Bloomington’s proposed water rate increase: Residential customers would pay 22% more, reducing but not eliminating subsidy to others

A proposed water rate increase by the city of Bloomington utilities (CBU) would have the average residential customer paying about $45 more per year in water fees by 2024.

The proposal got a first look from the finance committee of the city’s utilities service board (USB) at its Monday afternoon meeting.

The proposal that CBU is making, for all classes of water customers, will first go to the full USB, and eventually to the city council in February. After that, it will still need to get approval from the Indiana Utility Regulatory Commission (IURC).

The rate increase for Bloomington’s residential water customers works out to around 22 percent more than they pay now. That’s a smaller increase than for any other class of customer.

But the 22-percent increase is more than it would be, if the cost of service were distributed perfectly across all customer classes.

Residential customers now pay more than their fair share of the cost of providing water service, according to a cost-of-service study done by Indianapolis-based Crowe LLP.

The rate increase proposal from CBU would make progress towards reducing the subsidy provided by residential customers, but would not eliminate it.

Other classes of customers that are now subsidized by residential customers are: commercial, governmental, interdepartmental; industrial; wholesale; Indiana University; and irrigation.

As part of a planned 2020 case for a water rate increase, which has been delayed until 2021 due to the COVID-19 pandemic, the inequity between residential and other customers is supposed to be addressed—at least partly.

Director of the city of Bloomington utilities (CBU) Vic Kelson told the USB’s finance committee on Monday: “Residential customers are subsidizing all the other customer classes. So we want to eliminate that subsidy.”

If the subsidy that residential customers are providing were eliminated all in one step, it would still mean a 16-percent increase for residential customers—from $3.73 to $4.33 for every 1,000 gallons.

But if water fees were calibrated to the cost of service in a single step, other customer classes would see their rates increase by at least twice the percentage for residential customers: commercial, governmental, interdepartmental (31 percent); industrial (51 percent); wholesale (33 percent); Indiana University (40 percent); and irrigation (165 percent).

Indiana University is also CBU’s biggest irrigation customer, according to Kelson.

Fees If Calibrated Just to Cost of Service

So the CBU is not proposing that the inequity be eliminated all in one step. Two phases are proposed, one rate increase in 2022 and a second one in 2024. For neither phase would the rate increase for any class of customer be more than 20 percent.

Even after those two phases are implemented, an inequity would persist, between the residential customers and irrigation customers, Kelson said.

Chair of the USB finance committee Jim Sherman asked Kelson if he had talked with representatives of Indiana University about the proposed rate increase. “Did you get a feeling for their response? They’re not happy?” Sherman asked.

Kelson replied, “No, no, they’re not happy.” Kelson continued, “I don’t think anybody is happy about a rate increase.” He added, “I think this one’s a little bit more challenging to communicate, because we’re trying to correct for long-term inequity in the way the pricing has been structured.”

Getting residential customers all the way to the point where they’re paying just their fair share based on the cost of service is proposed to wait until the next round of rate increases, planned for 2024.

For residential customers this time around, it means after the second phase, instead of a 16-percent increase from $3.73 to $4.33 for every 1,000 gallons, they would see a 22-percent increase, to $4.54 for every 1,000 gallons.

As Kelson put it, “We’re able to bring all the categories into cost-of-service pricing after Phase 2, except for irrigation, and residential.” He added, “So irrigation will still be on the low side, and residential will still be on the high side.”

After the proposed rate increases, in actual dollars and cents terms, a 5,000-gallon-a-month residential customer would be paying a subsidy of about $1 a month for irrigation customers, Kelson said.

The IURC considers an average customer to be a 5,000-gallon-a-month customer, Kelson said, but an average CBU customer uses around 3,500 gallons.

After adding in increases for site charge and fire charge (from $5.89 to $6.58 and from $1.96 to $2.17) after the two phases of increase, a 3,500-gallon residential customer would see a monthly increase of around $3.74 in water fees—from $20.91 to $24.64. That works out to about $45 more per year.

Proposed Fees

The outcome of the cost-of-service study done by Crowe LLP out of Indianapolis was completed under a $140,000 contract approved in late 2019.

On Thursday, (Jan. 7) CBU is hosting an open house by Zoom video conference for water customers on the topic of the rate increase. [When that Zoom link becomes available it will be provided here: CBU rate case open house] [Updated Jan. 5. 3:45 p.m. The city has set up a web page with information on the water utility rate case.]

An estimated timeline for the rate increase decision was presented at the USB finance committee:

• Jan. 7 at noon. Open House via Zoom
• Jan. 11 at 4 p.m. USB finance committee
• Jan. 19 at 4 p.m. USB finance committee
• Jan. 19 at 5 p.m. USB final action
• Feb. 3 at 6:30 p.m. City council first reading
• Between Feb. 3 and March 3. City council committee review
• March 3. City council final action
• Before March 31. CBU files rate case with IURC