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 Lockwood Water and Sewer District and Phillips 66 Billings Refinery, as well as calculate the System Development Fees (SDFs) for water and wastewater.  The methodology used in the study follows industry standard approaches and recommends rates for each class of customer.  The rates allow the Public Works Department to adequately recover costs in proportion to the cost of providing service to each customer class. 

A public hearing was held at the May 22, 2017 Council meeting and Council voted to not approve the proposed resolution adopting water and wastewater rates and fees for fiscal years 2018 and 2019.  At the June 12, 2017 Council meeting, Council voted to bring back a modified water and wastewater resolution to adjust rates for Public Work's contractual customers, the County Water District of Billings Heights, Lockwood Water and Sewer District, and Phillips 66 Refinery, as well as increase the SDFs as calculated per the rate study.  The following is a summary of the rates and fees proposed for FY 18 and FY 19:

1. Decrease the resale rate for County Water District of Billings Heights by 8% in FY 18 and increase it by 5% in FY 19.
2. Decrease the volume charge and fixed monthly fee for Lockwood Sewer District in FY 18 and increase both the volume charge and fixed monthly fee in FY 19 to reflect the current costs of services.
3. Increase the volume charge and decrease the fixed monthly fee for Phillips 66 Refinery in FY 18 and increase both the volume charge and fixed monthly fee in FY 19 to reflect the current costs of services.
4. Increase the SDF for residential, non-residential, and irrigation water connections by approximately 25% in FY 18.
5. Increase the SDF for wastewater connections by 7% in FY 18 and for Lockwood wastewater connections by approximately 2% in FY 18.

The attached resolution specifies the proposed rates and fees which will be effective July 6, 2017 if approved.  A comparison of rates and fees is also attached.

The City Council may

• approve the recommended resolution;
• approve an amended resolution; or
• not approve a resolution.  If Council does not approve a resolution specifying rates and fees for FY 18 and FY 19, the rates and fees will continue at current levels and the City would not be in compliance with the Agreements it has in place with County Water District of Billings Heights, Lockwood Water and Sewer, and Phillips 66 refinery leaving the City vulnerable to legal action.  System Development Fees (SDFs) must be updated  at least every two years to be in compliance with MCA 69-7-1602 and they were last updated July 1, 2015.  Thus, a resolution would need to be considered at a future City Council meeting to adjust SDFs.   

The proposed rate and fee adjustments will generate approximately $110,000 in water revenues in FY 18 and an additional $200,000 in FY 19, as well as decrease wastewater revenues in FY 18 by approximately $163,000 and increase wastewater revenues by $70,000 in FY 19.  In addition, the rate and fee adjustments will decrease the franchise fees and surcharge revenues for the general fund by approximately $15,000 in FY 18 and increase franchise fees and surcharge revenues by $11,000 in FY 19.

Staff recommends that the City Council approve the proposed resolution adopting the water and wastewater rate and fee schedule effective July 1, 2017.