Public Works engaged AE2S Nexus to conduct a cost of service rate study to review and recommend appropriate water and wastewater user rates, the resale rate for the County Water District of Billings Heights, and wholesale rates for Phillips 66 Billings Refinery, as well as conduct an analysis of the residential water tier structure.  The methodology used in the study follows industry standard approaches and recommends rates for each class of customer that allows the Public Works Department to adequately recover costs in proportion to the cost of providing service to each class of customer.  The following is a summary of the proposed changes:

1.  Maintain the minimum monthly charge for water at the current rate, but increase the monthly water volume charges to reflect the current cost of services.
2   Modify the residential water inclining block structure as follows: 3.  Increase the wastewater volume rate and minimum monthly charges for all customer classes for the upcoming wastewater treatment plant reconstruction required to meet new state and federal regulations.
4.  Increase the private fire protection charges to reflect the current cost of services.
5.  Establish a volume charge and fixed monthly fee for Phillips 66 Billings Refinery.
6. Adjust water and wastewater fees and charges for various permits and miscellaneous special fees.

Three scenarios to adjust the tier structure for residential water rates were presented and discussed at the April 21, 2014 Council Work Session.  A comparison of these three scenarios is attached, in addition to, a comparison of current versus proposed rates.  The attached recommended resolution specifies the proposed rates and fees under Alternate 2.  Two other resolutions are also attached showing the rates and fees under the existing tier structure and the Alternate 1 tier structure for Council's consideration.  The only difference between the three resolutions is in Schedule I in the residential water rate tier structures and rates. 

A public hearing is required per MCA 69-7-111 and if the proposed resolution is approved, rates will be effective July 1, 2014.

The City Council must hold a public hearing and then may

• approve the recommended resolution that includes the Alternate 2 tier structure
• approve the resolution with the existing tier structure
• approve the Alternate 1 tier structure resolution; or
• not approve any of the resolutions.  If Council does not approve any of the resolutions, rates and fees will continue at current levels, leaving insufficient revenues in the water fund to sustain the capital improvement program and inadequate revenues in the wastewater fund for the wastewater treatment plant reconstruction required to meet state and federal regulations.  An amended resolution to establish rates for Phillips 66 Billings Refinery will need to be considered at a future City Council meeting.    

The proposed rate and fee adjustments will generate approximately $890,000 additional water revenues and $925,000 additional wastewater revenues for FY 2015.  The implementation of the Phillips 66 rates will generate an estimated $265,000 of wastewater revenue in FY 2015.  In addition, the increases in franchise fees and surcharges for the general fund will be approximately $99,000.

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, 2014.