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Lebanon Moves to Restructure Utility Rates



Thursday, October 02, 2014
Lebanon — The City Council unanimously pushed forward a proposal to alter sewer and water rate structures at its meeting Wednesday.

The motion, put forward by Councilor Nicole Cormen and approved by the six other councilors present, requested that the city manager take steps to implement a rate structure that would be a combination of a meter charge based on the size of a customer’s meter and a usage charge based on the quantity of water used or wastewater produced.

Consultant Steve Clifton, of Underwood Engineers, told the council that a charge based on meter size is the direction the industry is going because it includes a charge for “readiness to serve.”

In addition, as a “base fee,” the city would be guaranteed a certain amount of predictability in the income it receives from water and sewer customers, he said.

Clifton presented three options — the meter and usage combined rate, a rate control method which would shift some of the burden of the city’s ongoing sewer and water infrastructure improvements to taxpayers , and no change at all, which would have left the current usage rate in place — to the council at a September meeting.

The council had requested an investigation into the city’s water and sewer rate structures in response to continually increasing rates over the past several years.

The city’s 3,300 water users and 2,900 sewer users now pay quarterly bills based on 1,000 cubic feet of usage, $40.37 for water and $78.45 for sewer. The average residential water user is expected to pay $293 this year and the average residential sewer customer is expected to pay $591.

Finance Director Len Jarvi has said he has based his budget numbers for 2015 on water and sewer rates rising 4 and 6 percent, respectively, to cover the city’s costs. Annual rate increases are projected to range from 4-5 percent for water and from 6-7 percent for sewer through 2020.

The cost increases are driven primarily by the cost of debt service for capital improvement projects such as upgrades to the wastewater treatment plant, totaling nearly $11 million, and the Environmental Protection Agency-required projects to separate combined sewer overflows across the city, totaling approximately $43 million from 2000-2013.

The decision to move toward a meter and usage combined rate structure came after a debate of the merits of three possible rate structures.

City residents benefit from the water and sewer systems for fire protection and for treating stormwater, protecting groundwater, lakes and ponds, Clifton told the council at its Sept. 3 meeting.

“We should all contribute to the cost of those services,” Dustin said.

Councilor Bruce Bronner agreed that he could see the benefits to sharing the cost of the city’s sewer and water systems.

Bronner added, however, that he could not support the measure based on “fairness.” He said it didn’t make sense to him to have other residents paying his water and sewer bills.

Lebanon resident Carl Porter spoke against the idea of the city’s taxpayers stabilizing water and sewer rates.

He said that by supporting the city’s capital improvement projects, taxpayers are already supporting infrastructure they may not use, such as “new roads I may never walk or drive down.”

Cormen said she was “ really disturbed” by the increasing reliance on the General Fund projected should the city move to a subsidized rate structure.

Also questioning the fairness of the subsidized rate structure, Councilor Karen Liot Hill spoke in favor of the meter charge as a way of covering the “fixed cost of the system.”

The first step to implement the rate structure based on meter and usage costs will be for the administration to provide the council with a reliable estimate of the transition costs to convert the city’s billing software and make other necessary changes.

Cormen, who included such fact-finding as a stipulation in her motion, warned that “this has happened before where we make a change and (we) think we’re saving money, but we’re not.”

Under the proposed rate structure change, average residential users would pay $321 for water and $639 for sewer in 2015. This is compared with $305 for water and $626 for sewer if the city were to keep its current usage-based rate structure.

The new rate structure is unlikely to be implemented before Jan. 1.

Deputy City Manager Paula Maville and Jarvi agreed that putting the change in place before the new rates go into effect would be difficult. They suggested such a change might take place in the second quarter of 2015.

“I feel better pushing it to April 1 as an effective date,” Jarvi said.

In addition to the new rate structure, councilors discussed the merits of a system development charge which would be applied to new water and sewer users in place of the current connection fees.

Clifton, the consultant, estimated that the city could bring in $30,000 in water system development charges and $80,000 in sewer each year.

Hill described the development charge as going toward the “replacement cost” of the infrastructure. She said she was hopeful that such a fee would contribute to the “stability and predictability” of the rates.

Similarly, Cormen said she hoped the development charge would help “soften rate increases.”

Cormen anticipated criticism of this being “yet another cost of doing business in Lebanon,” but she said it’s “an investment that we have to make. I don’t know how else to get a handle on these increases.”

Nora Doyle-Burr can be reached at ndoyleburr@vnews.com or 603-727-3213.

Clarification

The Lebanon City Council took a key step toward restructuring the city’s water and sewer rates on Wednesday, but adoption of the rates and proposed new rate structure will require a future public hearing and vote. An earlier headline for this story overstated the council’s action.