Revisiting the Ann Arbor Water Rate Problem

What Should Drive Water Rates? System Related Things The total cost of a water system is driven by the cost of the infrastructure, unrelated to volume. Density reduces cost of infrastructure. Bond rating agencies are starting to reward water utilities that tie billing to non-volumetric charges. Volume Related Things Higher volumes stress the infrastructure. Commercial and industrial customers that use larger connections stress the infrastructure. Seasonal lawn watering stresses the infrastructure.

What to Compare Ann Arbor Too? The city list in the Stantec Report to Ann Arbor. Other large cities in Michigan.

Michigan City 2010 Pop Inclusion in Analysis Yes No – water crisis issue No

Water Utilities Create Rates From a Blend of Factors, So Comparisons Between Utilities are Difficult as the Mix of Income Sources Varies Usage Charges Rate per CCF Volumetric Tiers Large connection size CCF surcharges Per user type billing Special Commercial rates Special Industrial rates Special Multi Family rates Fixed Costs Connection fees by size of meter Base Service fee Minimum CCF charge

Residential Volumetric Rate Comparisons

The New CCF Water Rates in Ann Arbor are not Like Those of Other Cities in the Stantec Group Most cities have flat residential rates. Two have regressive rates. Ann Arbor already had the steepest increase in CCF rates as usage rose, and that has been increased.

The New CCF Water Rates in Ann Arbor are not Like Those of Other Large Michigan Cities Michigan cities are even more likely than the Stantec group to have flat residential CCF rates. Ann Arbor already had the steepest increase in CCF rates as usage rose, and that has been increased.

Most Cities in Either the Stantec or Michigan Cites Groups Only Had a Single Rate for CCF Usage Ann Arbor – Residential, Multi Family and Commercial Kalamazoo – Residential, Multi Family and Commercial Champaign – Residential, Multi Family and Commercial Grand Rapids– Residential, Commercial and Industrial Madison – Residential, Multi Family and Commercial Warren – Residential, Multi Family and Commercial Everyone Else – Single Rate for CCF Usage

MF

Differential Rates by User Type Since the key driver in total system cost is the infrastructure, most cities do not charge for water volume use by customer type. For those that do charge by customer type, none give Multi Family users the price discount Ann Arbor has instituted. There is no fixed relationship between Residential and Commercial volumetric rates. Perhaps too small a sample.

Meter Size Fees

Larger Meters Pay Higher Set Fees In Almost Every Instance Users of larger meters are related to system demand extremes. (Livonia Water Department web page) Meters larger than 1 inch are almost always non-residential.

Ann Arbor Compared to the Standec List State College and Columbus have minimal connection charges. Ann Arbor’s old connection charge profile looks like one group of cities (Port Huron, Champaign, West Lafayette, Madison), and the new connection charge profile looks like the other group (Detroit, East Lansing, Minneapolis, Iowa City, Grand Rapids, Evanston).

Ann Arbor Compared to Other Michigan Cities Lansing, Dearborn and Livonia charge significantly more for larger meters than either the old or new Ann Arbor meter charges. Other than Sterling Heights, which has a very flat meter charge profile, Ann Arbor now has the flattest profile (increased cost for increased meter size) in meter charge rates of any large Michigan city.

Other Notes Bloomington, MN, Which didn’t seem to have a connection charge for anyone, did have a Multi Family rate which had two tiers. The clever thing was that tier one was based on the count of finished units. The base charge was $3.39 per 1,000 gallons per finished unit, with a higher rate of $5.99 above that volume. No other jurisdiction ties Multi Family rates to number of units directly. The new Ann Arbor rates use a combination of changes to shift costs onto residential customers. It is not just one element of the new rates. Meter charge, base rates by class of customer and volumetric tiers all have been set to penalize residential customers. Or alternatively to reward Multi Family and Commercial customers. The commentary in the water rate planning documents reference discussions about setting rates to advantage low income customers. Yet “Multi Family” and “Low Income” are not perfect proxies for each other. Ann Arbor has, and continues to build, high income Multi Family housing.