The Solvang City Council is one of the government agencies trying to find answers to tricky water questions. On Monday, they hosted a “kick off” to their water rate study. The city contracted with the consulting firm NBS|Local Government Solutions. The city is paying NBS $40,000 to take a comprehensive look at the rates the city charges its citizens for water.
Solvang has some of the highest water rates in the Valley; charging utility customers more than $3 per hundred cubic feet of water on top of a monthly charge that hovers around $100 depending on the size of one’s meter. The charge for a new connection to the city’s water and sewer can reach into the tens of thousands for a full-service restaurant. New business, hopeful to grow in Solvang, along with residents who feel burdened by the rates, raised concerns several times last year.
The city listened to those concerns and began the process of finding a consultant to take on the task of calculating fair rates for customers. Friday’s meeting gave NBS the chance to talk to the public and get input on their project. Jeanette Hahn, NBS’s lead consultant, said she wanted to start a dialogue with Solvang citizens so they could address questions they might have.
The lightly attended meeting was held in the City Council chambers, where about 15 people gathered. Chief amongst the concerns of the public was inter-generational equity. A complicated way of saying, individuals don’t want to pay for someone else’s share of the system. Residents wanted to know why they should be saddled with the full cost of a facility that could last long after they were gone.
Residents complained that asking them to pay the upfront cost of a piece of water infrastructure was unfair and asked Hahn to look at methods of spreading the cost over the life of the project. One of the ways NBS will determine cost is to look at projects the city is already planning for. Hahn said the first thing to do is look at documents the city has published outlining future projects they hope to accomplish. Then they would look at the actual cost to deliver water to customers, and finally at the long term cost of running the system. That would include things like repairs or even funding a system replacement.
The next step NBS will take is deciding how to fund the system fairly. Hahn said the goal of a rate adjustment is to treat everyone equally, and this could be accomplished many ways. The city could adjust their connection fees so people new to the city, payback some of the money rate payers already invested into the system. She likened it to the classic chicken-and-egg dilemma, because one has to create system capacity to allow new customers to connect, but money is needed to help expand the system.
One of the areas NBS will look at is Solvang’s fixed monthly charge. Even if a customer only uses one drop of water, the bill will be close to $90 a month. Prop. 218 requires a user’s demand on the system to be reflected on their bill. To better reflect use on a resident’s bill, NBS will look at implementing changes such as a tier-based rate structure.
Times, they are a changing
The question that loomed for Solvang’s water customers was, “Will my rates go up?” The answer to this question likely won’t be known until NBS has more time to gather information on the exact situation in Solvang. Its population hasn’t seen large increases and it was pointed out that the city is reaching its build capacity. That means the water supply likely won’t be growing quickly and that could lower rates, but Hahn added, while NBS tends to be conservative in its growth estimates “costs are always going up.”
That may not come as comforting news to Solvang residents, who hope the study will lead to lower cost. Hahn also said, “The objective is to create the lowest rate burden to the users.” She added that if rates did not increase, Solvang could be subject to substantial rate adjustments. “Big adjustments mean we have not achieved intergenerational equity. It should always be the goal to have smooth increases.”
To find the best rates, NBS looks to balance between saving for the future and keeping rates low. If a water supplier chose to fund its projects by raising all the cash beforehand, they would have higher water rates. Not saving any money would lead to lower rates but would deprive them of emergency funds – and they would be at the mercy of lenders. The best practice, according to Hahn, is to find equilibrium between savings and low rates.
Hahn explained that she would be looking at the best way to keep prices fair while still paying for needed improvements and planning for the future. Hahn said one of the hardest and most important things a utility must do is raise rates when they have money in the bank. The reason this is important is so they can build up a savings to invest in future projects. Hahn added that the city must carefully account for their cash reserves so the public can see what they are used for. The reserves must be designated for projects, or at least set aside for emergencies.
The first draft of the report will be issued on May 17. Following that draft, the city council will host another workshop on water rates June 14 and the final draft would be issued Aug. 16. After that final draft is issued, the council can make adjustments to the city’s water rates. Because of Prop. 218, the council must go through an exhaustive process to raise rates. First, it must notify the public of the intent to change rates 45 days in advance. Then Solvang residents may submit comments about the proposed changes. If more than 50 percent of residents submit negative comments, the changes are either halted or sent to a public vote. However, if less than 50 percent object, the modification will go before the council, who will have the final vote.