The Chelsea Standard
A Heritage Newspaper
Weekly Publication
Water, electric rates to increase for city residents
City manager calls hike a 'necessary measure' at public hearing
By Jennifer McArdle, Staff Writer
PUBLISHED: March 2, 2006
Proposed water and electrical rate hikes were the topic of a public hearing Tuesday in Chelsea.
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Approximately 30 residents attended the hearing on the increase in utility costs, which are a "necessary measure," according to Chelsea City Manager Michael Steklac.
"We have some issues with our water fund and especially our electric fund," he said. "There's been some deregulation that's taking place in the electric industry and costs have risen significantly."
The cost of electricity is the biggest expense the Chelsea Electric Department faces, Steklac said, followed by health care and fuel costs. He said two years ago the cost of fuel increased 120 percent over the budgeted amount. And last year the cost to purchase electricity came in over budget.
In 2005, the Chelsea Electric Department retained Utility Financial Solutions to review the utility revenue requirements for 2006-2010 and to recommend electric rate adjustments. The results of that study show that the anticipated cost to provide electric service is more than the amount of revenue generated.
The amount of revenue required to provide electrical service to residences, businesses and city-owned properties is estimated at $6,638,506 for 2006, while only $5,771,277 in revenue is projected based on the current rates.
According to the study, the operating income for 2006 is projected to have a deficit of $416,280. When non-operating revenues and expenses are figured in, a net loss of $622,141 is projected for 2006. Those losses are expected to increase and possibly exceed $1.3 million in 2010 if no changes are made in the electric rates.
A 15 percent electric rate increase is proposed for 2006 with an additional 4.5 percent increase in 2007 and one percent increases in 2008 and 2009.
But Steklac said the new rates would still be a more affordable option for residents.
"Even though it's going to be a significant increase, we are still going to be far below Consumers and Detroit Edison for electricity rates. That's because we're not-for-profit," Steklac said.
The proposed electric rate increase would be the first increase in 16 years.
The additional revenue also would make it possible for the city to begin building a cash balance to improve the "fiscal health" of the budget, Steklac said.
"It's not a wise thing to operate any budget not having a fund balance because there are always going to be expenses that come up," he said.
The Chelsea Water Department is also proposing rate increases in the fixed monthly service charge and the volume charge. The current rate is $5.34 per 1,000 gallons of usage. The proposed water rate increases are expected to be phased in over the next three years. Under this plan, the rate would go up to $5.41 by volume in the first year, $5.48 in the second year and $5.55 in the third year. Water rates were last increased two years ago.
Wastewater charges would also go up. The current rate for wastewater is $3.04 per CCU. The proposed increase would bring residents' cost up to $3.13 in the first year, $3.26 the second year, and $3.40 the third year. Wastewater rates have not been increased for the past three years.
The impact of the utility rate increases will vary among households depending on usage. An example family of four with a three-fourths inch water system could be looking at an increase of approximately $18 per month based on water and sewer usage of 77,000 gallons per year and 14,786 kw of electrical usage annually. An example household that utilizes electric heating, water and air conditioning could see an approximately $22 monthly increase, depending on usage.
But former Chelsea village manager Jack Myers questioned the utility increases. Myers was not in attendance at the public hearing, but did submit a letter to the city council and the city manager offering a different perspective on the finances of the electric, water, and wastewater departments.
In the letter, Myers noted the electric department budgeted $351,000 for Payment in Lieu of Taxes (PILOT) to the city in 2005-06. He contends PILOT is not required by law and that money could instead be used by the electric department to help meet expenditures. He also suggests restoring the capacity of the wastewater plant to allow paying customers from new developments to use the sewer system, which could generate additional revenue in that department.
Some measures to cut electric costs are already underway. The city recently borrowed money to buy into high power transmission lines. Steklac anticipates that the city will save $6,500-6,800 per month by owning its own high power transmission lines.
"We believe that once that investment is paid off that our residents will take advantage of that savings and we'll be able to put it back into the system as far as lower rates and so on," he said.
Steklac said the new utility rates could go into effect immediately after the city council gives approval, which may not be until March. The City Council is not expected to make a decision without a full board present.
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