ORDER-2016-163 : Amending Melrose Revised Ordinances, Chapter 228, Article II, Section 228-15 (Water Rates Established), as set forth herein.

Transcript (~33 min @ 1:23:50)

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▶ 1:23:38 Speaker 2: You all have a memo in front of you that summarizes all this information that we're going to go through. So I'm going to go through it as quickly as we possibly can, just to open the floor for discussion. I think that's going to benefit everybody a lot more than just having me sit here and spew all this stuff to everybody in the room. But just real quick, just an overview, all the rate structures that are in front of you, all the options, they are meant to fund approximately $6.5 million from water rates and $8.7 million from sewer rates. That includes the operating budget that you heard about earlier on both the water and sewer side, but it also includes indirect costs. It includes the additional reserve funds that we're going to put into our reserves in fiscal year 17.

▶ 1:24:24 Speaker 2: Now, what that means is in order to fund those revenue requirements for fiscal year 17, we need approximately a 5% rate increase on water and sewer. This chart is basically showing, making up the 5%, what makes up that 5%. You can see on both water and sewer, a good chunk of those costs are MWRA costs. The next chunk is, next biggest is reserves, adding to your reserves. You are about to enter your fourth year of a five-year plan to get to 10% reserves. A quick note on that, one of the questions that we were asked last time was, what are other MWRA communities doing in terms of reserves? Now, we don't have information for every single MWRA community. We do have information for a good number of them, especially those that we are consultants for. and when we looked into this we saw a wide range of reserve levels but one thing that struck stuck out was that on both the water and sewer side on that you took on the municipalities that we looked at there was never less than 20 percent of reserves for either water or sewer interestingly enough on the sewer side it went up to 250 percent for one of the municipalities I'm not saying that's what we need to get to here that's for saving long-term savings for a big capital project that the municipality know they're gonna have to spend down the line it's just fiscal responsibility you're in a plan to get to ten percent and what you see here the reserves getting you know building up that five percent it's just one year closer to getting to ten percent so you know we spoke at length about the importance of reserves I'm not going to that again but you know I just wanted to bring to the table some of the information that we brought that we found we did not find a single community with less than 20 percent on water and sewer in terms of reserves and right now you're at less than 10 on both moving in the right direction though what I want

▶ 1:26:26 Speaker 2: to do quickly I know everybody has had a chance to read the memo you went through the rate options but I want to go through them just quickly at a high level open up the table for discussion for these the water and sewer committee actually presented to the Board of Aldermen as recommendations from the Water and Sewer Committee. But we thought it was important to provide all of the options to the Board of Aldermen. Some of these options came about from recommendations from this Board. Some of them came from things we heard from the public. Some came from Chris and I sitting around a table and discussing. Some came from the Water and Sewer Committee. We thought it was important to present all of these options to you. We really left no stone unturned in this process, and you'll see that from the different options that are on this and you have the impacts here from that one quick note all of these rate options will generate a the same revenue on the water and sewer side you can think of them as a revenue neutral zero-sum game really what you're looking at is the rates and the impacts do not concern yourself with the revenue all of them are going to generate the exact same amount of revenue and be able to fund the utility in fiscal year 20 or both utilities in fiscal year 2017 i'm going to run down the options quickly option one is maintaining the status quo it's basically taking your existing rate structure and increasing it by approximately 5% on both water and sewer to fund the revenue needs in fiscal year 17 the next two options 2a and 2b or something that we heard from both the public and members of the Board of Aldermen was looking at what a uniform rate structure would look like we ran both options two options one with uniform rate structure with a fixed component that you currently have and one without a fixed component just a solely volumetric uniform rate structure it is our opinion that neither of these options are viable because we think that they are they go directly against mass general law option three is increase the first tier cut off so right now the first tier is is cut off at 2,000 cubic feet a question was asked by one of the Board of Aldermen what would the the impacts look like if we were to increase that first tier cut off so we increased it from 2,000 CF to 2,500 CF and left everything else status quo you can see the end you have the impact schedules within the memo so you can see what the impact there that is option four and we actually have four a through four D we recalculated the fixed charges first thing we noticed when we came in and started looking at the existing rate structure was that the existing fixed charges were seemingly arbitrary in terms of how they were calculated and then also the differentials among the the meter sizes why you know a three inch meter was charged a certain amount more than than a five inch meter so what we did was we recalculated those to be more cost of service justified based on some awwa recommendations

▶ 1:29:42 Speaker 2: in addition to that we also noticed that the amount of revenue that the water and sewer funds were collecting from fixed charges was in our opinion too low currently water is recovering approximately 10 of all revenues through a fixed charge sewer is only about two percent um we went through a process of allocating costs to the fixed components and we determined that those percentages were much too low even the 10 on the water side they were much too low probably you know eventually you would like to get to somewhere maybe in the 20 25 range um to be a little more revenue stable to uh offset or mitigate the risk of a very cold and and wet summer um so but in order to get there uh if you were to get there in one fell swoop just a band-aid approach from from where we are now to getting to that 20 to 25 percent in one rate year it would cause what i would refer to as rate shock the impacts would be too large specifically on low volume customers from going from that low of fixed charge to that high of a fixed charge in that quickly quick of amount of time um so what we're recommending is excuse me um on the water side to hold steady at about 10 but recalculate the fixed charges to be more cost of service justified um but then on the fic on the sewer side start inching that up right like i said you're about two percent um we're recommending to get to about four percent in fiscal year 17 to increasing by two percent um go from two percent to four percent for fiscal year 16 to 17 the amount of revenue that you're recovering from fixed charges from the sewer utility so every rate option that you we're going to discuss from now on 4a through 7 includes those components of the fixed charges on both the water and sewer side so now just quickly the differences on 4a through 4d 4a leaves the volumetric rate structure exactly the same with the exact same tier cutoffs it just recalculates the fixed charge option 4b recalculates the fixed charges it maintains the exact same rate structure on the volumetric side but what it does is it assesses sewer rates based on 90% of water consumption rather than the current policy of a hundred percent of water consumption right now anybody within Melrose that does not have a second meter pays sewer rates on a 100% of their water consumption in when in reality not all the water that comes into a property leaves that property in terms of sewer so that 90 percent more accurately reflects the amount of flow that's leaving a property in in terms of sewer option 4c again recalculates the fixed charges maintains the exact same volumetric rate structure on the water side the same tiers but it calculates a uniform sewer rate there are no tiers on the on the sewer side it's just a uniform rate no matter how much you are assessed on in terms of water usage you pay one rate for the sewer and option 4d is similar to option 4c except it assesses sewer rates on 90 percent of water consumption rather than 100 option 5a and 5b excuse me um Again, we're recalculating the fixed charges, as I mentioned, and options, the four options. But we're decreasing the amount of tiers that you currently have from three to two. And we're leaving the first cutoff at exactly the same cutoff that it is in the existing rate structure at 2000 CF. It would just be up to 2000 CF is one rate, everything above 2000 CF is another rate, that's it there's not a third cutoff which there is in the existing rate structure the difference between 5a and 5b is in 5b the sewer rates are assessed on 90 percent of water consumption rather than 100 percent option six maintains the exact same rate structure recalculating fixed charges maintain the exact same rate structure that you have on the volumetric side but what it does is it collapses the differentials among the rates on the on the tiers it keeps the three tiers but it collapsed the differentials this was another um question or recommendation or inquiry that we heard from the board of alderman what if we were to do this we calculated what the rates would be and what the impacts would be of decreasing the differentials among the tiers and then option seven is uh what we're referring to as customer groupings um this was actually something that chris and myself brought to the table as another option something to consider basically what we did here is we thought of two different customer groupings i'll go with a simple nomenclature of small customers and large customers small customers or any customers that have five eighths and five eighths inch three quarters or one inch meter large customers are considered anybody else that has greater than a one inch meter um under this rate structure maintaining like i said before maintaining the fixed charges that i spoke about earlier but under the structure the small customers five-eighths inch three-quarter and one inch would have a two-tier rate structure similar to option 5a and everybody else would have a uniform rate if you have greater than a one inch meter you would have a uniform rate structure now what this does is it really segregates out better than looking at residential and commercial it segregates out by meter size which is a typically a better indication of water consumption characteristics or water demand characteristics uh your five inch inch three quarter and one inch customers are going to get your typically your single family residential homes but it's going to get a lot of your mom and pop shops downtown melrose things like that it segregates out the much larger users and it assesses them a uniform rate structure um When we first brought this to the committee, I was asked, is this your recommendation? Is this what you would go with? And my first answer was yes, but I asked some follow-up questions in terms of the timing, implementation, how long is this going to take to implement a rate structure like this, because it is somewhat significantly different than what you currently have breaking out customer groupings. Secondly, past implementation and the administrative burden, how comfortable do we feel about those customer groupings? How comfortable are we to feel that we're going to group the customers appropriately into the meter sizes? You're currently going through a meter replacement program. It was determined through some dialogue that it's probably not appropriate for this fiscal year, fiscal year 17, to implement a rate structure like this, given that you are going through a meter replacement program, and there's such a short period of time, and we're not going to be fully done with that meter replacement program. This should be something that definitely keep on the table. Keep it in our back pocket. about uh hopefully you know after this year we can do a full audit of uh after the meter replacement program is done do a full full audit of our customer groupings uh clean that up make sure that um you know all customers are categorized appropriately and then also with the meter replacement program do a an updated billing analysis to know how those customer groupings are using water and look at the characteristics and see if we need to make any changes so it is something that we're recommending we think would be good for melrose but But at this time, I don't think it's viable for fiscal year 17. We can certainly discuss it at length if you'd like to. I wanted to bring that up initially, though.

▶ 1:37:23 Speaker 2: I had intended to leave 4A, 4B, and 5A, and 5D, but I went through them already, so I apologize. But what I have here is exactly what you have in front of you for the four options that the Water and Sewer Committee put forth as recommendations from them. it's option 4a i'll go through this again recalculating the fixed charges maintaining the the same volumetric rate structure in both water and sewer option 4b and we can come back to this

▶ 1:37:57 Speaker 2: talk customer impacts in a second option 4b same rate structure but we're going to set sewer rates on 90 of water consumption rather than sewer rather than 100 excuse me option 5a reduce the tiers from three to two and option 5b reduce tiers from three to two but assess sewer rates on 90 of water consumption rather than 100 at this point uh i'd like to just open it up for discussion in q a just because you have had an opportunity to go through this memo and we are running a little over time and i just want to make sure we get enough time to have a full

▶ 1:38:42 Peter D. Mortimer: conversation thank you very much mr fox thank you we have before us from our agenda orders number four through eight inclusive are there any questions comments or motions from the alderman regarding those orders alderman's workout please thank you mr chairman

▶ 1:39:06 Michael P. Zwirko: um so uh i have a lot of questions uh but i do want to say first of all thank you very much for your work and this report um and also uh to those that served on the water sewer committee as well um so i don't quite know where to begin i'm probably going to have to ask questions more questions later but um so i do have a couple of um a couple of questions so we in in melrose we do it's all we we only have residential rates correct we don't have a residential and commercial rate set it's just residential no matter if you're in melrose you're paying that you pay the exact same rate no matter what type of customer you are that's correct okay um and of the menu of options that you provided us with I don't know if this could be done but I'm wondering if I'll use the term a la carte but I don't mean option eight would we be able to kind of take like a hybrid approach would say we like some things in option for a and couple that with up something in option six I mean is that something that's possible would that require additional study if we were to do that because i've noticed for example as my my colleague just pointed out only option three moves the tier cubic foot so the others don't so i'm just wondering like we might find something that that works in one option but don't like a part of it and then maybe take something from another that does i'm just is that possible i mean i guess essentially it would be creating a new option yes that's absolutely possible something as simple as just increasing a a tier cutoff from, say, 2,000 CF to 2,500 CF on, say, option 5A, rather than leaving it at 2,000. Something like that would be fairly simple to run. It would require additional analysis, but that wouldn't be of any length of time that it would take me to run that. I'm not saying that anything that you would come up with, I couldn't do in the amount of time, but I think most everything that you could come up with in a hybrid approach we probably could do in a reasonable amount of time to get you turn something back around to look at I appreciate that it's good to know and you had made a comment I don't have this verbatim but you said something along the lines of and this I believe this had to do with reserves you want to mitigate the risk of a cold and wet summer so the way I interpreted that is as much as we probably wouldn't like to have a cold and wet summer that'll mean I don't have to water my lawn and my shrubs as much so essentially what that means is water usage theoretically would go to her consumption would go down and and but so that leads me to believe that a drop in water consumption is a bad thing it's

▶ 1:42:01 Speaker 7: probably not it one of the the features of having a conservation rate and use that in the broadest sense is what you're trying to do is discourage non-essential use and there's probably 20 different definitions of non-essential in this room but it's generally use that's not public health and safety my lawn and shrubs are not essential though my wife spent a lot of time today actually planning a garden and maybe it's somewhat essential but they're not really essential for public health and safety and so the idea behind a conservation rate is to try to discourage that with a higher charge for those those uses that aren't as essential the problem with that is by charging that higher rate you get more volatility in the revenue so if as you said we have a cold wet summer people aren't going to water their lawns as much and it's the expensive water so a a five percent drop in consumption might mean an eight percent drop in revenues or a ten percent drop in revenues and so one of the things that you really need to have as I said there's a lot of different factors in there the stability of the revenue the sufficiency of the revenue conservation they often fight against each other and to to be able to have a conservation rate and stable revenues one of the best ways of doing it is establishing some sort of a stabilization reserve you can call it whatever you want but something there that's to do that now the reserves are also used for capital projects as dave said earlier there's some towns that are saving up for large amounts of capital that they know are coming and so they don't have a big bump in the rates at some point and they can start to phase them in in your case it's probably more related to having enough to for that cold rainy summer

▶ 1:43:56 Michael P. Zwirko: thank you for the clarity and you know i understand the volatility because uh regardless you know the comment was made earlier regardless of if we never use a gallon we're still going to have an assessment so I understand the need for you know a portion of our bills being fixed that way we have more ability to accurately forecast where we need to be and build reserves I just the way it came out I just wanted clarity so I appreciate that and then also in this study you had mentioned that you did a review going back the previous three years and that I I believe, annualized, the consumption has dropped in Melrose about 3% on average a year. Residential consumption, which makes up the majority of your customer classes is residential. It dropped by about 3% for the past three fiscal years annually. We know if you buy appliances these days, washer and dryers and washing machines, obviously they tend to be more efficient than they were 10, 20, 30 years ago. you know low flow toilets low flow shower heads things of that nature so to a certain extent the market is actually reducing consumption in the products that are available for purchase as well as you know all these lead buildings and things of that nature in addition I think that most residents are aware of the need to conserve I guess I don't want to be wasteful at this point but I just want to stress that you know it we actually do need usage for revenue as well and that's you know part of what we're building into this these rate structures as we go forward so I that you know that is an important point and I think that you know usage conservation is important But at the same time, we can't deny the fact that usage is as well. And then I did, so I had raised earlier that we only have a residential. So did we ever look into, or has it ever been brought up, potentially having a commercial and a residential rate? I don't think it's addressed in this plan, but in the meetings that occurred or any? We looked into establishing a residential and commercial rate structure. Historically, within municipalities, if they're going to break out different customer classes, you will see that sort of breakout or that nomenclature, residential and commercial. What we're finding is that that's not the best determination of customer demand characteristics. We're finding a lot of miscategorization within customer classes, a commercial customer being categorized as residential. It's not the best indicative measure for breaking out customers. That's why the one rate structure, option seven that I spoke about, where we did break out, we looked at the customer demand characteristics and found that meter size was actually a better characteristic to look at and parse the customer classes out by rather than the typical residential commercial.

▶ 1:47:04 Speaker 7: Just to expand on that a little bit, I think when you look at residential, clearly you've got single-family homes, probably got duplex, triplex, that type of thing as classified as residential then you get into a large apartment building with 20 units in it privately owned in there for profit for business the cost of water and sewer is treated differently by the owner of an apartment than it is a person in a single-family home you can't deduct a single-family home from your taxes for example your your cost of water and sewer if I own an apartment building I can and so there's a different net cost to me as a commercial owner than a residential owner you've also got the issues of buildings perhaps up and down Main Street where you have commercial space at the bottom and residences up above is that residential is that commercial and then within the commercial there's huge variations imagine the water use differences between a bank where it's probably close to zero or a restaurant or a car wash or a laundromat where within that commercial class there's huge variations and use and are they really all the same as a bank the same as a restaurant you know single-family home is probably much more like a two or three family home that a bank is like a restaurant and that's why we it gets to be difficult doing those classifications as residential commercial and doing it more on large small as measured by meter size is often better no and I and I do

▶ 1:48:26 Michael P. Zwirko: appreciate that and you know we hear this term all the time then we're 96% residential and 4% commercial so by all means if we were to you know create a split in the the rate structure I mean it's one isn't going to necessarily subsidize the other or if anything it would probably fall on the backs of the residents so I understand that it's just I know that other communities do have them I mean we certainly do that with tax rates I didn't know why you know we differed for water and sewer rates it's certainly something to think about the The other thing I did want to mention, I guess what I will do is I will just, it is broken

▶ 1:49:06 Michael P. Zwirko: down and all the options that you've laid forth in your memo, when it gets to the table on the extreme left-hand side, you have the increments of the cubic footage of water. And I just want to note for the record, approximately, if you look at the first four and you total those up you're looking at just over 79 percent of the bills fall into that category that is a significant amount of the percentage of bills that's almost 80 so four out of five bills fall into either 2500 cubic feet or less that's correct those are all the questions i had at this time

▶ 1:49:47 Peter D. Mortimer: thank you alderman Zwirko alderman Tramontozzi please thank you mr chairman

▶ 1:49:54 John N. Tramontozzi: ago um were you asked to or have you um done a calculation on what the municipal use of water cost would be do we know what you know what that figure is yes and what is that figure in total

▶ 1:50:10 John N. Tramontozzi: in terms of lost revenue or the the billing to the municipality the municipal use means the

▶ 1:50:15 Speaker 2: city approximately 270 280 thousand dollars okay i don't have the exact figure from it all right

▶ 1:50:23 John N. Tramontozzi: um and and the rate structure um that it isn't calculated with a reduction of that amount

▶ 1:50:37 John N. Tramontozzi: uh from the uh from the budget is that fair to say that is fair so um if if we were to go with the tier system um you're uh say 5a and 5b could you recalculate uh to the tier from 0 to 3 000 cubic feet for each of those and then greater than 3 000 feet is that something that could be easily done yes okay i think because that would bring more uh consumers into the first tier anyways so if you could do 3 000 i know my colleague suggested 25 let's see what 3 000 does i can

▶ 1:51:08 Speaker 2: run that and uh provide that to you as quickly as possible okay thank you that's all thank you

▶ 1:51:14 Peter D. Mortimer: alderman Tramontozzi alderman medeiros please thank you um i know i'm going to have some more

▶ 1:51:18 Monica C. Medeiros: questions and i'm not sure if those will later be better for um mr del russo and some of our in-house staff or not but in terms of this stuff um i i do want to sort of echo some of the things that alderman Zwirko mentioned in terms of commercial and residential rate and you know point out that we in melrose up up and you know to fy14 when we adopted the tiered rate system had had in fact a differential for residential and commercial usage and you know one of the things that i'm personally pretty concerned about and i've heard from you know a lot of residents um who are residents who live here and you know i mean as as we heard you know water and water is precious it may be kind of relatively inexpensive compared to that Starbucks coffee but we don't have to have the Starbucks coffee we have to have water and it is a utility so it's it's a utility for the people who who live here and who are our residents and so you know they're certainly some of my prime concern I I you know I appreciate all these different options I am particular I kind of liked the thought of option 7 until I really looked at, you know, we're looking, to me, when we're looking at meter size as the sole factor, I think it really does make a difference about whether or not people are living in the building and their residence, whether they be, you know, condo complexes and we have some units and buildings that are in the city that just, you know, economically it's not feasible for them to rewire their, you know, replumb their buildings that are, you know, concrete and, you know, 55 units. in a building we've got several you know I don't know if you've seen these if it matters but we have several you know correspondence from some of these associations where you know we see the individual usage of those units is really on average about you know I'm estimating but it's really about average about half of what we're using in a single-family house and so to say that their high volume user you know I I can't put them in the same kind of classification on that meter as you know as a laundromat and who can have an opportunity to recoup those costs so you know I I would like to see and I know there's a lot of options here so in terms of which one I'm you know I'm not sure at this point I think I'd like to see you know what some of the other options that the committee would like to see but maybe on the ones that you recommend an option that does split off commercial usage and residential usage you know it's it's something to me to you know we we switch to this system from what was you know to two flat rates one residential one commercial I'd like to know if you know if even just doing that as residential commercial would that satisfy the legal requirements to have increasing block rate and you know

▶ 1:54:30 Monica C. Medeiros: I'm I'm curious I know like you've said that in the the to the option number twos which are more uniform rates or alcohol and flat rates that uniform rates that in your opinion it's not in compliance with the law have you consulted with any one besides your organization to determine that like with

▶ 1:54:57 Speaker 7: the state at all yes I've talked to city solicitors in town attorneys and countless communities the wording of that section of the mass general laws is plain simple and clear there's no doubt what it says the implementation of it isn't that clear to reflect the higher cost of larger volume users that's sort of ambiguous what that does mean what and I've talked to the MWRA about this too the to be very frank with you the issue is one of political expediency the The Attorney General is the one that must enforce that element of the law. The Attorney General was running for Senate several years ago and wasn't in a position to want to enforce that law against anybody, and I don't blame her for not wanting to do that. I don't think there's an awful lot of interest in the current Attorney General to be enforcing it by anybody. It would probably take some sort of a citizen suit or a community suit to go ahead and do that.

▶ 1:56:04 Speaker 7: is not going to disenfranchise any of its communities by doing that. Their position is it's up to the Attorney General, not up to us, to enforce the laws. But the fact that there is a law, it's clear that it's there. And one of the places that did have an increasing block rate said, gee, the Attorney General is not enforcing it, why don't I go ahead and do it, I think is almost inviting a lawsuit. it's sort of a slap, go ahead, see if you can enforce the law type of thing. If that's the druthers of the Board of Aldermen, you certainly have the right and perhaps even responsibility to go ahead and do that if you feel strongly that you shouldn't have it and that the law is wrong and not evenly enforced to go ahead and do that. There's a cost to the people of Melrose to do that, and you'd have to talk to a city solicitor about you know the chances of winning something like that and the