IU official on planned Bloomington water rate increase: “This is a rate shock to Indiana University.”

At its Tuesday meeting, Bloomington’s seven-member utilities service board (USB) voted unanimously, with one abstention, to recommend a proposal to the city council that water rates be increased starting in 2022.

Abstaining was USB member Jason Banach. He’s a former city councilmember who represented District 2 from 1996 to 2005.

Before the USB took up the item, Banach announced that his employer is Bloomington’s largest water customer, adding, “It’s out of an abundance of caution that I’ll be recusing myself from this discussion and abstaining from the vote.” Banach works for Indiana University as the university’s director of real estate.

It is the university that is likely to be the strongest opponent of the water rate increase.

The proposed water rate increase would come in two phases, in 2022 and 2024, with residential customers paying a total of 22 percent more over the course of four years. Customers would see higher bills starting in early 2022.

After the two phases are implemented, Indiana University, which is a separate class of customer, would pay 39.7 percent more than it does now. IU also pays for water as an irrigation customer, and all irrigation customers would see a 43.9 percent increase over the two phases.

At Tuesday’s USB meeting, Indiana University assistant vice president for utilities Keith Thompson told the board: “IU is not happy with a 40-percent rate increase, even though it’s coming in two phases.” Thompson added, “This is a rate shock to Indiana University.”

The higher increases for IU and for irrigation customers is based on a cost of service study, done by a city of Bloomington utilities (CBU) consultant, which says that residential customers have been subsidizing other classes of customers.

Director of utilities Vic Kelson had previously reported to the USB that Indiana University is not happy with the proposed rate increase.

If the city council approves the water rate increase as proposed, Thompson said, IU would likely intervene in the case that goes in front of the Indiana Utility Regulatory Commission (IURC). Any water rate increase would have to be reviewed by the IURC.

Thompson said the university would hire its own expert witnesses and try to work through the allocation process with CBU.

Thompson expressed some skepticism about the conclusions of the cost of service study. He told the board that earlier in his career he worked as a rate consultant. Typically, a rate subsidy would happen the other way around—the commercial customers would be subsidizing the residential customers, Thompson said. Thompson allowed he had not yet “gotten in the weeds on this case” to see if the opposite of the typical scenario had played out with the water rates in Bloomington.

Thompson also suggested that the capital improvement program to be funded by the rate increase could be slowed down a bit. He pointing to 2028 as a year when a lot of debt is rolling off CBU’s books. “Maybe we should delay some of these infrastructure improvements until after some of that debt has been paid off,” Thompson said.

Among the infrastructure improvements proposed by the CBU, in connection with the proposed rate increase, is an accelerated water main replacement program. The idea is to go from about 2 miles worth of pipe per year to 3 miles a year—to reach an eventual goal of having a program that replaces all the city’s water mains every 100 years. At the current pace, it would take 200 years to replace all the city’s water mains, which is longer than the expected life of a pipe, according to Kelson.

That would mean increasing expenditures for water main replacement from the current level of $1.7 million a year to $3 million a year by 2025.

CBU sees its water rate increase proposal as a kind of compromise, because it wants to implement the rate increases in two stages over the four years, not all at once.

In addition, the differential in the increases—between residential customers and others—would be even more, if CBU had proposed to eliminate all subsidies by residential customers in one rate cycle. To get to complete parity will have to wait for another rate cycle, Kelson said, which is planned for 2024.

Fees If Calibrated Just to Cost of Service

Proposed Fees

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 at the USB’s early-January meeting, “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.

At Tuesday’s meeting, Kelson was asked Kelli Witmer, director of Monroe County’s department of parks and recreation, why the cost of service is higher for irrigation. Kelson responded by saying, “Imagine the water plant is a factory, and it makes the amount of water that we need to supply our customers. If there were no irrigation [customers], the plant could be smaller than it is. And all the pipes could be smaller than they are, and all the pumps could be smaller than they are.”

It’s not a moral issue, Kelson said. It’s just based on the fact that to carry the additional capacity required by irrigation customers, CBU has to have sufficient infrastructure. Kelson said he too was concerned about the increase in rates for irrigation customers that was called for in the cost of service study: “When I saw the numbers for the cost of service analysis on irrigation, I choked on them, too.”

Because the straight-up cost of service analysis would have called for an even greater percentage cost increase for irrigation customers, a decision was made to limit the percentage increase for any one phase of the rate increase to 20 percent, Kelson said.

Kelson said Indiana University is CBU’s largest irrigation customer, followed by the city of Bloomington’s parks and recreation department, Monroe County Community School Corporation and Monroe County’s parks and recreation department.

CBU has set up a web page about the proposed water rate increase. It includes links to the following documents:

• Water Rate Case Fact Sheet 2021
• Water Rate Case Preliminary Revenue Requirements Report
• Water Rate Case Cost of Service Study 2020

The water rate increase is expected to be heard for a first reading on Feb. 3 by Bloomington’s city council with possible final action by March 3. CBU would file its case with the IURC by March 31.