Lansdale Borough sewer rates are in good shape, and there’s no need for an increase in 2011, according to a recent completed sewer rate analysis presented to the administration and finance committee and public works committee Wednesday night.
However, those rates—which include both service charges and usage fees—will need to increase at some point over the next five years.
It could be as soon as 2012 and could be as much as 18 percent.
Dave Busch, of Keystone Alliance Consulting in Ambler, told council that rates are in good shape at the moment, and the borough can make it through the year without any issues.
The goal of the study, he said, was to calculate what the rates would need to be each year during the next five years.
The analysis also addressed capital needs of the sewer system and made sure financing was in place to address those needs and rates were in place to address those projects.
“We want to make sure the system improvements are being made to keep up with the pace,” he said. “There are alternative rate structures to consider, but nothing’s pending.”
The current sewer rates include a $43 quarterly service charge per dwelling unit and a $4.71 usage charge per 100 cubic feet, or ccf.
That puts the average resident sewer bill at $115.06, based on usage of 17 ccf per quarter.
Busch’s study proposed three scenarios for council to consider for future rate increases.
The first scenario would affect rates for 2012 and 2013. It calls for a 4.2 percent increase in sewer rates: The quarterly service charge would be $45.88, and the usage charge would be $4.84, for a total $119.93 average residential bill per quarter.
“It isn’t strictly a 4.2 percent increase on all customers,” Busch said. “You adjust the rate structure a bit to get to a target of fixed and variable. If things are imbalanced, as you make adjustments, it’s normal for customers to curtail usage a bit.”
If things are out of balance, he said, and the borough implements a rate increase, people will curtail usage at a larger rate. Council then needs to react to the decrease in usage.
“You want to cover all service charges to cover fixed costs; variable costs are self-adjusting,” he said. “There are systems out there that have a complete fixed change and a complete variable change, and they suffer the consequences.”
The second scenario would affect rates for 2012 to 2014. It calls for a 12.2 percent increase in rates: The quarterly service charge would be $51.08, and the usage charge would be $5.10, for a total quarterly bill of $129.11.
The third scenario, the one that Busch recommended council consider when the time comes to make a choice, is split into two parts.
The first part would cover 2012 and 2013, and would be a 9.1 percent increase. The quarterly service charge would be $48, and the usage charge would be $5.07, for a total bill of $125.57 a quarter.
The second part would go into effect for 2014, and be a 8.2 percent increase. The quarterly service charge would be $53 and the usage fee at $5.42, for a total bill of $135.93.
“The increases are a little more balanced between customers,” Busch said of the third scenario. “You do not end up where customers on the lower end are upset by the increase than they would be now.”
Busch said customers who use less water will see a slightly higher increase in rates because the fixed and variable costs need to balance out.
All three scenarios put the borough’s reserves in the red from 2014 to 2016.
Included in the study is an allocation of fixed and variable costs for the sewer system that laid out the operation expenditures and revenues expected in 2011.
The required revenues from rates, after obligations and debts, is $2.67 million. That includes $913,914 in fixed costs (34.2 percent) and $1.75 million in variable costs (65.8 percent).
“In a perfect world, service charges produce enough revenue to cover fixed costs, and variable costs are covered by biometric charges,” Busch said.
The study also analyzed the capital plan for the sewer operations, funded by rates.
“What we make sure is our rates can cover projects, in addition to operating costs,” Busch said.
In 2011, total capital projects are $261,000. The number decreases to $208,000 in 2012 and down to $102,000 in 2013. By 2014, the number is projected to increase to $805,000, up to $930,000 in 2015 and down to $700,000 in 2016.
With a cash flow summary, the analysis totaled $3.5 million in expenditures, based on inflation, for 2011. Less penalties and other non-rate revenue, required revenues from rates total $3.43 million in 2011.
From 2012 to 2016, those numbers total $3.581 million, $3.580 million, $4.393 million, $4.633 million and $4.523 million.
Total projected revenues at current rates are estimated at $3.438 million for 2011 to 2016.
At the current rate, the borough is left with a $4,771 increase in reserves for 2011.
“From 2012 to 2016, we have deficits or decreases in reserves,” Busch said. “The bottom line is required cumulative increases in reserves are necessary.”
Under the current rates, the borough would have a decrease in reserves of $143,389 in 2012. By 2016, the deficit in reserves would be $1.085 million, calling for a 31.6 percent increase.
Under the first proposed scenario, the cumulative increase is 22 percent or more each year from 2014 to 2016. There would be a $22 deficit in 2012, a $588 increae in 2013, and $812,432 deficit in 2014.
Scenario two would bring slightly more in project revenues, and no cumulative increases in 2012 or 2013. Beyond that, increases would be between 14 and 17 percent between 2014 and 2016 in the reserves.
The third scenario offers cumulative increases between 8 percent and 11 percent between 2014 and 2016. In 2012, there would be a $168,445 increase in reserves and about $1,000 more in 2013. The years 2014 to 2016 would have deficits from $336,817 to $466,507.
“Here we are with the today’s base of reserves. We can build with the $168,000 and $169,000, and use the $168,000 and $169,000 to cover the $336,000,” said councilman Dan Dunigan.
During the council work session, Dunigan said council will continue to review the data provided by Busch.
“It clearly provides us with a benchmark the borough never had in making decisions about where things need to go relative to how to properly run a sewer department,” he said. “It will prove very helpful to us in the long term and short term as we continue to make plans.”