Oak Harbor looks at minimizing utility rate increase

The monthly rate Oak Harbor residents pay for city-provided utilities will increase over the next four years, but there is a little wiggle room for the rate hike to be minimized if the city council makes cuts to the various utility funds.

Council members discussed ways to control rate increases during a teleconferenced workshop Wednesday with Shawn Koorn of HDR, the city’s longtime consultant on utility rate planning.

Much of the rate increase is driven by the unanticipated costs associated with the new sewage treatment plant, he explained. The rates could also decrease if negotiations to connect the Navy to the treatment are successful, although the two sides are currently many millions of dollars apart.

“The key of the rate study, as we go through this, is really to make sure that we have sustainable long-term revenues for each of the utilities,” Koorn said.

The city collects monthly fees from ratepayers for water, stormwater, solid waste and wastewater, also known as sewage.

To reduce the need for future rate increases, Koorn proposed reducing the reserve fund for the stormwater and the solid waste utilities from the industry standard 25 percent to 20 percent. The reserve fund is used to cover unforeseen costs.

“There’s generally very little revenue variability in those enterprise funds,” Koorn said, “so we felt it was appropriate to drop that down to 20 percent of revenues.”

Koorn did not recommend reducing the reserve fund for the wastewater utility because of the debt services associated with the new sewage treatment plant.

“On the wastewater side, given the level of debt, I think it is appropriate to have that 25 percent of revenue reserve target just in case there is a year where you do have issues and you do have to draw from reserves to pay for annual debt service payment,” Koorn said.

For each of the four utilities, Koorn presented three options. The first option looked at the utilities with capital improvement projects delayed a few years. The second option would cancel plans to build an interpretive center in the sewage treatment plan as well as delay the projects.

The third would delay the capital improvement projects and delay the rate increases planned for 2020.

For the first option, the monthly total for all utilities for a residential customer was estimated to increase from $193.86 in 2020 to $225.39 in 2024.

For the second option, the monthly total was estimated to increase from $193.07 in 2020 to $222.24 in 2024.

And for the third option, the monthly total for utilities was estimated to increase from $184.58 in 2020 to $223.41 in 2024. However, this option would see a $25 increase in rates in 2021 to make up for the rates staying the same in 2020.

The second option would have the greatest impact on controlling the rate increase because it delays capital improvement projects and removes the interpretive center from the utilities’ funds. The interpretive center is supposed to be a place where visitors can learn about the sewage treatment plant and reclaimed resources.

“We’re not required to have an interpretive center, but we are required in each of the utilities to do public education and outreach” Public Works Director Cathy Rosen said. “We were hoping that we could have a really nice interpretative center and educate the public and that might just have to wait a few years.”

According to City Administrator Blaine Oborn, the city is continuing to meet with the Navy about negotiations to have the Seaplane Base connect with the sewage treatment plant.

“They’re really committed to negotiating with us, and we’re really committed to negotiating with them,” Oborn said, “but as far as the outcome it’s hard to predict. Even if we do come with a negotiation and settle on a rate, the implementation period may take some time.”

He estimated it could take years before the sewage connections could be established.

Councilman Bill Larsen, who was absent for the workshop, asked how the rates would be affected if the utilities cut 5 percent of their operating costs across the board.

According to Rosen, in order to remove 5 percent the utilities would have to cut staff, but she said the staffing levels are currently at a minimum. She added that the Department of Ecology requires the sewage treatment plant to maintain its current staffing levels.

“They want to make sure that we have appropriate staffing levels to operate the plant as well as perform the necessary ongoing maintenance on the facility,” Rosen said.

Councilman Jeff Mack asked if surplus funds from other departments could be transferred to a capital improvement fund.

Finance Director Patricia Soule said they could not transfer funds.

“Governmental accounting requires fund-based accounting, each type of fund must balance within that fund,” she said. “Each utility must operate as a separate entity.”

The utility rates will be further discussed at the next April council workshop and will be decided on in May.

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