01-13-03 Council Meeting Minutes

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REGULAR MEETING JANUARY 13, 2003 The revenue requirements page of the study indicates that the City needs approximately a twenty- four per cent (24%) increase in total revenues. The utility has two (2) choices. Per state statute the utility can increase its rates in one (1) or two (2) ways. It can do an across the board increase percentage which the courts have upheld since the original rates and rate structure was already in place and the new rates would be deemed then to be fair and equitable because each one was increased by the same percentage. The other option is to do a Cost of Service Study. The intent of that study is to look at who is causing costs on the system and try to develop a system of rates and charges making sure that those people who are causing the costs will pay for those services. Section III of the report looks at historical consumption and those types of things. In terms of consumption the industrial group has about the same amount of consumption each year as the residential group. However, there are about thirty-eight thousand (38,000) residential customers as noted on Exhibit H but only fifty-two (52) industrial customers. The sheets handed out at the committee meeting indicate that the revenues versus consumption characteristics of the classes were very similar except in the industrial class which showed that they really were not carrying the same load that the other classes were. That is one of the reasons it was decided to do a Cost of Service Study to shift some of the burden in the rates. You then start to allocate revenue requirements. The three (3) classes that were chosen are operation, maintenance and replacement, billing and collection and local capital. This study moves toward cost of service but will not take the City all the way to cost of service. In order to buffer the effect on some of the larger users instead of putting all of the collection system expenses onto a flow chart, half of those were allocated to the fixed meter charge. The same thing was done with the local capital which is normally a charge that is a flow based charge. Half of that expense was put onto the fixed monthly charge in order to buffer the effect for the larger customer. The development of the rates and charges starting on Exhibit J indicates that the study takes the allocated costs and divides those by the consumption to come up with an operation maintenance and replacement charge. Page 30 of the study indicates a billing charge per month and local capital is indicated on page 31. Those charges are then compiled on page 32 which is the proposed schedule of rates and charges which is the schedule that is in the ordinance. On page 35 the effect that this rate increase will have on users who use between one hundred (100) and two thousand (2,000) cubic feet per month is shown. Ninety-five per cent (95%) of the City's customers fall into this class. Ninety-five per cent ( 95%) of customers use less than two thousand (2,000) cubic feet per month, so this effect is on the majority of the customers. It is understood that some of the other businesses and larger customers have different effects. The separate pages that were handed out show analysis, in graph form, of the effect on the two (2) largest customers, I/N Tek and Notre Dame and the effect on the ten (10) largest customers. Councilmember Varner inquired about the five hundred thousand dollars ($500,000.00) that is going into a sinking fund each year. Mr. Skomp advised that the sinking fund is created to retire the bonds. It is the equipment replacement fund that is budgeted at five hundred thousand dollars ($500,000.00) a year. An annual depreciation cost or recovery charge is made on this same equipment. Mr. Skomp advised that the State of Indiana allows a utility to either set their rates based upon capital improvements or depreciation expense whichever is larger. The City of South Bend has chosen to use its capital improvements budget and not the depreciation expenses so it is