Establishing a New Schedule of Rates and Charges for the Wastewater Treatment Plant

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,i�layo;r Roger 0. Parent -3- August 5, lyb Ordinance No. Commentary 5298 Dated May 25, 1971 - Authorized the issuance of $3,190,000 revenue bonds which expire in 1990. It is imperative, for the protection of the bondholders and the maintenance of an appropriate bond rating, that there be an adequate provision of revenues and maintenance of proper reserve requirements. A deteriorating financial condition can jeopardize the status of the utilities The purpose of a cost of service study and rate - setting is to allocate.the costs to each user class, dependent upon the volume of usage and requirements of each customer. An underlying assumption is that a certain level of quality of service will be maintained. The process itself is a complex one and is further complicated by the practices of the Public Service Commission. By regulation, only "fixed, known and measurable costs" are allowed in determining rates which are substantially based on historical financial data. There is generally no provision for anticipated, undocumented expenses; i.e. cost increases due to inflationary effects are not consid- ered in rate - setting. Additionally, there has not been acceptance of an allowance for an adequate return on investment in utility plant, because of the difficulty in determining a suitable rate of return for a municipal utility. As you can see, in the present economic times, it is difficult to maintain adequate rates to compensate for cost increases for signifi- cant length of time. As indicated above, it is apparent that it is necessary to seek a rate increase for the Waterworks and Wastewater Treatment Departments. Based upon data we have presently compiled, the rate increasesrequired would be an average of approximately 84% for Waterworks and 74% for Wastewater Treatment. These increases should provide adequate revenues to cover the costs itemized above and maintain a quality level of service.and capital improvements. Under current economic conditions, it appears that the increase would be sufficient for a period of two to four years. However, that is predicated on current economic trends and no significant variance from these trends. It is important to consider the composition of the proposed rate increases. Because a cost of service study is designed to determine the cost of service to various user groups, certain groups will be bearing a higher percentage increase than the average and certain groups will bear a lower percentage. It is anticipated that the range from the average will not be significantly large and will approximate 8o/ - 93 %.