Staff recommends that the City Council conduct a public hearing and approve the proposed resolution adopting the water and wastewater rate and fee schedule effective July 1, 2025.

Public Works engaged AE2S Nexus to conduct a comprehensive cost-of -service rate study for water and wastewater services.  This study aimed to assess and recommend appropiate user rates, resale rates for the County Water District of Billings Heights, and wholesale rates for Lockwood Water and Sewer District, Phillips 66 Billings Refinery, and Par Montana.  Additionally, the study calculated System Development Fees (SDFs) for both water and wastewater services.

The methodology used in the study adhered to industry-standard practices and proposed rates for each customer class. These proposed rates ensure that the Public Works Department can recover costs proportionally to the expenses incurred in providing services to each customer class in compliance with legal requirements. The existing rates and fees are insufficient to cover the operational, maintenance, debt service, and capital investment needs necessary to maintain services at their current levels. 

Discussions regarding water and wastewater rates were held with the Council Budget and Finance Committee on March 26 and April 9, 2025, and with the City Council during the April 21 work session meeting. During these discussions, the Council expressed its intent to avoid increasing residential rates in FY26.  To implement a 0% residential rate increase, staff recommended cutting $1.6 million of water main extensions and $1.3M of wastewater pipe extensions that were previously approved in the Capital Improvement Plan (CIP).  This approach allows Public Works to continue services at the same level and proactively maintain assets in the system.  Cutting these pipe extensions also reduced rates for some of the other user classes.  

Public Works also met with the System Development Fee (SDF) Advisory Committee on May 14, 2025, to discuss the proposed SDFs.  Public Works typically adopts water and wastewater rates in 2-year increments to avoid the costs and time needed to conduct a rate study every year.  However, the Council always has the ability to later amend rates for the second year.  

Based on the guidance from City Council regarding water and wastewater rates and the guidance from the SDF Advisory Committee, staff is proposing the following rate and fee adjustments:

Water Rates

• 0% increase in fixed monthly charges in FY26 and a 2% increase in FY27
• 0% Increase in residential volumetric rates in FY26 and a 2% increase in FY27
• 0% increase in the multi-family volumetric rate in FY26 and FY27
• 2.5% increase in the commercial volumetric rate in FY26 and 0% in FY27
• 2.4% increase in the bulk water reseller volumetric rate in FY26 and 0% in FY27
• 2.5% increase in the seasonal (irrigation meter) volumetric rate in FY26 and 10.6% in FY27
• 12.2% increase in the resale volumetric rate in FY26 and 28.4% in FY27
• 5% increase in the private fireline charges in FY26 and 7% in FY27
• 16% increase in residential System Development Fees in FY26
• 17.5% increase in non-residential System Development Fees in FY26
• 14% increase in irrigation System Development Fees in FY26
• Increase various miscellaneous fees to reflect the cost of services

Wastewater Rates

• 0% increase in fixed monthly charges in FY26 and a 2% increase in FY27
• 0% Increase in volumetric rates in FY26 and a 3.5% increase in FY27
• Increase to rates for Par Montana, Phillips 66 Refinery, and Lockwood Water and Sewer that will generate and additional $1.2 million in FY26 and another $122,000 in FY27
• 1.9% increase in septage disposal fee in FY26
• 13% decrease in Billings System Development Fees in FY26
• 20.5% decrease in Lockwood System Development Fees in FY26
• Increase various miscellaneous fees to reflect the cost of services

The attached resolution specifies the proposed rates and fees. A comparison of current versus proposed rates is also attached. A public hearing is required per MCA 69-7-111 and if the current proposed resolution is approved, rates will be effective July 1, 2025, and July 1, 2026, as indicated. 

City Council may:

• Approve the recommended resolution; or,
• Approved an amended resolution; or
• Not approve a resolution. If Council does not approve a resolution specifying rates and fees for FY26 and FY27, the rates and fees will continue at current levels, leaving insufficient revenues in the water and wastewater funds to maintain current service levels. 

The proposed rate and fee adjustments will generate approximately $920,000 in water revenues in FY26 and an additional $1.2 million in FY27, as well as $996,000 in wastewater revenues in FY26 and an additional $1.7 million in FY27.