Defiance, Ohio: Plan to Re-organize Water and Sewer Rate Structures in a Fair and Equitable Manner

Water and sewer rate structures should recover the cost of providing water and sewer services independent from each other, conform to customer service agreement terms, be fair and equitable, and not unnecessarily complex. Defiance’s rate structures have many interlocking components that need to be reviewed. Defiance has three water service agreements with outside-City customers using three different water rate formulas. It also has two sewer service agreements with outside-City customers using two different sewer rate formulas. These outside-City rate formulas were developed over different time periods and were independent of each other. Some of these rate formulas were linked to certain inside-City rates and some of them excluded certain City expenses.Defiance’s inside-City water and sewer rate structures include a variety of charges. For inside-City customers the water rates consist of a minimum usage charge which includes a certain amount of usage, a readiness-to-serve (RTS) charge and five declining block consumption charges for usage above the amount included in the minimum charge. A RTS charge is a fixed charge which increases with meter size. A declining block consumption charge means that the rate per unit volume decreases with increasing usage. For inside-City sewer customers there is an RTS charge and two declining block consumption charges. Rates had been updated over the years by increasing them on a percentage basis to meet revenue requirements. However, narratives were not available explaining the reasoning behind the rate structures.The purpose of this rate study is to review the many interlocking pieces, develop new rate structures consisting of narratives and linked Excel spreadsheets, project bills for the typical residential user and the largest users (located inside and outside the City), compare typical inside-City residential bills to five other communities, explain the proposed rate structures to users, prepare an Excel rate model to project rates for five years and train City staff in the use of the rate model to enable them to update rates without consultant assistance. This means starting from scratch. Service agreement rate formulas have to be maintained. A key objective is to provide funding to pay for upcoming combined sewer overflow control capital improvements.Revenue requirements for each year the five year study period (2016 to 2020) will be projected by applying either inflation factors or known amounts, such as debt service, to each budget line item and totaling the results. The City intends to continue to recover its expenses by a combination of fixed RTS charges and consumption charges. However, it is considering eliminating the water minimum charge and the water and sewer declining block consumption charges. The declining block consumption charges would be replaced by a single uniform consumption charge for water and one for sewer. Under this potential approach each budget line item would be allocated to either the RTS charge or to the uniform consumption charge. Accurate customer meter counts and billable flows would be used. The financial impact on the typical residential customer and large users located inside and outside the City will be projected.Total water and sewer bills under such potential rate structures would be expected to reduce the financial burden on the typical residential user, and increase it for certain large users. This is because very large users currently benefit from the lower consumption charge declining block rates.A comparison of Defiance’s rates to five other utilities shows that three receive significant financial support for capital improvements through dedicated local income tax revenues. This support enables these communities to adopt lower water and sewer rates.The draft Defiance rate study was completed and reviewed with City staff in June 2015. The final rate study was completed in July 2015 and incorporated the City’s comments. Four public engagement meetings will be conducted with various stakeholders and the City Council. City staff will be trained in the use of the rate model with the aid of a rate model guidance document prepared specifically for the new Defiance water and sewer rate structures. The Excel rate model will be delivered to City staff to enable staff to update rates in the future, without consultant assistance, based on future actual budgets and customer usage.