#3 Authorize City Manager to file for a water rate increase
DUM
ACCOUNTING DIVISION MEMORAN
March 18, 2011
TO: City Council
FROM: Patty Lynch, Comptroller
SUBJECT: Authorization for the City Manager to File a Simplified Water Rate
Increase with the Public Service Commission
Executive Summary
The proposed 2011 Water Utility budget included a recommendation to adjust
rates using the Simplified Rate Case Application and Procedure. On March 1,
the PSC announced that the 2011 rate increase factor was 3.0%, which matches
the approved 2011 operating budget.
A utility’s earnings are generally measured by a rate of return on the net utility
plant. The resulting customer rates are designed to recover operation and
maintenance expense, depreciation expense, taxes, and the rate of return. The
rate of return is used for payment of debt principal and interest payments and to
fund pay-as-you go equipment replacements and capital improvements
In order to maintain the financial integrity of the Water Utility, we have
determined that it is necessary to adjust our rate structure by increasing rates
3.0% effective during the second quarter of 2011 (upon issuance of the PSC rate
order). These actions will permit the Utility to generate a return of 3.4% on its net
investment in plant and infrastructure assets and will generate an additional
$202,000 of annual revenue.
Staff Recommendation
Staff recommends filing the Simplified Rate Increase.
Assistant City Manager Recommendation
I concur with the staff recommendation
Suggested Motion
Move to authorize the City Manager to file a Simplified Rate Case Application
with the Public Service Commission increasing water rates 3.0%.
Background
In 2009, the Water Utility was granted a rate increase, which was intended to
permit the Utility to earn a 5.35% rate of return on its net plant investment.
Although 5.35% was authorized, the Water Utility’s actual rate of return was
2.16% in 2010 (unaudited). The rate of return is lower than anticipated because
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the water sales were 13.7% below projections. This revenue shortfall restricts the
Utility’s ability to meet our current debt service requirements.
The City of Janesville is eligible for a Simplified Rate Increase which would allow
the City to implement a portion of the required rate increase more quickly. The
City would be eligible for a 3.0% increase effective 45 days after the application
was filed with the PSC. This would increase the average residential bill by $1.23
per quarter.
Analysis
Currently, the average residential customer’s quarterly utility bill is $120.40,
which consists of a $35.85 charge for water, $4.90 for public fire protection and
$79.65 for wastewater. The following table compares our current average utility
bill to that of our peer cities.
WATER AND WASTEWATER RATE COMPARISON
PEER CITY COMPARISON - 10/15/2010
TOTAL PUBLIC FIRE TOTAL GRAND
CITY WATER/QTR PROTECTION/QTR WASTEWATER/QTR TOTAL
Fond du Lac $152.75 $18.00 $135.25 $306.00
Appleton $121.10 $14.58 $61.35 $197.03
Oshkosh $100.25 $5.50 $84.00 $189.75
Beloit $50.90 $11.94 $92.65 $155.49
Waukesha $66.16 $12.45 $76.40 $155.01
Green Bay $62.00 $7.20 $68.15 $137.35
Racine $62.75 NC $71.00 $133.75
Wausau $56.00 $8.70 $65.76 $130.46
Eau Claire $54.35 $9.60 $64.84 $128.79
Manitowoc $43.70 $8.40 $72.67 $124.77
Janesville - Current
$35.85 $4.90 $79.65 $120.40
Kenosha $54.21 $7.86 $55.48 $117.55
Sheboygan $39.25 $7.65 $59.42 $106.32
La Crosse $35.25 NC $39.85 $75.10
AVERAGE PEER CITY $69.13 $10.17 $72.83 $150.57
Janesville - Proposed $36.93 $5.05 $79.65 $121.63
(Based on average residential quarterly consumption of 2,500 cubic feet and a
5/8 inch meter)
When compared to our peer cities, our current rates are very reasonable. The
proposed water rate increase equates to a 1% increase on the average Water
and Wastewater Utility bill.
Cc: Eric J. Levitt, City Manager
Jacob J. Winzenz, Director of Administrative Services
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