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Regulators OK water rate hike

January 4, 2019

MADISON — State utility regulators Wednesday authorized a larger water rate increase than the Waterloo Water and Light Commission sought.

When the new rates take effect on Feb. 1, average residential customers will pay $38.09 monthly or $8.93 more for 3,000 gallons of water which currently costs $29.16.

Bills reflecting the new rates will be mailed in early March, said Utility Superintendent Barry Sorenson.

The 30.89% increase on monthly water bills includes the public fire protection charge which is collected for fire hydrant maintenance and other utility expenses associated with firefighting costs.

Rates for the utility’s commercial, industrial, multifamily and public authority customers will increase by 13.46-33.28% depending on customer category and usage, according to the Public Service Commission rate order.

In July, the Water and Light Commission requested a 21% overall increase in rates based on a 4.5% rate of return on the $4.32 million net value of its infrastructure investment.

However, after reviewing the rate request, PSC staff recommended a 5.4% rate of return, which is the current benchmark rate for water utilities, PSC staff concluded that the higher rate more closely matches the cost of borrowing money for capital projects and would more adequately provide sufficient revenue for the utility’s long- and short-term financial needs, than the utility’s requested rate of return..

The higher rate of return increases the amount average residential customers will pay for water by $1.25 over what the utility’s request.

The 4.5% rate of return the utility requested would have added an estimated $7.68 to average residential monthly water bills by adding $129,349 in annual revenue. The PSC staff recommended 5.4 rate of return adds $174,159 in annual revenue bringing the annual total to an estimated $812,462. After projected expenses of $578,781, the utility would earn a net income of $233,681.

The commission was notified of the recommended 5.4% rate of return before the Dec. 19 public hearing on the rate request and it had no objection, said Barry Sorenson.

Continuing on current rates, the utility would have had a net income of $59,522 and only a 1.38% rate of return, which the PSC deemed inadequate for the utility’s long-term financial viability.

The utility’s net income has fluctuated greatly in recent years, from $64,659 in 2014, climbing to $140,513 in 2015, peaking in 2016 at $154,485 before declining to $150,357 in 2017 and falling to an estimated $59,522 this year, according to PSC analysis.

The utility’s last comprehensive rate case was in 2013 which resulted in a 26% increase for average residential customers and was based on a 4.5% rate of return. The utility sought and received a 3% overall increase in 2015.

The utility needs more revenue to recover the approximate $1 million to replace water mains when state Highway 19 (Madison Street) was reconstructed in 2017.

The improvements made necessary by the Madison Street reconstruction were funded through a tax incremental financial district, and revenue from the new rates will repay the tax incremental financing district, Sorenson has said.

Last summer, the utility replaced mains in the entire lengths of Mill and Cleveland streets at a cost of approximately $325,000 when those streets were reconstructed.

This year, the utility will replace main along the entire length of Edison and Franklin streets, Sorenson said.

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