Mesa Needs More Money > City of Mesa Proposed Hikes in Utility Rates

Mesa OMB Presentations & Reports
Date: March 20, 2017
To: Interested Parties
From: Candace Cannistraro, Office of Management and Budget Director
Subject: Fiscal Year 2017/2018 Utility Rate Recommendations 
The following information has been compiled and placed on file with the Mesa City Clerk in Compliance with Arizona State statute. 

Here's how Mesa compares with other cities
For Solid Waste - to the right
Mesa had the highest estimated amounts for fees
Rates were increased by 4.2% for water, 5.0% for wastewater, and 4.3% for solid waste in July 2016. 
An annual rate increase is being proposed for each year through 2017.

For Water and Waste Water it looked like this, with Mesa again having the highest estimated amounts for fees

Source: City of Tempe Manager's Office




The attached information outlines recommended electric, natural gas, solid waste, wastewater and water utility rates, components, fees and/or charges to be presented to the City Council in association with the introduction of the utility ordinances on May 8, 2017. 

This will be followed by the public hearing on May 22, 2017 as stated in the Notice of Intention to Adjust Utility Rates to be published on April 15, 2017.  
Discussions of these proposals with the Audit and Finance Committee on March 6, 2017 and the full City Council at the study session on April 13, 2017 are/will be available online at the City of Mesa website, Mesaaz.gov, under City Hall, council agendas and minutes. 
The purpose of this report is to provide staff recommendations for utility rate adjustments. The rate adjustments are recommended to be effective July 1, 2017 and are consistent with the revenue requirements of the Proposed Budget Plan for Fiscal Year 2017/18. 
The forecasted expenses for each utility are compared to the forecasted revenues based on the current rates. The increases in revenues needed to accommodate the increased costs for each utility are: 
Utility Revenue
Electric $180,000
Natural Gas $467,000
Water $4,491,000
Wastewater $2,846,000
Solid Waste $1,490,000 
TOTAL = $9,474,000 

The method of implementation of rate adjustments can vary from year to year based on the needs and goals of the individual utilities. The impact on individual customers can vary based on the method of implementation and the customer consumption

For FY 2017/18, the following rate adjustments are being recommended: 
Solid Waste: All residential rates, bulk item pick-up and appliance collection: 3.5% increase Front-load rates: Overall 2.5% increase
Roll-Off Green Waste Rate: 4.9% increase 
Electric: Residential customers: system service charge increase of $1.25 per month  Residential customers: no adjustment to the energy usage charge
Non-residential customers: no adjustment to any components 

Gas:  All customers: system service charge increase of $0.75 per month 
All customers: no adjustment to the usage charge
Water: 3.5% increase across most customer classes and rate components 
Residential usage charge – tier 3: 6.5% increase & tier 4: 9.5% increase
Interdepartmental (Large Turf): no adjustment
Restructure of residential services demand tiers – implement year three of five-year plan 
Wastewater: 4% increase across most customer classes and rate components Interdepartmental: no adjustment 

BACKGROUND AND DISCUSSION 
Each utility is operated as a separate business center.
As such, rate schedules are adjusted annually in a manner consistent with costs of capital, as well as the fixed and variable costs of operation and maintenance within each utility. Reserve balances are combined in the Enterprise Fund and are managed to maintain a targeted ending reserve balance of at least 8-10% of the following year’s estimated expenditures throughout the forecast period. The reserve balance allows for the smoothing of rate adjustments. This smoothing avoids large rate increases and minimizes the impact to customers in any single year. 
The Forecast Analysis Model (Attachment 3) includes projections of growth.
The Water, Wastewater, and Solid Waste utilities have a citywide service area and are expected to grow by an average of about 1.5% per year during the forecast.
With the inclusion of the Magma service area, the Natural Gas utility is expected to grow by 1,067 accounts next fiscal year.
The Electric utility, with a smaller and largely built out service area when compared to the other utilities, is expected to grow by 140 accounts next fiscal year.

The  Forecast Analysis Model also includes expenditures that are increased by inflationary factors in future years. Some inflationary factors are unique to the individual utilities, such as those used for chemicals or purchased water. Other citywide expenditure pressures that are included in the forecast are listed below. 
Capital Investment 
The City continues to place a high priority on infrastructure investment to attract and service future development.
The proposed capital improvement program (CIP) includes the planning for an expansion of a water reclamation plant and the design and construction of a new water treatment plant and associated distribution infrastructure.
The bond funding authorization for these projects was approved by Mesa voters in November 2014. The debt service on utility revenue bonds is funded through the utility rates paid by customers. The City issues bonds on an as-needed basis in order to minimize the interest cost. Anticipated future debt service has been included in the forecast and rate recommendations. 
The City refunded and defeased existing Enterprise Fund debt in FY 2016/17.  The refunding and defeasance created a one-time savings of approximately $11.6M. 
Review of the transfer to the General Fund 
Based on direction from the City Council, the transfer to the General Fund is reviewed annually. The amount of the transfer throughout the forecast period is adjusted based on a consumer price index (CPI) inflation.
The adjustment for FY 2017/18 is an increase of $2.6 million, moving from $103.9 million to $106.5 million.