "Whether they're using it or not, they have the capacity to suck that much water from the system."

A groundwater well system like the village utilizes has "limited capacity" and if more water is needed, the village might have to drill additional wells and have a larger water tower, which again costs more money, he explained.

A customer with a 2-inch meter is capable of using a lot more water than a customer with a -inch meter and if that customer chooses to use that much more water, then the village may have to expand its system and incur more bond debt, according to Engels.

Therefore, he said it's fair for that user to pay a higher portion of the fixed system costs via the base rate.

Engels noted paying based on meter size is a "standard practice" throughout Michigan in probably 80 percent of communities with populations greater than 1,000.

He reiterated that it's all about distributing the costs in as fair a manner as possible.

"That's all we're trying to do," he said.


Because council hasn't made any decisions yet, Young said the village could examine different scenarios when it comes to changing the water and sewer rate structure.

For example, he said council could consider keeping the base rates the same, while getting rid of the 2,000 gallons of water and 8,333 gallons of sewage included with them.

The village could then charge the proposed $4.44 per 1,000 gallons for water and $3.19 per 1,000 gallons for sewage, starting from gallon zero.

Young's concerned about the impact the proposed rates could have on commercial establishments.

"The commercial customers are going to get hit hard because they're getting a sewer charge from Detroit (i.e. the IWC fee) that they've never had, plus the meter size (based) change (in rate)," he said.

Young said the village could consider phasing in the proposed commercial rates separate from raising residential rates.

"You've got some flexibility to do that," he told council.