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Austin Water in process of cost-of-service study

Wednesday, November 23, 2016 by Jack Craver

Austin Water, the city-owned water and wastewater utility, is currently in the midst of a lengthy cost-of-service study that will shape the rates it will charge Austin residents and businesses for water over the next decade.

Unlike Austin Energy, the city-owned electric utility, Austin Water is not required by city ordinance to conduct a cost-of-service study or otherwise review its rates periodically. Nor are its rates set in stone as a result of a rate review; unlike Austin Energy, it changes its rates from year to year.

Nevertheless, explained Dave Anders, assistant director of financial services for the water utility, it tends to go through a similar examination of its rate structure every five to seven years. The last time it conducted a cost-of-service study was in 2009.

The initial cost-of-service study report is being drafted by an outside consulting firm, Raftelis Financial Consultants, which began the study nearly four months ago, according to Anders.

At the same time, both the consulting team and a group of utility leaders are conducting public meetings to get input from stakeholders and citizens about how they believe the rates should be adjusted, if at all. The team has been conducting biweekly meetings since its first meeting in September, and it will continue to hold forums until the cost-of-service study is wrapped up in February, Anders predicted.

After more public input in response to the report, the utility will likely have a recommendation for new rates by June, after which it will submit to a series of hearings overseen by an impartial hearing examiner, who will examine the consultants’ report, the staff recommendation and critiques from any other interested parties.

Although City Council typically adopts new water rates as part of the city budget every year, Anders said Council will likely not approve the rates for 2018 until a few months after next year’s budget is wrapped up. He suggested October or November 2017.

The response to Austin Water’s cost-of-service study has not been nearly as great as that garnered by the Austin Energy rate review earlier this year. Anders said that relatively few people have shown up for the meetings; he estimated fewer than 10 besides city staff and the consultants.

“It’s hard to get too excited about water and wastewater rates,” he said.

According to Austin Water, commercial customers are currently paying more for water than it costs the utility to provide service. Conversely, residential customers are paying slightly less than what it costs to provide them service.

The disparity has narrowed in recent years, however. In 2009, commercial customers were paying 10 percent more than their cost of service, whereas residents were paying 10 percent under cost. In response to a directive from Council to narrow the gap, said Anders, businesses are now about 4 percent above cost and residents 4 percent below.

“What we would hope out of this cost-of-service study is additional confirmation from Council that we would move to cost of service for all classes,” he said.

Even if Council does prefer that to be the case, it is possible that some Council members would prefer that any shift in burden toward residential customers be gradual. It is also possible that some Council members would rather retain more favorable rates for residents at the expense of large businesses.

The utility has different rates for single-family homes, apartment buildings, commercial customers and very large commercial customers, or “large volume” customers. It also has separate rates for the water it sells to 18 “wholesale” customers, including a number of municipal utility districts and municipalities that then charge their residents for the water.

Austin Water has hired a separate consulting firm, NewGen Strategies & Solutions, to serve as the representative for residential water customers.

In the most recent budget, Council voted to raise rates by roughly 3 percent for all customer classes.

Photo by 247homerescue made available via Wikimedia Commons.

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