Johnson City, City of

Tennessee

RFC assisted the City of Johnson City (City) in developing a ten-year financial plan and program of water and wastewater rate adjustments to meet the anticipated requirements of a substantial wastewater capital improvements plan.  The City had not adjusted its water or wastewater rates in approximately ten years when it engaged RFC in 2003. Previously, the City had employed a short-term (one-year) planning process which implemented rate adjustments in reaction to annual capital and budget requirements.  As part of our assistance, RFC recommended modifications to the City’s water and wastewater rate structures to eliminate the minimum usage allowances and introduce base charges for both water and wastewater.  Additionally, RFC developed a plan to gradually eliminate the declining block wastewater volume rates by consolidating the declining block rates into one uniform volume wastewater rate over a ten-year period.  The elimination of the declining blocks was recommended to provide more consistency with current industry rate-setting practices, as the recent decline in the City’s manufacturing and industrial customer base no longer warranted a rate structure that provided incentives for large industrial wastewater users. 

The elimination of the declining blocks also allowed the City to phase out the current subsidy provided from the water utility to the wastewater utility and move towards a more financially self-sufficient wastewater utility.  Other recommendations involved implementation of a consistent outside-city differential for all rates and charges assessed to outside-city water and wastewater customers, and developing a program of rates and charges that would achieve a target level of debt service coverage of 1.20x in order to protect the utility’s financial position and access to debt markets.  RFC also worked with the City to determine the appropriate costs for providing potable water to wholesale customers under the Utility Approach to rate-setting and provided sample calculations of wholesale water rates for two potential types of wholesale customer contracts.  These customer types included a customer who would not require City water services on a consistent basis and a customer who would require City water services as its primary source of water and would agree to “buy-in” to a portion of the City’s available capacity.

RFC has been engaged by the City several times to update the rate and financial planning model.