No action is required for this Council agenda item as it is informational only.  On June 22, 2026 at a Council business meeting, Council will be asked to consider approval of a resolution setting wholesale rates for FY27.

In FY25, the Public Works Department completed a comprehensive wastewater cost-of-service analysis to establish equitable FY26 and FY27 utility rates using industry-standard methodologies. Following concerns raised by the refinery wholesale customers regarding the allocation of strength-related capital costs, City staff, rate consultants, and refinery representatives worked collaboratively over several months to refine the methodology and develop a more stable and predictable long-term rate structure. The proposed methodology balances rate stability for industrial users with the City’s obligation to recover the costs associated with maintaining wastewater treatment capacity and readiness-to-serve infrastructure, while also protecting residential and commercial ratepayers from subsidizing industrial treatment costs. FY27 wholesale wastewater revenue is projected to total approximately $2.3 million.

In FY25, the Public Works Department engaged AE2S Nexus to complete a comprehensive cost-of-service analysis (COSA) for the City’s water and wastewater utilities to establish FY26 and FY27 rates. The study utilized industry-standard rate-setting methodologies designed to allocate costs equitably among customer classes and ensure the City recovers the proportional costs associated with providing service in compliance with applicable legal requirements. The analysis segregated wastewater costs based on flow and wastewater strength constituents, including biochemical oxygen demand (BOD), total suspended solids (TSS), and total Kjeldahl nitrogen (TKN).

The City currently provides wholesale wastewater treatment service to three customers: Phillips 66 Refinery, Par Montana Refinery, and the Lockwood Water and Sewer District. Both refineries raised concerns regarding the methodology used to allocate strength-related capital costs, particularly the use of fluctuating historic discharge strengths that resulted in significant year-to-year variability in rates. Following discussions between City staff, the refineries, and rate consultants, the parties reached agreement on FY26 rates with the understanding that the methodology would be further evaluated and refined for FY27. Since January 2026, City staff, refinery representatives, and the City’s rate consultants have met multiple times to review alternatives and develop a more stable and predictable long-term rate structure.

A key objective of these discussions has been balancing rate stability for industrial users with the City’s obligation to recover the costs associated with maintaining wastewater treatment capacity and readiness-to-serve infrastructure for high-strength industrial discharges. Several alternative methodologies were evaluated, including approaches utilizing fixed baseline strength values, surcharges for exceedances, and additional readiness-to-serve cost recovery mechanisms. Ultimately, staff and the refineries reached consensus on a refined methodology that generally follows the FY26 framework, while incorporating additional clarifications and refinements intended to improve predictability, transparency, and long-term equity.

Staff and the refineries believe the agreed-upon methodology represents a fair and equitable approach for allocating wastewater treatment costs between wholesale industrial customers and the City’s residential and commercial ratepayers. The revised approach is intended to ensure wholesale customers are neither overcharged nor undercharged, while also protecting residential customers from subsidizing the costs associated with industrial treatment capacity and infrastructure.

FY27 wholesale wastewater revenue is projected to total approximately $2.3 million.

At a future meeting, Council may approve, not approve, or request amendments to the wholesale rates.