The Wellington Village Council gathered with village staff members for a two-hour directions workshop to discuss utility improvement and rate plans on Monday, April 23. The workshop included a discussion about the results of a utility rate study in the village and suggested utility funding plans.
The rate study was designed to show the demand and revenue of Wellington’s potable water and wastewater utility services, in order to measure the appropriate funding necessary to not only continue providing these services, but to also be able to plan for necessary maintenance and gradual capital improvement projects for utility systems.
The last utility rate study conducted in Wellington was in 2009, when the village ended up with a breakdown of utility usage and revenue similar to this year’s study. The 2009 study allowed the village to adapt an annual index on utility rates.
“In the 2009 rate study, we had adapted an annual indexing of 2.5 percent, and we had borrowing planned in it for the year 2020 or 2021 of about $16 million,” Village Manager Paul Schofield said, referring to plans to gradually increase utility fees based on inflation. “Previous councils elected, for several years, not to do the indexing. So, as a result, our utility rates are $2.4 million dollars less every year than what they would be if we had done the indexing.”
The reason that the council put a hold on the 2.5 percent utility index was because of the recent recession’s impact on homeowners.
“I think it was the right decision at the time; it hasn’t tremendously impacted our utilities, and we’ve been able to keep up,” Schofield explained. “But it is now time in the cycle when we start looking at utility rates again, and how we are going to operate utilities in the next decade.”
Different from the 2009 suggestions, the main suggestions currently made by village staff, along with the Environmental Financial Group and the Public Resources Management Group, are that there be a 3.5 percent annual index implemented on utility rates, and that the council look to borrow $25 million instead of the previously planned $16 million.
Scott Harder, CEO and president of the Environmental Financial Group, has worked to track the village’s consumption patterns and audited financials in order to come up with a five-year funding plan for capital improvements and a five-year rate structure plan for water and wastewater services.
The goal, ultimately, is to fund the necessary $89 million for the village’s overall capital improvement plan — meaning all ongoing and future projects that will keep clean water flowing and safe wastewater systems functioning properly.
The idea of indexing utility rates at 3.5 percent is to make it possible to spread the cost of utilities evenly among consumers. Wellington’s utility consumers are 82 percent single-meter residential consumers, 13 percent commercial consumers (such as businesses) and 5 percent master meter consumers (such as renters and leasers). The increased index would keep utility rates near where they currently are, with some increase in costs for commercial consumers.
“With the 3.5 percent [index], utility rates are different, but they are well within manageable levels,” Schofield said.
From utility revenues, the village collects an annual $6 million available for project funding. Schofield explained that instead of $6 million, the village ought to aim for a number closer to $10 million, since the price of improvement projects has increased.
Considering the threshold of available funds for projects every year, and the high pricing of the improvement projects, the recommendation made to the council at the workshop was that the village borrow the $25 million while the market is right — more specifically, before the end of spring in 2021.
After Councilman John McGovern raised the question of why the borrowing is set out to that specific time and year, Schofield explained that the loan could also be taken out sooner than that date.
“In general, I don’t want to borrow if we don’t have to, but there are advantages to borrowing now, and because there are $34 million worth of projects currently on the books, there would be a refund resolution to repay those and be able to put the [borrowed and refunded] money into savings,” Schofield said.
The $34 million is part of the cost of the upcoming water and wastewater treatment plants projects, which are each predicted to cost around $17 million. The water treatment plant bids are expected to start in the beginning of May, but not expected to exceed the predicted $17 million expense.
The wastewater treatment plan is expected to exceed the cost of the water treatment plant by about $200,000, because of the more complex intricacies of treating wastewater. If the wastewater plant project bids result to be higher than anticipated, it may influence the timeliness of borrowing the $25 million loan, explained Director of Administrative & Financial Services Tanya Quickel.
Schofield added that the capital improvement plan is designed to keep the utility functioning at a high level.
“During hurricanes, our utility plants have never been down. Our water plants and our sewer plants work [during storms] — and that’s something that technology investment does for us,” he said. “We have pretty state-of-the-art technology designed to make sure that when you turn on the water in your kitchen, the water flows.”
Schofield also added that it would be in the best interest of the village to perform utility rate studies every couple of years, instead of every nine to ten years as in the past, to ensure that all utility costs are on the right track.
The council requested future advice from the experts on the perceived best time to borrow the $25 million, expressing the importance of borrowing while interest rates are low.