City eyes rate hike to finance water projects

Base water rates would increase 160 percent by 2021 under the proposal presented earlier this week to secure the long-term debt needed to bring the city’s 23 million-gallon average day allocation from Lake Ouachita on line.

Dan Jackson of Willdan Financial Services/Economists.com, the city’s rate consultant, told the Hot Springs Board of Directors the monthly $4.99 minimum charge for a five-eighths inch residential meter was “extraordinarily low” by industry standards, allowing the city to more than double it and still remain below the industry average.

Volume charges added when usage exceeds 1,000 gallons a month would increase by 3 percent a year under the rate structure presented earlier this week. The monthly base rate would increase to $8 next year, $10 in 2019, $12 in 2020 and $13 in 2021 to secure the

bulk of the $95 million in revenue bonds the city would issue for an intake, raw water line, 15 million-gallon a day treatment plant and distribution infrastructure.

The board is expected to consider the new rate structure at its Oct. 17 meeting.

“You’ve got a very small minimum charge, and most of your cost is recovered in your volumetric rate,” Jackson told the board. “The idea behind this plan is that your debt is fixed. Your debt is unchanged. It doesn’t matter how much water you sell, you still have to pay this debt back, so let’s recover this debt with your minimum charge.”

Jackson told the board that low-volume users, who are typically the ratepayers with the lowest incomes, constitute about 80 percent of the city’s accounts. Their numbers in relation to high-volume users, such as large commercial accounts, require them to shoulder most of the debt burden.

The proposed rate structure would increase monthly charges for residential city customers using 2,000 gallons a month by $3.09 next year, $2.08 in 2019 and 2020 and $1.08 in 2021. Charges for 5,000 gallons of monthly usage would increase by $3.33 next year, $2.32 in 2019 and 2020 and $1.32 in 2021.

According to Jackson’s rate analysis, the average residential city customer uses 3,620 gallons a month, down from

4,247 in 2007. Monthly charges for residential customers outside the city using 5,000 gallons a month would increase by $5 next year, $3.48 in 2019 and

2020 and $1.98 in 2021. According to the rate analysis, 16,543 of the water system’s 35,270 meters are outside the corporate limits.

Customers beyond the corporate limits pay a 50-percent premium. According to the city’s 2017 budget, residential and commercial sales outside the city are projected to account for more than $5.6 million of $12.2 million in anticipated 2017 water sales.

“Try as you might, you’re not going to be able to eliminate the need for adjustments on the low-volume users by trying to put it all on high-volume users,” Jackson told the board. “You can minimize it a little, but you’re never going to get rid of all of it. There isn’t enough volume in the high-volume customers to make the difference.”

Deputy City Manager Bill Burrough told the board that the city’s financial advisers said consistent revenues generated by base rates provide more certainty for bondholders than a rate structure that relies heavily on volume charges to service debt. He said volume-charge sales are often a function of weather, with revenue increasing in dry years and decreasing in wet years, and can fluctuate significantly.

In addition to the $95 million of debt the city is planning to issue for the Lake Ouachita project, it plans to borrow

$15 million for upgrades at the Ouachita Plant that treats the city’s allocation from upper Lake Hamilton, dam projects for the three lakes in the Northwoods Urban Forest Park and a

3 million-gallon storage tank. Jackson told the board the proposed rate structure would increase water charges $10 a month by 2021 for most residential customers, a cost he said ensures the capacity to meet water demand for the next 50 to 100 years.

“They’re getting millions of dollars of capital repairs and improvements to the existing system and also paying for the future of the city in terms of water supply,” Jackson said. “Water supply is very expensive. All communities need water. You’re securing the future of your community in exchange for about $10 month for most residential ratepayers.”