Multiple payment options up for consideration

Regardless of whether the Hannibal Board of Public Works (HBPW) Board chooses granular activated carbon (GAC) or reverse osmosis (RO) as the city's next water filtration system, paying for it is guaranteed to push water rates dramatically higher over time.

Bob Stevenson, general manager of the HBPW, told the city council last month that water rates could ultimately rise from 50 to 55 percent.

Rate hikes necessary to pay for the new system could start occurring long before a drop of water passes through the new system. Stevenson wrote in a memo distributed during the January meeting of the HBPW Board that the results of a new Cost of Service Study should be available in two or three months. At that time the HBPW “should know what the new rates will be so that we can begin making smaller adjustments as soon as possible to avoid the rate shock that is bound to come,” said Stevenson.

A big question ahead of the HBPW Board is how to divide the rate increase between the usage fee and customer charge. It is a strong possibility that not a great deal of the fee will be linked to usage.

“We know from experience that water unit sales are elastic, meaning as usage prices go up customers tend to conserve more,” said Stevenson.

The other funding option is the customer charge.

“The customer charge is not subject to usage amounts and represents that part of our bill that provides very stable revenue to the utility,” explained Stevenson. “A new GAC treatment plant is high in capital cost and high in operating costs. Good rate design requires that the capital cost which is fixed once the money is spent and must be paid back regardless or independently of water usage. So, it would be financially prudent and may be required by our lenders to repay the capital principal and interest through the monthly customer charge and to pay for the increased operations and maintenance costs through the usage charge.”

Presented last month to the HBPW Board for consideration were five different rate scenarios. They are based on whether a GAC or RO system is selected and the method of payment is either a 25-year lease or a quarter of a century bond. Also varied into the projections is which customer group – residential, commercial or industrial – will pay the bulk of the bill, or if it will be divided evenly.

Option 1 is the scariest for Hannibal residents since they would shoulder both the capital cost (paid through the meter charge) and operations and maintenance costs (paid through the usage charge).

Why assign the full burden to the public? The stated line of logic is because it was residents who sought the new treatment system, not commercial or industrial customers.

Under Option 1, depending on the treatment system and payment method, the percent increase would range from 60 percent (GAC and a 25-year bond) and 69 percent (RO and a 25-year lease). In terms of dollars and cents, the average monthly residential bill would increase between $19.91 and $23.05.

Other payment possibilities presented the board were:

Option 2 - Assign the capital cost to all meter charges and operations and maintenance costs to all usage charges, excluding large industrial customers.

Option 3 - Assign the capital cost to all meter charges and operations and maintenance costs to all usage charges.

Option 4 - Assign all costs (capital and operations and maintenance) to all meter charges.

Option 5 - Assign all costs (capital and operations and maintenance) to all usage charges.

 

Reach reporter Danny Henley at danny.henley@courierpost.com