The current water rate is $43.45 per 1,000 cubic feet. The proposed rate is $44.09 per 1,000 cubic feet, a 1.47-percent increase.
The current sewer rate is $50.25 per 1,000 cubic feet. The proposed rate is $54 per 1,000 cubic feet, a 7.46-percent increase.
For the average customer, that would represent a 1.22-percent increase in water rates and a 6.38-percent increase for sewer rates.
For natural gas, the city is proposing a 3.89-percent decrease from $93.32 per 8,000 cubic feet to $89.69 per 8,000 cubic feet.
“All three utilities are designed to operate on a break-even basis over time, making no profit, although weather conditions and other factors can produce an economic gain or loss in any year,” reads the utility rate report which shows how the rates were put together.
Councilor Dede Smith questioned that assumption.
“There is a profit built into the rates and it is the payment in lieu of taxes,” Smith said, referring to a payment of 6 percent of water and sewer revenue that is transferred to the city’s general fund. Smith has called for the practice to be eliminated.
The fiscal year 2014 budget calls for a $531,000 payment from the water fund and a $616,438 payment from the sewer fund.
Councilors asked for the practice to be studied with potential alternatives brought before them in the coming year.
The rate increase for water comes despite a proposed reduction in the wholesale rate the Rivanna Water & Sewer Authority charges the city for water. The RWSA is responsible for treating wastewater as well as storing and preparing drinking water.
Part of the RWSA’s rate goes to help pay for its $155 million capital improvement program.
The current wholesale rate charged is $2.44 per 1,000 gallons of water and the proposed rate is $2.34 per 1,000 gallons, a 4.18-percent decrease.
The proposed rate for sewer service will increase, pending a signed agreement between the city and the Albemarle County Service Authority about who should pay for a replacement of a main sewer pipe.
“The city’s rate next year would be revised to $3.59 per 1,000 gallons or a 0.79-percent increase if the Schenks Branch Interceptor cost-share agreement … is executed,” said Tom Frederick, executive director of the RWSA.
The city and county have not yet agreed on a cost-share allocation, but City Manager Maurice Jones confirmed in an interview that the city will assume 100 percent of the costs of the Schenks Branch Interceptor because it only carries wastewater generated by city residents.
Frederick said the RWSA rates are going down in part because his financial staff has refinanced his agency’s debt to a lower interest rate.
“It is somewhat analogous to refinancing a mortgage to a lower interest rate,” Frederick said.
City staff explained that the city’s own expenses and debt service have increased at a time when city customers are using less water.
“The RWSA rate is declining,” said Sharon O’Hare, the city’s assistant finance director. “Had this been the only change we had observed, we would have seen an 89-cent decline in the rate.”
On water, the city is offsetting the increase by spending $647,000 from its rate stabilization fund, which is intended to offset fluctuations in rates.
“The city of Charlottesville’s fund is comprised primarily of three sources of revenue,” O’Hare said. “[These are] cash over and above the working capital requirement, funds received when water sales exceeds budgeted expectations in any given year and facility fee revenue.”
Smith said the fund artificially keeps rates low.
“The rate is determined by how much we subsidize it,” Smith said. “We need to find a way to stop depending on rate stabilization.”
O’Hare said consumption at the University of Virginia – the city’s largest customer – is down 6.5 percent this year compared to fiscal year 2012.
“They continue to employ water conservation measures wherever possible,” O’Hare said. “Our retail customers are projected to reduce consumption by a more modest 2 percent.”
O’Hare said water and sewer rates are projected to continue increasing over the next five years. Currently water rates are projected to be $55.15 in fiscal year 2018 and sewer rates are projected to be $73.68 if the city continues its policy of stabilizing rates.
Council held a first reading on the proposed changes and will take a final vote on the proposed utility rates on June 3. If adopted, the rates would go into effect on July 1, 2013.