August 14, 2003

Memphis City Council Approves First Price Increase For Water Since 1992

Back in 1992 a utility customer in the City of Memphis paid just $10.80 for 3,000 gallons of water. In 2003 that same customer paid just $10.80 for the same amount of water. But after more than a decade without a price increase the Memphis City Council voted 3-1 to raise water rates during the August 7 council meeting.

"Everything is going up in price but our water rates have not increased in 11 years so we ultimately are losing money," stated Alderman Ronnie Gardner.

Mayor Ron Alexander illustrated the issue by reading financial figures from the city's water department over the past four years. The department saw a positive balance of more than $250,000 quickly evaporate over the past four years dropping to $7,235.74 in the red in 2003.

"There's not been a rate increase since 1992," Alexander said. "Over that time all the costs of producing the water, chemicals, salaries for the water plant employees, these expenses have increased and we have not passed that on to the customers."

Gardner presented a report generated by Water Superintendent Dennis Howard representing municipal water rates charged by surrounding communities.

He highlighted Lancaster as a similarly sized community and pointed out the neighbor to the west charges $20.48 for 3,000 gallons of water compared to only $10.80 for the same amount of water paid by Memphis consumers.

Sewer rates also were equally disproportionate as Memphis customers paid $3.60 for 3,000 gallons compared to $8.50 in Lancaster.

Street Superintendent Roy Monroe added to the discussion noting that as a customer of rural water he pays more than $40.00 for 3,000 gallons of water each month.

Citizen Jim Nishida-Adams interjected a public comment into the discussion expressing his opinion that it was not a good reason to raise rates simply because neighboring providers were higher.

The council quickly answered this charge by consensus noting that the city water department is going in the hole under the current rates.

Mayor Alexander pointed out the city water plant is now running 24-hours a day to meet peak demand. Despite the increase in production the department has managed to cut back on expenses by reducing the manpower and not replacing employees lost to retirement.

But even with cost cutting measures an analysis from the city's engineering firm, Allstate Consultants indicated the firm believes it is time to begin passing on some of the added costs to the consumers.

A summary of the company's water rate analysis estimated the cost of producing one year's worth of water in 2003 was approximately $540,000. The estimate was calculated based on a cost of $3.94 to $3.97 per 1,000 gallons of water produced.

The analysis offered two separate scenarios for proposed rate increases for the city.

Scenario one suggested an increase to $7.41 for the minimum of 1,000 gallons charged to each customer. The proposal recommended an increase to $3.97 charged per every additional 1,000 gallons used that month. Sewer rates would go up to $3 for the minimum and $1.50 per each additional 1,000 gallons. The projected revenues under the scenario would be $275,500 from city water customers, $191,400 from the rural water district and $76,800 from sewer for a total expected revenue of $543,700, or basically the estimated break even point at last year's production costs.

Scenario two calls for a raise in the minimum water charge to $9 for $1,000 gallons and $4.17 for each 1,000 gallons beyond that. The same sewer rates would be used in both scenarios. The second option would generate an estimated $294,700 in revenue from city customers. The rural water district revenue would be unchanged as the rate charged to the rural water district for purchasing water from the city is determined by a contractually specified formula.

The second option ultimately would create an estimated revenue total of $562,900.

The report went on to stress that the city needs to be making annual deposits of roughly $100,000 from the water revenues into the city water department's Repair and Replacement (R&R) account to allow the city to maintain its water and sewer infrastructure. The analysis pinpointed the fact that under scenario one the city likely would not have any revenue beyond expenses to set aside for the R & R fund.

The council voted 3-1 to implement scenario two. The price increase will take the form of a city ordinance that will be read at the September city council meeting at which time the price increase will be implemented

Alderman Mike Stone, the lone no vote on the issue, indicated he was concerned about the effect raising costs would have on the elderly and those customers living on fixed incomes.

Mayor Alexander, while he expressed the obvious need to increase the rates, also voiced concern the impact of price increases would have on the bigger, commercial customers.

Under scenario two the average customer that uses more than 5,000 gallons will see their water bill increase by 44.5 percent. The hospital and care center, two of the city's biggest water customers also will see significant cost increases of more than 40 percent.

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