24 - 2022 Water & Wastewater Cost of Service Rate Study

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Item No. 24 TO: Mayor, Mayor Pro -Tem & City Council Grayson Path, City Manager FROM: Gene Anderson, Finance Director SUBJECT: 2022 WATER & WASTEWATER COST OF SERVICE STUDY DATE: April 25, 2022 wo XCM61 on 113 The City of Paris currently has treated water contracts with four local industries (Campbell Soup, PGEN (Paris Generation, LP), Lamar County Water Supply District, and Daisy Farms). One of the requirements of these contracts is for the City to have an independent rate consultant conduct a cost of service study each year. The study determines what the contract customer water rates should be according to the contract terms. A by-product of the study is that water and wastewater rates are also determined for all other water and wastewater customer classes (residential, commercial, and industrial customers). This study is the basis for any non -contract rate changes recommended to the City Council. The study is an important financial tool enabling the City to maintain the financial integrity of the Water & Sewer (Wastewater) Fund. This annual rate study and the City's rate maintenance policy are looked upon favorably by Moody's and other credit rating agencies when the City is attempting to issue bonded indebtedness. Adjusting the rates in accordance with our 2010 Policy is also critical in attempting to fulfill the basic care and maintenance to our Water and Wastewater system needed for the citizens and businesses of Paris. STATUS OF ISSUE: The 2022 study has been completed. The contract rates determined by the study automatically become effective June 1St per the contract terms — therefore no action is necessary by the City Council on those fourspecific accounts. The current water rates for non -contract customers were determined to be insufficient to generate the revenue required to operate the system. A shortfall of $231,088 is forecasted on the water side of the utility. The primary reasons for the needed increase are increased operational costs (chemicals for example) and the decreased consumption of residential users (8.9%). With rising costs and a necessity to maintain safe and reliable drinking and potable water for our community, it is critical that we raise the appropriate amount of revenue to meet the expenses associated with providing this product. The City actively seeks bidding and competitive pricing whenever possible for all of its major expenses in both Utilities and Public Works. However, we simply cannot just "do without" or "tighten the budget" to cut costs even when lowest pricing has gone up from previous years as the demand for the service requires minimum community expectations of our operation to both perform and provide. We also do not recommend pushing maintenance, replacement, and repair projects off due to the complexity of the system and the importance of having a functioning and operating facility. The current