The City of Wichita’s (City) water and sewer utilities serve over 140,000 customers and have combined annual rate revenues of more than $100 Million. Key issues facing each utility were ensuring adequate revenues to fund a 10-year capital improvement program ($400 Million for water, $300 Million for sewer) and reducing the rate revenue volatility associated with an aggressive conservation-oriented water rate structure.
The City has engaged Raftelis for a variety of utility financial management services from 2011 to 2017, including water and sewer cost-of-service studies in 2011 and 2015.
In 2011, Raftelis completed financial planning, cost-of-service, and rate design studies for the City of Wichita’s (City) water and sewer utilities. The City, which faces long-term water supply constraints, was an early adopter of an aggressive conservation water rate structure and was in the process of completing an ambitious aquifer storage and recovery program.
Raftelis’ 10-year financial plans featured the use of updated demand forecasting assumptions to project sales revenues; detailed debt service coverage ratio projections under a variety of revenue and expense scenarios; and the development of both cash and utility basis test year revenue requirement forecasts.
The water cost-of-service study included the development of a revenue requirement and associated unit cost of service for each of the City’s 23 water rate classes including inside city retail, outside city retail, wholesale treated water customers, and a wholesale raw water customer class. To mitigate rate revenue volatility, Raftelis’ water rate design featured the use of a readiness-to-serve adjustment that shifted revenue recovery from the volumetric to fixed charge component of rates. In addition, the volumetric rate design shifted a higher proportion of revenue recovery to the lower consumption blocks, which are associated with non-discretionary customer water consumption.
The sewer cost-of-service and rate design studies featured the development of volumetric rates and fixed charges for inside city retail, outside city retail, and wholesale sewer customer classes. In addition, Raftelis also developed extra strength surcharge rates for both inside and outside city customers.
In addition to water and sewer utility financial planning, cost-of-service, and rate design studies, Raftelis also developed a pro forma financial model for the City that allows them to compare budgeted to actual water and sewer rate revenues on a monthly basis for each of its many water and sewer customer rate classes. It allows the City to determine both the annual cash flow and debt service coverage ratio impact of deviations from budgeted rate revenues should they continue throughout the year.
In 2015, the City reengaged Raftelis to update the financial planning, cost-of-service and rate model. In addition to an update of the scope of work from the 2011 study and create a capital financing model to track project expenditures and sources of CIP financing.
Raftelis was engaged again in 2017 to provide review of a capital financing tool developed for the City and provide assistance with the City’s stormwater billing system.
