It is true that our utility rates are generally higher than other cities in Clark County. However, compared to other communities in the region and state, our utility rates are nowhere near the highest. There are a number of communities with higher utility rates than Washougal, some much higher. The chart below provides a comparison of utility rates in and outside of Clark County for a residential customer using 15 ccf of water (11,200 gallons of water per year).
Exhibit 1: Utility rates comparison
Rates vary between utility providers for a variety of reasons that can be summarized in four categories: the number and type of customers; the timing of past investments in infrastructure; the current and future need for infrastructure investments; and the specific utility rate policies adopted by the organization. Each city is different, which makes it difficult to do “apples to apples” comparisons, and even though some cities may be similar in one of these categories, differences in the others can have a dramatic effect on rates.
- Number and type of customers: Typically, cities with higher populations have a larger and broader rate base with more customers and can spread costs more easily than cities with smaller populations. The type of customers within a city also makes a difference. Cities with more businesses and commercial/industrial customers can recover a higher proportion of required revenue to run their utilities from these customers. These customer types use more water and pay a higher rate because of their usage levels. For example, the City of Camas has about 10,000 more residents than Washougal and has more commercial and industrial customers (244 and 38 respectively according to their 2015 Water System Plan). Not all larger cities have lower rates. Sometimes there are other issues facing larger systems which can cause their rates to be relatively higher.
Some smaller cities receive services from larger utility providers or are part of a larger partnership. This is true for the utility systems in Battle Ground and Ridgefield. Battle Ground is immediately contiguous to Clark Public utilities and during peak water use in the summer receives a portion of their water through a large “intertie” to the CPU system. This allows them to benefit from CPU’s much larger water rate base of over 39,000 homes and businesses. Both Battle Ground and Ridgefield are part of a partnership for waste-water treatment. They do not operate their own treatment plant like we do in Washougal. Their wastewater is sent to the Salmon Creek Wastewater Treatment Plant, which is owned and operated by the Discovery Clean Water Alliance (DCWA). The DCWA is made up of a consortium of municipal agencies including the City of Battle Ground, City of Ridgefield, Clark County, and Clark Regional Wastewater District. The smaller cities benefit from the wastewater customer base of over 120,000 people. Decades ago, Washougal decided to develop its utility infrastructure without being part of a larger system. This was likely due to the realities of our location and geography.
- Timing of past investments: Over time cities make investment in their infrastructure to make sure the pipes, pump stations, reservoirs, treatment plants, wells, etc. are in good shape and can adequately serve current and future populations, and to ensure compliance with significant federal and state mandates regarding drinking water, wastewater and storm water. The timing of these investments can affect rates. In the past, the federal government provided significant contributions to water utilities’ infrastructure needs. However, as you can see in the figure below, the federal government’s contributions to water utilities have dropped significantly since the 1980’s. Since then, local governments, and their ratepayers, have had to foot most of the bill for water infrastructure improvements. Most of Washougal’s significant existing utility infrastructure investments have occurred in the 1990s and 2000s. Recently, the federal government has increased funding. Washougal is working hard to secure low interest financing from this increased funding, which will take some pressure off of our rates.
Exhibit 2: Federal Contribution to Total Infrastructure Spending
- Current and future needs: Just as cities have made investments in the past based on needs, they also must consider current and future needs. Some cities can afford to put off future investments because they have made significant upgrades that will meet their needs for the foreseeable future. Washougal is in a period where it needs to make investments to ensure the city has high-quality and reliable drinking water and compliant wastewater treatment over the long-term. Two significant such projects are mandated upgrades to our wastewater treatment plant. In 2013 we completed a $17M upgrade for phase 1 of the requirements. Phase 2, a mandated biosolids handling facility and related enhancements is estimated to cost $30M and will be under construction next year.
- Utility financial policies: There are multiple financial policies that are involved in setting utility rates. Cities make different policy choices regarding these. One example is the concept of Replacement Reserve Funding. One component of utility rate setting is planning for future utility system costs. A utility’s infrastructure (e.g., treatment plants, storage reservoirs, wells, pumps, valves, transmission/distribution/collection pipes, etc.) is a critical element of serving the City’s customers. Establishing a financial plan for the eventual replacement of these assets ensures system reliability and integrity. This practice is known as Replacement Reserve Funding (RRF). There are different policy approaches for how much RRF to target, and how quickly to achieve the target. Each policy choice has a different impact on the utility rates necessary to meet the chosen RRF targets. It is kind of like saving for a down payment on a home or a car. A utility system can accumulate funds toward these future expenses, but this requires higher rates. However, less debt is required later to fund the future expenses, taking pressure off of rates at that time. Washougal chose to accumulate RRF funding over the last 10 years. This has resulted in our ability to borrow much less for the pending biosolids project.
High bi-monthly bills are typically related to high water usage, and most often customers will see higher bills for billing cycles that include the summer months when many water their lawns. Everyone in our system generally pays the same base rate, but customers who use more water pay a higher volume rate. This structure was adopted by city council to encourage conservation.
Like police and fire, operating and maintaining the city’s water, wastewater, and stormwater systems are fundamental to the community’s health. The city strives to find the right balance between affordability, operating and maintaining our systems in compliance with the various requirements and mandates, and providing a high level of service to its customers. A rate study determines exactly how much revenue the city needs to provide these services and develops rates that pay for the operation and maintenance of the utilities – no more and no less.