Water, sewage study could see rates go up 2.8 percent in 2016

By: Joshua Gordon | Woodward Talk | Published April 23, 2015


FERNDALE — A recent water and sewage rate study by Plante Moran could see the rates in Ferndale go up 2.8 percent next year as the city looks to achieve a target modified working capital level in the next five years.

Brian Camiller, with Plante Moran, presented the findings of the study to City Council prior to the regular council meeting April 13. The goal, Camiller said, is for the city to have roughly $3 million of modified working capital, up from the current $2.5 million, to pay bills, debt and cover any emergency repairs.

“When we look at the modified working capital for your system, you only have about $2.5 million, and the target we are trying to achieve is closer to $3 million,” Camiller said. “In addition, there are increased costs coming our way from the Detroit Water and (Sewerage) Department and the county, so we take those into account with our own internal costs and debt service, and we want a smooth rate over five years.”

Plante Moran presented the council with a proposed rate plan that would see increases each of the next five years to achieve the $3 million target. The first year, in 2016, would be a 2.8 percent increase and would gradually rise until residents saw a 4 percent increase in 2020.

In 2015, residents paid $99 per 1,000 cubic feet, along with a $29 ready-to-serve charge issued quarterly. With the 2.8 percent increase, residents would be paying $101.82 per 1,000 cubic feet in the first year, with the ready-to-serve charge remaining unchanged.

The water rate actually would see a larger rate change at about 10 percent, Camiller said, but because of reallocated commodity rates, combined with a 0.9 percent decrease to sewage rates each year, the overall increase is less.

Currently, residents pay $49.50 each per 1,000 cubic feet for water and sewage, equaling the $99. However, Camiller said sewage is more expensive to treat than water, so the reallocated rates would be $33.17 for water and $65.83 for sewage.

With a 10.3-percent increase for water in 2016 and a 0.9 percent decrease for sewage, the rates would be $36.58 and $65.24, respectively.

“Sewer is always more expensive than water, so the cost of drawing clean water out of the river and running it through the treatment plant to become drinkable is cheaper than what we flush down our toilet to treat and put back into the river,” Camiller said. “According to the model, water should then go up 10 percent each year with sewage just about frozen, if not having a 0.9 percent decrease every year.”

The reason for the annual water increase, Camiller said, is that the city’s rates from DWSD increase each year. In total, the cost of water from DWSD is going up just more than 16 percent next year.

Because the DWSD is going to stop being a department of the city of Detroit to become a part of the Great Lakes Water Authority, Camiller added that the anticipated increase each year after 2016 is expected to be about 10 percent for the city.

In February 2014, City Council approved a decrease of 10 percent on water bills in the city after two years of no change. With the proposed five-year rate plan, the water bills would not return to 2012 levels until 2019, when the charge would be $112.58 per 1,000 cubic feet.

For a low-volume user, which Camiller described as a person living alone or a senior citizen couple, the increase would result in about $6 more per year in 2016. For a family of four, the increase would result in about $23 more per year.

Because numbers are always changing in water and sewage rates and treatment, Camiller said that while a five-year plan has been laid out, city officials would be best served by revisiting the rates each year to make any adjustments.

“With the results of the model, you would not recoup the money needed for the modified working capital in one or three years, but spread out over five full years,” he said. “That is not to suggest you set rates now for the full five-year period. You should have this same talk next year and revisit the rate model. It is always a moving target because things always change, and we don’t really know what will change with the water authority and the county.”

After the two-year study, Councilwoman Melanie Piana said she is pleased with the model and feels it provides more clarity for residents.

“At the conclusion of the two-year water study into how we manage our water system and how we pay for that, I feel really confident on what (has been) produced for this city and very pleased for the projections and where we are going,” she said. “One goal for council and staff is more transparency and clarity and consistency. This plan achieves those objectives.”

City Manager April Lynch suggested that the council approve the plan, but a decision will not be made until the budget process begins in the next few weeks.