A new water rate model that would penalize high consumption has city leaders trying to find the balance between the city’s revenue needs and its conservation goals.

“It’s kind of one of those rock and a hard place type deals,” said City Commissioner Lisa Larsen.

That’s because one of the potential impacts of people reducing their water consumption is that the rates for everybody may have to increase to make up for the lost revenue.

“Conservation is good economically, and obviously environmentally, but in those areas where they’ve done that, the per-gallon rate tends to go up,” said Dave Wagner, the city’s director of utilities

The city is considering two billing models designed to encourage residents to use less water. City commissioners told city staff at their most recent work session that they would support a three-tiered rate model for residential water use, which if adopted would go into effect in 2018 along with a yet-to-be determined base-rate increase.

The proposed billing model would create three ascending rates based on a customer’s level of consumption. Though the exact parameters are yet to be determined, customers who use significantly more water per month than the average household would be charged 10-15 percent more. Only water used over the high-use threshold would be charged at the higher rate. A separate model would be used for industrial or commercial-level irrigation.

As particulars are determined, discussion will include how high-consumption penalties could potentially lower the utility department’s overall revenue should widespread conservative use take hold in Lawrence.

Balancing fees and operating costs

Wagner said that in cities where high-consumption penalties are expensive and cause consumption to go down significantly, base per-gallon rates sometimes have to increase to make up for it.

The reason for that unbalanced relationship is that overhead costs don’t drop in tandem as water consumption declines. Like other cities, Wagner said that even if Lawrence were distributing less water, its overhead costs to operate its facilities would stay more or less the same.

“We’ll all save some money by using less energy and using less chemicals, but the incremental costs — the last million gallons we make isn’t very expensive to do,” Wagner said. “You’ll still have to pay for the overhead of the capacity that we have.”

Larsen said balancing affordability and conservation will be key.

“I think that’s something that we’re going to look at pretty hard, just to make sure that it doesn’t get out of balance too much,” Larsen said. “We don’t have that answer right now — until we can start to see how the whole tier system comes into play.”

The billing models

Two different tiered models have been proposed to the commission, one of which would result in a greater amount of customers being charged the higher rates. Both models charge 10 and 15 percent more for the second and third tiers of users, but vary on what percentage of users are subject to the higher prices.

Though the city has not received examples of how the models would affect the average customer, some approximations can be made. Currently, residential rates for water and sewer service are $5.70 and $6.29 per 1,000 gallons. At the current residential rate, if a resident were to use 1,000 gallons that were subject to the 10 or 15 percent penalty, it wouldn’t be more than a few dollars per month in upcharges.

For comparison, the base per-gallon rate increase that went into effect this month resulted in a monthly increase of about $5 per month, assuming an average residential customer using 4,000 gallons of water monthly, according to a city memo.

Another factor to consider is that water consumption rates have already been falling overall. Specifically, usage has decreased more than 10,000 gallons per year in the past decade: from 67,000 gallons per year per residential account in 2005 to 55,000 gallons in 2015, according to Wagner.

While Wagner said the new model could over time require that the city increase the base per-gallon charge, he said it shouldn’t result in big jumps in rates.

“The rate models are kind of built with some of that ability to absorb, over the years, pluses and minuses because weather plays a role there too,” Wagner said. “So if we’re doing our financial planning well, it will be a progression and not all of a sudden, ‘Oh my gosh, we’re short $4 million and we’ve got make it all up.’ We think we’ll be able to do better than that.”

Infrastructure needs

Rates and revenue, though, are just half of the equation. The model will be decided bearing in mind infrastructure needs of the utilities department.

At the same time the rate model decisions are made, the commission will also be finalizing the utility department CIP for 2018 to 2022, which is currently projected to cost $130 million. It includes projects such as Advanced Metering Infrastructure, the design of the Kansas River Waste Water Treatment Plant for nutrient removal, a field operations building and Bowersock Dam repair.

Larsen said the CIP and the rate model the commission eventually decides on for the city’s water service would be a cohesive decision.

“Because this is what this goes back to is service as well as maintaining our infrastructure,” Larsen said.

Hard numbers

Wagner said that no calculations have been made to determine how much the average consumer’s costs would increase under each of the two rate models, but that those numbers will be finalized with the preparation of the 2018 budget.

Larsen said until the commission starts actually seeing “harder numbers” from staff regarding the rate models, it is hard to say how it would affect the average customer. The city has been working with an outside consultant to develop the rate models, and Larsen said the consultant’s experience will help the commission identify how to address some of the potential issues of adopting a tiered model.

“They’ve got experience throughout the nation, and so hopefully that will give us some ideas on how to possibly address that,” Larsen said.