Frequently Asked Questions About Water and Wastewater Rates (FY )

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1 Frequently Asked Questions About Water and Wastewater Rates (FY ) The City of Melissa receives a number of questions regarding the water and wastewater rates. This FAQ is provided to address the most common questions grouped into three main areas that we commonly receive. We hope that this will help address some of the questions and concerns many of you have expressed regarding the City of Melissa utility rates. Additionally, our water provider, North Texas Municipal Water District (NTMWD) has a FAQ on their website at that addresses their wholesale rates which impact how the City sets its rates. How are the City's Water and Wastewater Rates Determined? The City of Melissa s Enterprise Fund is commonly referred to as the Water Fund. The water fund operated as a business, independent of property tax, sales tax, and only funded with user fees. The revenues derived from the Water Fund are designed to cover the cost of debt for infrastructure and improvements, providing water, wastewater (sewer), solid waste and utility billing services to the residents and businesses located in Melissa. Water Fund Budget Expenditures FY 2018 The City of Melissa utility rates are made up of water, wastewater and solid waste fees. The North Texas Municipal Water District (NTMWD) delivers water to the City and treats its wastewater as well. Solid waste services are provided by a third-party vendor, currently Waste Connections, and rates are based on number of trash carts. Water and Wastewater (sewer) rates are made up of a minimum fee based on meter size (due to maximum demand to the system) and volumetric usage. The volumetric water rate is billed using a progressive tiered structure as a matter of equity and to incentivize conservation. For residential sewer customers, the monthly wastewater consumption charge is based on the residential volumetric rate multiplied by the customer s annual winter consumption (AWC). This AWC is the average water consumption for the previous winter months of December, January and February. This average consumption is calculated each March and is used for sewer billing for the next year. New residential customers are assessed 4,500 gallons in place of an actual annual winter consumption that is used for billing the wastewater consumption charge until the next time wintertime averaging is done. This is based on the current average winter FY 2018 Rates (October 1, 2017)

2 consumption across the City s residential customers). Using the winter average prevents higher water usage due to irrigation in the summer months from inflating residential sewer bills. For non-residential customers, their monthly wastewater consumption charges are billed based on actual water consumption. Effective the October to November billing cycle, all will also be billed using a progressive multi-tiered structure similar to what is used for volumetric billing of water. The Melissa City Council has committed to conducting a water rate study annually to ensure user rates will cover annual maintenance and operation costs of the water and wastewater systems. The rates for the water and wastewater services are established to cover annual debt obligations, purchase of water and treatment of wastewater, maintaining the system including personnel, capital improvements and repairs, and to maintain a stable reserve fund balance. When budgeted revenue exceeds costs, those dollars are put in the reserve fund balance to get to our goal of 90 days. Our Financial Policy is to maintain at least 90 days in savings. Variables in the rate-making process that the City must take into consideration include: Wholesale water purchase rates from NTMWD Wastewater treatment costs from NTMWD Reserve Fund Balance (depending on fund level and goals) Water sales Maintenance needs of water and/or wastewater systems Drought and impact of conservation Growth Weather anomalies Need for infrastructure debt After taking these factors into consideration, staff along with a professional rate consultant makes a recommendation to Council regarding the rates and whether the current rates cover the projected operational costs for the next fiscal year and whether a rate increase is warranted to meet the projected capital investment needs of the coming year. 2 P age

3 What has the City Done to Minimize Rate Increases? The City Council has committed to conducting an annual Water Rate study to evaluate all options to ensure utility rates cover forecasted operational costs and capital investments. This past year s study conducted over the summer (2017) determined that recent population growth has positioned the City to restructure rates without jeopardizing utility systems. Based on this determination the City of Melissa adopted New Water and Wastewater Rates for FY18, reducing standard minimum charge for water, allowing the average residential customer to see a reduction on their monthly bill. The newly adopted rate structure met the City Council s objectives to provide relief to ratepayers while protecting the integrity of the Water Fund, and to bring the average minimum bill more in line with area cities. Changes that were effective with the November 2017 Bill include the following: An overall reduction in the monthly minimum bill by reducing the minimum charge for water from $31.53 to $24.00 (based on standard 3/4 water meter) and directly benefiting 98% of residential ratepayers. Resulting in savings of $4.00/month for the average residential customer (based on Citywide average of 7,400 gallons). Adjusted volumetric tiers for water consumption charges to further incentivize conservation and continue to protect the integrity of the Water Fund. o The newly adopted rate structure passes on wholesale increases to the volumetric tier rates for both water and sewer and minimum charges for larger sized meters. Higher users will pay more in volumetric charges as a result. o Texas Water Development Board estimates average monthly usage for Texas water utilities ranges from 7,380 to 8,514 gallons with the City of Melissa s average residential consumption at 7,400 gallons/month. On average, nearly 50% of our residential customers are billed totally at Tier 1 for their monthly water consumption charge. The above data further suggests that volumes in the higher tiers appear to be a choice. o The City has invested in tools which allow our customers to make the choice to manage their own water consumption and identify ways to save. Other changes included in the newly adopted rate structure include the addition of: wastewater tiered rates for non-residential customers, a multi-family rate structure, and provision to recoup the direct costs for meter and related AMI equipment for new subdivisions (costs are not covered by impact fees). To review the FY18 Water & Wastewater rates, please visit: Rates and Fees section of website. 3 P age

4 Why Have Water and Wastewater Rates Continued to Increase? The reality is that water and wastewater rates have increased steadily since 2010 primarily due to increases in the wholesale rates charged by NTMWD required to support regional water system improvements. NTMWD currently provides water for 1.6 million customers and that demand will only keep increasing as they must invest in projects to assure the availability and delivery of safe and sufficient water supply. The cities and communities that NTMWD serves share equitably in infrastructure investments that support our region s ongoing population growth (expected to double within the next 50 years). NTMWD must charge cities to cover annual fixed costs for maintaining the regional pipelines and facilities, constructing capital projects and repaying debt, regardless of how much water is consumed. The City like NTMWD has a responsibility to maintain a stable and adequate reserve fund balance and thus could not fully absorb these rate increases, which in turn affects the rates the City sets for its customers. The City recognizes these increases have affected customers and have made an effort to identify opportunities to minimize this impact to our customers whenever possible. Another factor in the rate increases in the region has been the impact of conservation and to a lesser extent the 'take or pay' system used by NTMWD. Each City s minimum annual demand, commonly referred to as take or pay is set based on the year of greatest demand for water a city has placed on the regional system to ensure that each city pays for its proportional share of the total fixed costs for the regional system. Regardless of how much water a city consumes each year, the District is required to provide the raw water, treatment plant capacity, pipeline capacity, and pump capacity to meet this demand. This methodology ensures that NTMWD has the funding required to develop, operate and maintain supplies and facilities to meet the potential maximum capacity of water that each city may need. Our region is just recovering from a long drought and prolonged Stage 3 Watering Restrictions which affected water sales and in some cases reduced revenues and this has led to the recent concerns raised by some Member Cities. With conservation rightly the new normal in the region, this must be taken into consideration when forecasting water sales and setting rates. The City of Melissa and our residents answered the call to meet and or exceed the 10% water use reduction goal established by NTMWD and like others, the City experienced a reduction in the water used per meter due to watering restrictions and general conservation education. Melissa s steady growth has allowed the City to keep pace with our minimum annual demand despite mandatory conservation, however NTMWD s obligation to meet the growing demand due to rapid growth while facing a dwindling water supply due to drought, resulted in steady rate increases to the City like all 4 P age

5 other NTMWD customers. Visit to learn more about the projects that are underway and planned. The City has been able to build an adequate reserve fund balance thanks to steady and sustained growth in recent years. Over the last two years, despite an 23% increase in wholesale rates from NTMWD, the City was able to avoid raising water rates, held minimum fees steady and have only increased the sewer volumetric rate by 7.4%. Additionally, as part of the annual water rate study, staff has made a point to look at how to ensure the rates are equitable and incentivize and reward conservation and those efforts are continuing. 5 P age

6 Why Does My Water and Sewer Cost More than in Other Cities? We are often asked why Melissa's water and wastewater rates are "higher than those of other cities". When comparing rates to those of other cities, one must take factors such as the number of households (accounts), the maturity and/or sophistication of the cities' utility infrastructure and rate of growth into consideration. Population has more to do with rates that most people might realize. Water and sewer construction and improvements are needed in all communities. In Melissa those costs are only spread over 3,000 accounts whereas in McKinney they are spread over approximately 50,000 accounts. That is a big impact on sharing the costs of a growing community. With that growth in users comes not only an increase in revenue from utility sales but also the costs associated with expanding utility infrastructure and the associated maintenance and operations costs required to serve the needs of a growing population. Additionally, a number of larger more established cities are not experiencing comparable growth and are not actively investing in expanding their infrastructure. Those cities are in most cases primarily concerned with operations and maintenance costs as opposed to capital improvements and/or new infrastructure costs. Melissa is essentially still in the very early stages of building our City and with that comes up front cost for benefits to be realized in the future. Figure 2: NTMWD Water SystemMember Cities and Customers Cities Finally, the district s dual membership categories are an additional factor that causes the cost for an equal amount of water used by a customer to vary so greatly from city to city. Melissa is a Customer City of NTMWD, and Customer Cities currently pay a five-cent per thousand gallons premium on top of the Member City wholesale water rate. NTMWD member cities include larger Collin County cities such as Allen, Frisco, McKinney, Plano, and Richardson among others shown in Figure 2 above. Should you have further questions, please Utility Billing at ub@cityofmelissa.com. 6 P age