Title
Consideration of Water and Sewer Rates
Body
Key Issues:
The Utility’s staff has completed an update of the Cost of Service model to meet financial viability goals as defined in the Water Utilities Strategic Plan. The objective of the model is to meet operational expenses, system renewal needs and provide financial policies for stability of the Utility’s next 10 years.
The Water Utility Advisory Board has established a set of rate objectives as the framework to ascertain these financial goals. Rates changes should be predictable, incremental and competitive; should support development of the City of Lee’s Summit; encourage conservation; and maintain compliance with state statutes and city ordinances.
Impact/Analysis:
Several key inputs were reviewed as a part of the annual model update. The financial plan has been updated with respect to the following significant cost factors:
• Water Purchases
o City of Independence - No increase was approved for FY25, and no increase is anticipated for FY26. Future rate increases were anticipated at 3% for the remaining years of the model.
o Kansas City Water - A 3% was projected to be effective on May 1, 2024, however, the increase was 4.5%. Future rate increases were set at 3% for the remaining years of the model.
• Sewer Treatment
o Middle Big Creek - In FY25 rates increased from $44.00 per connection to $47.00, as of October 2024. In FY26, rates are projected to increase from $47.00 to $49.00. Future rate increases are anticipated to address growth and the subsequent debt that will be issued related to improvements in the district.
o Little Blue Valley Sewer District - Rates are expected to continue to increase as projected by LBVSD’s planning documents to satisfy previously issued debt and continuous improvements necessary for meeting service levels and regulatory compliance.
• Personnel
o Salaries are projected to increase at 3% for FY26 with subsequent 3% increases in the next 3 years of the 10-year horizon of the model.
o Other personnel adjustments are incorporated to adjust to market conditions
o Personnel expansion to manage growth and the necessary changes in the organization continue to be completed during the 10-year planning period.
• System Renewal
o With Capital Improvements Projects,. Adjustments to Capital Projects have been made to recognize that impact and ensure that sufficient revenues were generated over the projected 10-year planning period to meet renewal goals.
Revenue Projections were generated through an evaluation that began with a review of consumption data over the past seven (7) years. The analysis provided an average level of consumption by customer class per account. Consumption was then forecasted including growth factors to produce revenue estimates for the model to determine the revenue requirements necessary to meet the objectives outlined below.
The Cost of Service model provides a financial plan to meet the ongoing operating and capital needs of the Utility.
• The Cost of Service model identifies increased revenue needs for each of the next 10 years and is consistent with findings of the Strategic Plan.
• The model addresses the infrastructure rehabilitation needs as identified and schedules the projects in accordance with a financial plan.
• The model is in compliance with financial and rate policies specified in the Strategic Plan and presented to the Water Utilities Advisory Board.
• The model generates a cost allocation between customer classes consistent with industry standards to be fair and equitable.
Staff Recommendation:
To meet the revenue requirements necessary to maintain system renewal goals, staff recommends the following changes to the water and sewer rate schedule.
• Append the January 1, 2029 water and sewer rate schedule with a 4% increase.
Proposed Committee Motion:
I move to recommend to the City Council to append the rate schedule with a 4% increase to water and sewer rates effective January 1, 2029.
Presenter
Brent Boice, Assistant Director of Business Services, Water Utilities
Recommendation
Recommendation: Staff recommends appending the January 1, 2029 rate schedule with a 4% increase as presented to be included in the City’s Schedule of Fees & Charges.