The City of Pocatello (City) conducts comprehensive rate studies for its water, wastewater, and sanitation utilities approximately every five years. The study included the development of five-year financial plans, cost-of-service analyses, and rate design for each utility. In addition, the City requested an update of their water and wastewater system capacity charges.
Revenue and expenditure projections for each utility were based on their City’s FY19 with significant input from Staff. Raftelis reviewed and developed the inflation factors with Staff’s input. Additional staff positions were included in the operating budget for each utility as well. Raftelis reviewed several iterations of the utilities’ capital plans including costs and timing options to help minimize rate increases. Raftelis developed revenue projections using detailed billing data by individual customer, adjusted for growth and anticipated changes in use (flows) per account. For the water utility financial plan, infrastructure upgrades to treated water storage and new wells were the key drivers for revenue increases – the City prefers to cash finance most capital projects. Revenue increases for the wastewater utility were driven by the new debt service payments for a recent upgrade and expansion to their wastewater treatment plant. Projected revenue adjustments were needed to fund a new administration building and significant investment in the collection system as well. The sanitation utility incurred additional unexpected costs because of the changes in the market demand for recycling material which required nominal revenue adjustments over the study period.
Raftelis updated the cost of service for each utility by reviewing previous cost allocations and system data. Raftelis held individual meetings with water, wastewater, and sanitation staff to ensure that costs were allocated correctly to maintain customer equity. Raftelis adjusted certain customer class rates to comply with the City’s rate policies and customer contracts. Unrecovered costs from the policy adjustments were reallocated to other customer classes based on their proportionate share of water demand and/or contributed flow. The sanitation cost of service included adjusting residential and commercial cart charges to recover the increased recycling costs. Rates were developed for each utility over a 5-year period from current rates to FY24 cost-of-service rates. Of importance to the City were a smooth transition of rates to minimize rate shock for all three utilities.
Raftelis also updated its system capacity fees. The City has sufficient capacity to serve new growth. Using the buy-in method, Raftelis calculated the replacement cost of existing facilities. The ¾” equivalent demands for water were calculated by evaluating multiple years of data and developing an average demand per day for a ¾” meter. Using historical production data and master plan data, Raftelis calculated a theoretical peak day demand to calculate the capacity charge. Wastewater capacity charges were calculated in a similar manner.
City Council expressed interest in reviewing the basis of the current outside City water and wastewater rate differentials. These rate differentials had been in place for well over a decade however, documentation on the calculations were not readily available. Raftelis applied a common approach to verify the differential for water and wastewater– a revenue requirement rate of return approach (similar to an approach for a regulated utility). Raftelis evaluated an additional approach for water based on a density factor. This approach assumes that that the distribution of outside City customers is less dense than inside City. As a result, outside City customers should incur a greater proportionate share of annual small distribution mains costs. This approach indicated that the City could support a rate differential of 1.1 to 1.3 times inside City rates.
