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RESOLUTION: 2003-37
SUBJECT: Update water utility rates.
RECOMMENDATION: Approval
SUMMARY AND BACKGROUND OF SUBJECT MATTER: The City purchases water from the Denver Water Department and distributes it to approximately 700 customers in an area generally east of Pierce Street and north of 12th Avenue. Sixteen other entities serve the remainder of the City.
The rates charged the City's water customers have been changed from time to time to address increases in costs of purchasing water, maintenance, etc. The water utility is an enterprise fund for which rates must be sufficient to cover all costs of service attributable to the City's water customers. No general fund revenue is used by the water utility and water utility revenue is not available for purposes other than providing water service to the utility's customers.
Public Works recommends rates be modified to those shown in the attached resolution. The proposed rates accomplish three goals. First, multiple rates will apply to each customer class; a higher rate being charged per thousand gallons of usage above a threshold amount. The higher rate for greater consumption is designed to encourage water conservation. For example, with the new rate increase, single-family homes would be charged $2.24 per thousand gallons of usage up to a total of 22,000 gallons. Consumption greater than 22,000 gallons up to a total usage of 60,000 gallons would be charged $2.69 per thousand gallons. Consumption greater than 60,000 gallons would cost $3.37 per thousand gallons. This approach of higher rates with increased consumption to encourage conservation is a common practice among water providers. The bill for a typical single-family home in Lakewood would increase from $46.58 to $50.24 per two-month billing cycle under the proposed rates.
The second goal addressed in the proposed rates is a drought surcharge. The Denver Water Board has instituted a drought surcharge designed to further encourage water conservation during times when water storage is depleted. The resolution would also allow the City Manager to institute a drought surcharge and discontinue a drought surcharge administratively based on Denver's drought surcharge, and revenues required to offset Denver's drought surcharge imposed on Lakewood. This approach will allow the City to respond quickly any time Denver modifies its drought surcharge.
Third, the utility's rates are currently inadequate to cover costs. A rate study has recently been completed that identifies rates that will be adequate to cover current and anticipated utility costs. The proposed 2003 rates will increase the average single-family home bill by approximately $3.66 per two-month billing. Typical single-family bi-monthly bill increases of approximately $3.98 and $4.50 are anticipated in 2004 and 2005. Beginning in 2006, it is anticipated that rate increases will be approximately 4% per year.
Council has not increased water rates since 1998 and, prior to that, 1991. Assuming the increases proposed are enacted, the average annual increase from the most recent increase in 1998 through the anticipated increases through 2005 equates to less than 3.4% per year for the average single-family home. Looking further back, the average annual increase from 1991 through 2005 will be approximately 1.5% per year if the recommended rates are adopted.
The following table compares (1) average annual water utility rate increases for a single-family home served by Lakewood, and (2) rate increases the Lakewood utility has received from Denver Water. The percentages in the table assume Council approval of the 2003 rates proposed in the attached resolution.
ANNUALIZED INCREASES
1991 - 2003 1998 - 2003
(1) Bill of a Typical Single-Family Home Served By Lakewood 0.4% Per Year 1.5%
Per Year
(2) Rates Charged to Lakewood by Denver Water 3.2% Per Year 2.8% Per Year
From the table it can be seen that Lakewood's annualized rate increases have been very modest.
At this time, only the 2003 rate increase is recommended for adoption with an effective date of July 1, which is the beginning of the next billing cycle. Potential future rate changes have been estimated as a planning tool recognizing continuing increasing costs to the utility. During June, a mailing will be sent to the City's water customers notifying them of the 2003 rate change. The first bills using the new rate will be due October 31, 2003.
RESOLUTION ADOPTION DATE: June 9, 2003
ORIGINATED BY: Department of Public Works
STAFF PERSON RESPONSIBLE: Jay N. Hutchison, City Engineer, 303-987-7916
DOCUMENTS ATTACHED: Resolution 2003-37
SUBMITTED BY:
Richard J. Plastino, Director of Public Works
REVIEWED BY:
Joni Inman, Director Mayor and City Manager's Office
Michael J. Rock, City Manager
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