Study calls for Gladstone utility hikes
GLADSTONE — Gladstone utility customers may face increases in coming years after a study showed the city’s utility rates weren’t providing financial stability for city departments.
After months of Utility Financial Solution, LLC. of Holland, Mich., collecting data from the electric, water, wastewater and solid waste departments, the Gladstone City Commission heard the results of its utility rate study Thursday.
No action was taken or can be taken this year because utility rates are set in June.
According to Mark Beauchamp, the president of Utility Financial Solution, the study showed different utilities were in need of adjustments so the departments could be sustainable and support future infrastructure projects.
“Your rates are not high, none of them are,” Beauchamp said.
Instead of being high, Utility Financial Solution provided suggestions for an overall average rate increase of 4.5 percent for electric, 2.2 percent for solid waste, 4.9 percent for water and 14.9 percent for wastewater in the first year (2021).
The Gladstone City Commission approved a contract to work with Utility Financial Solutions for rate studies on the city’s electric, water, wastewater and solid waste funds during a regular meeting in February 2019.
The city entered the contract with the consulting agency to perform a cost of service and utility rate study on the funds during the 2019-2020 fiscal year as part of the eight-page lawsuit settlement with former City Commissioner Mike O’Connor.
Beauchamp explained the cost of service study looked at three parts. The first step was to determine the revenue requirements, which is how much money a utility department needs to recover in the rates that its charging customers in order for the utility to remain financially stable. The second step is taking that revenue requirement and identify who was causing the demands on the utilities for the costs to occur. The third step was developing allocation factors to allocate those costs to the different classes of users.
“As part of that, we identify also what the fixed monthly customer charge should be,” Beauchamp said.
His presentation also included five-year projected rate adjustments for the different utility departments, but advised these should be looked at annually and a study should be done every three to five years for the city and departments to be on the right path.
“Actually our models, we build them up for 20 years, but we don’t like to show more than five — and I’ll tell you why,” Beauchamp said. “These models are built on assumptions. And this is going to sound funny, but it’s very true. The only thing I’m certain of when I look out five years is that I’m going to be wrong … because it’s built upon these assumptions that some of them may or may not materialize. It’s our best estimate of what we know today. That’s why it’s important, especially with wastewater, that you review this periodically — like regularly — especially once these improvements are made.”
The suggested projected five-year overall average rate adjustments for electric included a 4.5 percent increase in 2021 and 2022, and a 2.2 percent increase in 2023, 2024 and 2025.
The suggested projected five-year overall average rate adjustments for solid waste included a 2.2 percent increase for 2021, 2022, 2023, 2024 and 2025.
The suggested projected five-year overall average rate adjustments for water included a 4.9 percent increase in 2021, 2022, 2023, 2024 and 2025.
The suggested projected five-year overall average rate adjustments for wastewater included a 14.9 percent increase in 2021, 2022, 2023, 2024 and 2025.
“When it comes to rates, there’s a couple of factors that we try to consider — main ones,” Beauchamp said. “One is, obviously, we need to set rates to keep the utility financially stable so we pay our bills. But also the other factors are the impacts on customers. I mean, one of the worst things that can happen to a utility is to go several years without having a rate adjustment and then all of a sudden something occurs and then you end up with a 40 to 50 percent rate adjustment.”
He added his agency tries to present suggested rate adjustments by leveling it over time to minimize rate impacts on customers in any given year.
“What we try to prevent is rate shock,” Beauchamp said.
During the presentation, Interim City Manager Eric Buckman spoke on how the utility rate study was needed for the city departments, but it was also court-ordered relating to the lawsuit settlement between the city and O’Connor.
In December 2018, the city of Gladstone finally ended a series of lawsuits with O’Connor by approving a settlement agreement. The legal battles spanned over more than two years and cost the city more than $200,000 in legal fees.
Commissioner Dave Phalen mentioned he found the study interesting because it was mandated through the settlement with O’Connor because O’Connor had accused the city of overcharging, when in reality the study showed the rates weren’t excessive at all.
“You constantly hear about how crazy our rates are in this town and how high we are and everything else, and you’ve (Beauchamp) just proven and shown to us right here that we’re actually cutting our own throats — our rates are almost too low,” Phalen said.