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Presentation to Selectboard: Rates 101 and Kickoff Meeting

February 4, 2025 | Town of Brattleboro | Water and Sewer Rate Study

Mike Maker, Partner

Nick Short, Senior Consultant

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Presentation Agenda

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Challenges Facing Water and Sewer Utilities

Principles of Rate Setting

Rate Design: Fixed and Variable Charges

Brattleboro Water and Sewer Rate Study

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State of the Industry / Challenges

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AWWA State of the Water Industry 2024

Watershed/source water protection

Increase system resilience
Protect drinking water supplies

Financing for capital improvements

Federal (EPA, CWA, SDWA) and State (DEC, PUC, VDH, DWGPD) regulatory compliance (PFAS, lead pipes)
Pressure on rates and affordability

Renewal and replacement of aging water infrastructure

Depreciation and deferred maintenance
Repair and replacement reserve for buried assets

S&P Outlook for Municipal Utilities 2024

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1,2,3 was 5,3,1 Up from 5th in 2023

DEC = Department of Environmental Conservation

PUC = Public Utility Commission

VDH = Vermont Department of Health

DWGPD = Drinking Water and Groundwater Protection Division

1. The “why” is unique to each respondent; however, water needs have been highlighted with the passage of the Bipartisan Infrastructure Law. The Administration has pledged financial resources through this law to address lead service line replacement, PFAS, and protection of critical water bodies.

2. Compliance with federal (CWA, SDWA) and state (DEC, PUC, VDH, DWGPD) regulations continues to require more costly and complex distribution, collection, and treatment solutions. As a result, finding ways to pay for deferred maintenance and supply and treatment solutions required to comply with increasing regulations is impacting the bottom line of water and sewer utilities and the affordability of bills for customers. Compounding these costs is a loss of revenue due to declining water usage (and therefore sewage generation) per capita based on a variety of reasons such as conservation policies, energy-efficient appliances, and smaller household sizes.

Lead and Copper Rule (LCR) = compliance deadline of October 16, 2024

3. Buried infrastructure continues to age given that much of it was installed several decades ago, especially along the East Coast of the United States. Water and sewer main breaks have become a common daily occurrence.

Other issues

Aging workforce/anticipated retirements
Public understanding of the value of water and wastewater systems and services
Declining per capita usage and long-term financial health

Based on conservation policies, energy-efficient appliances, and smaller household sizes
High fixed costs and revenue volatility
Reserve policies

Affordability of customer bills and public education

The value of water, the rate-setting process, and why costs are increasing

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MHI, CPI, and Water and Sewer Service Increases

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From 2000 to 2023:

Median household income (MHI) increased 78% (2.6% per year)
Inflation (CPI) increased 71% (2.5% per year)
Water and sewer service costs increased 177% (4.7% per year)

Index: 2000 = 100; Bureau of Labor Statistics (BLS), Bureau of the Census

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Basic Principles of Water and Sewer Rate Setting

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Water and Sewer Systems Should Be Self-Sufficient

mitigate subsidies from the General Fund
customers pay costs of systems on basis of demand/usage

Objective is to Keep Rates and Fees Low Over Time

adequate maintenance funding to keep facilities in good condition to prolong useful life
adequate funding of reserves
rate and fee increases regularly, gradually, and smoothly

Someone Must Pay

most operating and capital costs are fixed
discounts/rebates for any group or class of customers means other customers must pay more

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Rate Study Steps / Financial Model Table of Contents

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Revenue Requirement

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Operating and Maintenance

Expenses

Current Debt Service

Cash Funded Capital Projects

=

Annual

Revenue

Requirement

New Debt Service

Reserve Contributions

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Rate Design – Pricing Utility Service

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Discouraging Use

Ease of Understanding and Implementation

Economic Development

Affordability

Encouraging Use

Detail and Equity

Existing Service Area

Revenue Stability

Rate design is largely influenced by policy objectives of the utility

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Rate Design – Fixed vs. Variable Costs

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Trend of long-term water usage (and sewage generation) declines

Conservation policies
Installation of low-flow fixtures
Decline in average household size
Economic downturns
Increased efficiencies in the use of water by industries or the loss of major industries

Therefore, many utilities are establishing policies to recover more revenue from fixed charges

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Fixed Rate Design – Common Charges

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Billing (or Customer) Charge

Cost Basis: cost of metering, billing, collection, contract administration, and accounting costs related to serving the customer
Typically, charge per bill and does not vary by meter size

Service (or Meter Charge)

Cost Basis: costs that vary with meter size (meter testing, repairs, replacements)

Minimum Charge

Cost Basis: billing charge and/or service charge
May include usage allowance that may vary by meter size

Advantages and Disadvantages

The higher the fixed charge, the greater the revenue stability
The higher the fixed charge, the more expensive service is for smallest users

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Rate Design – Common Variable Rate Designs

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Factors/Assumptions Affecting Brattleboro’s Charges and Rates

Operating and maintenance expense changes

Majority of expenses escalated by 3.0%

Capital improvement plans

investment in the treatment, distribution, and collection systems

Debt service

existing and future debt

Customer changes

no change in water or sewer customers per year based on future growth expectations

Water usage and sewage generation changes

no change in water or sewer usage per year based on future growth expectations

Miscellaneous revenue changes

0% increase per year

Reserve targets

minimum operating fund balance of 90 days (25%) of operating expenses
minimum capital reserve balance gradually built up to 2% of system value (50-year useful life) after 10 years

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Current Rates and Charges (effective October 2024)

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	Water	Sewer

Quarterly Base Fee
Meter Size
5/8"	$40.78	$49.70
3/4"	$61.18	$74.56
1"	$101.96	$124.26
1.5"	$203.89	$248.51
2"	$326.23	$397.61
3"	$652.46	$795.23
4"	$1,121.44	$1,366.80
6"	$1,376.29	$1,677.44
8"	$2,079.74	$2,534.79

Quarterly Usage Charge
Per 100 cubic feet	$2.96	$6.84

Quarterly Unmetered Use Charge
Single Tenement or Trailer		$68.29
Each Additional		$68.29

	Water

Annual Fire Line Charges
Connection Size
2"	$175.00
3"	$390.00
6"	$550.00
each additional 6"	$440.00
4"	$275.00
each additional 4"	$220.00
8"	$1,100.00
each additional 8"	$880.00
hydrant	$440.00

	Water	Sewer

Miscellaneous Fees
Permit Violation		$500.00
Permit Waiver Fee		$250.00
Permit and Inspection Fee		$35.00
Illegal Connection Violation	$100.00
Illegal Connection Waiver	$50.00
Illegal Discharge Violation		$100.00
Illegal Discharge Waiver		$50.00

Connection Charge	$1,000.00	$1,000.00

Turn-On / Turn-Off Fee	$25.00
After Hours Trip Fee	$90.00

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FY 2025 Combined Local Quarterly Bill Comparison

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9,000 gallons of usage

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Next Steps

Preliminary kickoff meeting with staff (January 9, 2025, Microsoft Teams)
Kickoff meeting with Selectboard (today, in person)
Status meeting to discuss revenue requirements with staff (TBD, Microsoft Teams)
Presentation of revenue requirements and preliminary required revenue adjustments (TBD, in person)
Status meeting to discuss preliminary findings with staff (TBD, Microsoft Teams)
Status meeting to discuss revised findings with staff, if needed (TBD, Microsoft Teams)
Presentation of the results of the study to the Selectboard (planned for Tuesday, April 15, 2025, in person)

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QUESTIONS?

MIKE MAKER

PARTNER�(443) 951-0355�mmaker@newgenstrategies.net

NEWGEN STRATEGIES AND SOLUTIONS, LLC

900 BESTGATE ROAD, SUITE 402,

ANNAPOLIS, MD 21401