Staff recommends that the City Council reopen the municipal rate hearing which began on May 27, 2025, conduct a public hearing on retail wastewater rates, approve the proposed resolution adopting the retail wastewater rates effective July 1, 2025, and continue the public hearing to adopt wholesale wastewater rates at a future meeting.

Public Works engaged AE2S Nexus to conduct a comprehensive cost-of-service rate study for 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.

On May 27, 2025, the City Council held a public hearing and adopted water rates and fees, as well as wastewater schedules, excluding retail and wholesale schedules.  The public hearing was continued to allow for future approval of the wastewater retail and wholesale schedules.  The attached resolution pertains solely to retail rates with wholesale rates to be presented to the Council after finalizing discussions with wholesale customers.

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 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 and May 27 business 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 $1.3M 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 all of the retail wastewater classes of customers.  

Based on the guidance from City Council regarding wastewater rate, staff is proposing the following rate and fee adjustments:

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

The attached resolution specifies the proposed rates and fees to be adopted. If the current proposed resolution is approved, rates will be effective July 1, 2025, and July 1, 2026, as indicated. The public hearing will need to be continued so Council may adopt rates and fees related to wholesale customers at a later date.

City Council may:

• Approve the recommended resolution; or,
• Approve 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. 

The proposed rate and fee adjustments are projected to generate no additional wastewater revenues in FY26 and an estimated $630,000 in FY27.  Should wholesale rates be reduced from the original calculations, it will be necessary to either eliminate additional capital projects or utilize cash reserves.