Proposed water rate increase: current customers pay greater rate for new capacity than new development

Norman needs new water sources. Recognizing this, the City is proposing to spend $12 million for Water Well Field Expansion.

(Fig. 1: Text File for R-1415-60, which was passed by City Council on Nov. 25, 2014)

The $12 million dollars in new wells is supposed to provide 2 MGD (million gallons per day) of water capacity.

(Fig. 2: City Staff presentation to City Council Study Session, Sept. 30, 2014)

The new water well capacity is supposed to serve both existing utility customers and the water needs of new development. The City staff has determined that current customers need 75% of the new capacity (1.5 MGD), leaving 25% of the capacity (0.5 MGD) for new development.* Based on that understanding, $9 million toward the Water Well Field Expansion is built into the rate increase proposal citizens will be voting on January 13, 2015 and the remaining $3 million is supposed to be taken care of by the increase in the connection fee City Council passed on November 25, 2014.

The rate increase proposal was carefully and conservatively designed to generate at least the $9 million dollars budgeted toward increased water capacity. As a City of Norman utility customer, then, you will pay at least the full budgeted price for your part of the new water capacity.

Things are a quite different when it comes to the connection fee that new development pays.

(Fig. 3: Staff attachment, Agenda for City Council Meeting, Nov. 25, 2014)

Figure 3 shows the new connection fees the City Council adopted on November 25, 2014.** The rates for a basic ¾” connection are highlighted. It is very easy to see that the connection fee is insufficient to cover the $3 million price-tag for the 0.5 MGD being reserved for new development. The City figures that a basic ¾” connection requires 255 GD (gallons per day) capacity (see Figure 2 above).*** 500,000 GD divided by 255 GD per connection leaves 1,961 basic connections for new development. At even $1000 per connection, 1,961 connections only raises $1.961 million dollars. Given that the connection fee will only be $800 for the first year, the amount raised will only be something like $1.795 million.**** New development will either be getting $3 million worth of water for less than $1.8 million or (more likely) pay $3 million in return for 3166 connections, which amounts to 25% of the cost for 40% of the capacity.

The upshot of these calculations is that the connection fee provides water capacity to new development at a 40% discount over what the rate increase would charge current utility customers. That is a prime subsidy for the exact same product.

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* I have not seen how the City Staff determined this split, although I would like to see it.
** Although there are different rates for different connection sizes, the basic connection is ¾”; larger sizes carry more water and so the rates are determined by multiples of the basic connection, where the multiplier is determined by increased flow capacity. E.g., a 1” connection carries 1.67 times the water a  ¾” connection carries, so the connection fee for a 1” meter is 1.67 times the connection fee for a ¾” meter.
*** The 255 GD capacity per connection is a constant in City calculations. The 2060 Strategic Water Supply Plan, for example, figures that each person will use 145 GD and that the utility customer ranks will grow 1500 new customers per year. New demand, then, works out to be 217,500 GD after a year. Given that the City supposes there will be 832 ¾”-equivalent connections per year (600 connections, 87% of which are ¾”, 5% of which are 1”, 3% of which are 1.5”, and 5% of which are 2”), that works out to be 261 GD per connection (within rounding adjustments). Also, the City figures that the average current well produces a little less than 193,000 GD and that the average well supports 754 connections (City Council Study Session, Sept. 30, 2014). Again, that works out to be 256 GD per connection.
**** In footnote 3, I showed that the City estimates 832 ¾”-equivalent connections per year. (832*$800)+((1961-832)*$1000) = $1,794,600. Note also that the amount of water used for new development should only last 2.36 years (=1961 connections/832 connections per year).