Water Rate Study 1980
11 LS 0 N
COMPANY
ENGINEERS
ARC HITECTS j
ENGINEERS
Telex... 417808 VVILCOE SAL
ARCHITECTS
PLANNERS
918 827-0488
Office Location...
681 EAST CRAVVFORD AVE.
.
SALINA. KANSAS 67401
An Equal Opportuni"ty
Employer
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IV/ailing Address... P.O. BOX 1648
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SALINA. KANSAS 67401
October 1980
Mayor and Commissioners
City of Salina
Salina, Kansas 67401
Re: Salina, Kansas
Water Rate Study
WCEA File: 79-139
Mayor and Cow~issioners:
In accordance with your authorization, we have prepared and are hereby
submitting a two volume engineering report covering our study, analyses and
recommendations. The first volume is entitled Salina, Kansas, Water
Rate Study. Volume two, entitled Salina, Kansas, Water Rate Study
Supplement, is attached.
We gratefully acknowledge the assistance and cooperation of Dean Boyer,
Director of Engineering and Utilities; and other Water Utility personnel,
while compiling the information required for this study.
As your consultants, we would welcome the opportunity to meet with you to
discuss this report.
We hope this report meets with your approval.
..::1:N & COl"lPANY
~X~r
~C~//.
William E. Vaupel, Jr.
Attach.
-ciw
SALlNA.KS
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KANSAS CITV. KS
.
VVICHITA. KS
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ALBUQUERQUE. NM
SALINA, KANSAS
WATER RATE STUDY SUPPLEMENT
ENGINEERING REPORT
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OCTOBER 1980
(79-139)
11LSON
COMPANY
ENO.NaaR5
ARC H.TaCT5 t
PURPOSE
The Water Rate Study Supplement has been prepared to provide the City of
Salina Water Utility with an alternate method of increasing water rates.
It shows what adjustments in the rate schedule can be made annually to
produce the annual revenue requirements for 1981, 1982, and 1983.
IMPACT OF LARGE RATE INCREASE VS. MORE FREQUENT SMALL INCREASES
In the Water Rate Study the proposed water rate schedule is designed to
produce the revenue requirements for the five year period 1980-84. The
magnitude of rate increase (46 percent increase over the present rates)
required to produce revenues for this five year period is likely to have a
significant impact on the utility's customers. Therefore, the Salina Water
Utility may desire to have several smaller rate increases in this five year
period rather than one large rate increase. Customers seem to understand
and accept small increases much betterlthan large increases, even though
the small increases are more frequent.
ANNUAL RATE ADJUSTMENT
An annual rate increase can help to m1n1m1ze the initial impact rate
increases have on the utility's customers. Tables 1, 2 and 3 show the
proposed water rate schedules and represent annual rate adjustments for the
years 1981, 1982 and 1983 respectively. The proposed rate schedules have
been developed using the data, projections, and the same methods outlined
in the Water Rate Study. Each rate schedule is designed to produce suffi-
cient revenues to meet the revenue requirements for the year for which it
is proposed. Revenue requirements projected for 1981, 1982, and 1983 are
$2,184,600, $2,356,400, and $2,746,400, respectively.
When compared to the rate schedules proposed for 1982 and 1983, the largest
rate increase will occur when the rate schedule proposed for 1981 is imple-
mented. It represents an initial increase of 39 percent over the present
rates. Whereas, an initial 46 percent increase in the present rates would
be required to cover the revenue requirements for the five year period
1980~84 if the proposed rate schedule in Table 5-4 of the Water Rate Study
were implemented. The rate schedules proposed for 1982 and 1983 represent
more moderate increases of 7 percent over the previous year's proposed rate
schedule.
lR.n. Hardten, "Water Rates in Inflationary Times", Managing Water Rates
and Finances, AWWA, 1979, pp. 84-86.
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TABLE 1
SALINA, KANSAS
PROPOSED WATER RATE SCHEDULE FOR 1981
Rates Inside City
First 2,000 cubic feet @ $0.82 per 100 cubic feet
Next 4,000 cubic feet @ $0.70 per 100 cubic feet
Next 14,000 cubic feet @ $0.60 per 100 cubic feet
Allover 20,000 cubic feet @ $0.52 per 100 cubic feet
Monthly Minimum Charges
Size of Meter
Minimum Charge
Cubic Feet Allowed
5/8"
3/4"
I"
1-1/2"
2"
3"
4"
6"
8"
$ 4.10
7.00
10.50
18.00
28.00
54.00
94.00
164.00
294.00
300
600
900
1,500
2,400
4,800
8,400
14,400
25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the rates
inside City.
Minimum charge is two (2) times minimum charge for water consumed inside
City.
Rural Water District's minimum charge is 125 percent of inside City minimum.
Bulk Sales $10.00 minimum charge plus $3.50 per 1,000 gallons (or 134 cubic
feet).
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TABLE 2
SALINA, KANSAS
PROPOSED WATER RATE SCHEDULE FOR 1982
Rates Inside City
First 2,000 cubic feet @ $0.85 per 100 cubic feet
Next 4,000 cubic feet @ $0.80 per 100 cubic feet
Next 14,000 cubic feet @ $0.70 per 100 cubic feet
Allover 20,000 cubic feet @ $0.60 per 100 cubic feet
Monthly Minimum Charges
Size of Meter
Minimum Charge
Cubic Feet Allowed
5/8"
3/4"
I"
1-1/2"
2"
3"
4"
6"
8"
$ 4.40
7.40
11.00
19.00
30.00
57.00
99.00
175.00
310.00
300
600
900
1,500
2,400
4,800
8,400
14,400
25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the rates
inside City.
Minimum charge is two (2) times minimum charge for water consumed inside
City.
Rural Water District's minimum charge is 125 percent of inside City minimum.
Bulk Sales $10.00 minimum charge plus $3.50 per 1,000 gallons (or 134 cubic
feet) .
3
TABLE 3
SALINA, KANSAS
PROPOSED WATER RATE SCHEDULE FOR 1983
Rates Inside City
First 2,000 cubic feet @ $0.91 per 100 cubic feet
Next 4,000 cubic feet @ $0.83 per 100 cubic feet
Next 14,000 cubic feet @ $0.75 per 100 cubic feet
Allover 20,000 cubic feet @ $0.65 per 100 cubic feet
Monthly Minimum Charges
Size of Meter
Minimum Charge
Cubic Feet Allowed
5/8"
3/4"
I"
1-1/2"
2"
3"
4"
6"
8"
$ 4.70
7.90
11.80
20.00
32.00
61. 00
105.00
187.00
331. 00
300
600
900
1,500
2,400
4,800
8,400
14,400
25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the rates
inside City.
Minimum charge is two (2) times minimum charge for water consumed inside
City.
Rural Water District's minimum charge is 125 percent of inside City minimum.
Bulk Sales $10.00 minimum charge plus $3.50 per 1,000 gallons (or 134 cubic
feet).
4
SUMMARY AND RECOMMENDATIONS
Annual rate adjustments provide an opportunity for the water utility to
maintain its essential revenues during a period of inflationary co~ts and
to minimize the impact of these escalating costs on its customers. Annual
rate adjustments allow the utility to increase the rates each year rather
than having one larger increase to cover the costs of service for a period
of several years. Customer's tend to understand and accept small frequent
rate increases much better than less frequent large increases.
Based on this study of water rates and annual rate adjustment, the follow-
ing recommendations are made to the City of Salina Water Utility as an
alternative to Recommendation No. 1 - "Adopt the proposed water rate
schedule shown in Table 5-4" in the Water Rate Study:
1. Implement the proposed water rate schedule for 1981 shown in
Table 1 as soon as possible and prior to 1981.
2. Implement the proposed water rate schedule for 1982 shown in
Table 2 on January 1, 1982.
3. Implement the proposed water rate schedule for 1983 shown in
Table 3 on January 1, 1983.
4. Review the water utility's revenues and expenditures annually to
determine if the water rate schedule is providing adequate
revenues.
2John R. Shields, "Automatic Rate Adjustment", Managing Water Rates and
Finances, AWWA, 1979, pp. 147-148.
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RESOLUTION NUMBER 81-3533
(Published in The Salina Journal , 1981)
A RESOLUTION PROVIDING FOR THE RATES, FEES OR CHARGES FOR THE USE AND
SERVICES RENDERED BY THE COMBINED WATER AND SEWERAGE DEPARTMENT OF THE CITY OF
SALINA, KANSAS.
BE IT RESOLVED by the Board of Commissioners of the City of Sal ina,
Kansas:
Section I. That pursuant to Section 35-54 of the Salina Code the
following rates, fees and charges are hereby established for water furnished by
the Salina Water and Sewerage Department, to be effective with the first billing
after April I, 1981.
Rates Inside City
First 2,000 cubic feet @ $0.82 per 100 cubic feet
Next 4,000 cubic feet @ $0.70 per 100 cubic feet
Next 14,000 cubic feet @ $0.60 per 100 cubic feet
Allover 20,000 cubic feet @ $0.52 per 100 cubic feet
Monthly Minimum Charges
Size of Meter Minimum Charge Cubic Feet Allowed:
5/8" $ 4.10 300
3/4" 7.00 600
I" 10.50 900
1-1/2" 18.00 1,500
2" 28.00 2,400
3" 54.00 4,800
4" 94.00 8,400
6" 164.00 14,400
8" 294.00 25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the
rates inside city.
Minimum charge is two (2) times minimum charge for water consumed
inside city.
Rural Water District's minimum charge is 125 percent of inside city
minimum.
Bulk sales $10.00 minimum charge plus $3.50 per 1,000 gallons
(or 134 cubic feet).
Section 2. That pursuant to Section 35-54 of the Salina Code the
following rates, fees and charges are hereby established for water furnished by
the Salina Water and Sewerage Department to be effective with the first billing
after January 1, 1982.
Rates Inside City
First 2,000 cubic feet @ $0.85 per 100 cubic feet
Next 4,000 cubic feet @ $0.80 per 100 cubic feet
Next 14,000 cubic feet @ $0.70 per 100 cubic feet
Allover 20,000 cubic feet @ $0.60 per 100 CUJic feet
..
_'0.0.__.....,....
Monthly Minimum Charges
Size of Meter Minimum Charge Cubic Feet A 11 owed:
5/8" $ 4.40 300
3/4" 7.40 600
1" 11.00 900
1-1/2" 19.00 1,500
2" 30.00 2,400
3" 57.00 4,800
4" 99.00 8,400
6" 175.00 14,400
8" 310.00 25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the
rates inside city.
Minimum charge is two (2) times minimum charge for water consumed
inside city.
Rural Water District's minimum charge is 125 percent of inside city
minimum.
Bulk sales $10.00 minimum charge plus $3.50 per 1,000 gallons
(or 134 cubic feet).
Section 3. That pursuant to Section 35-54 of the Salina Code the
following rates, fees and charges are hereby establ ished for water furnished by
the Salina Water and Sewerage Department to be effective with the first bill ing
after January I, 1983.
Rates Inside City
First 2,000 cubic feet @ $0.91 per 100 cubic feet
Next 4,000 cubic feet @ $0.83 per 100 cubic feet
Next 14,000 cubic feet @ $0.75 per 100 cubic feet
Allover 20,000 cubic feet @ $0.65 per 100 cubic feet
Monthly Minimum Charges
Size of Meter Minimum Charge Cubic Feet Allowed:
5/8" $ 4.70 300
3/4" 7.90 600
1" 11.80 900
1-1/2" 20.00 1,500
2" 32.00 2,400
3" 61.00 4,800
4" 105.00 8,400
6" 187.00 14,400
8" 331.00 25,200
Rates Outside City
Water consumed in excess of minimum Is charged at 125 percent of the
rates inside city.
Minimum charge is two (2) times minimum charge for water consumed
inside city.
Rural Water District's minimum charge is 125 percent of inside city
minimum.
Bulk sales $10.00 minimum charge plus $3.50 per 1,000 gallons
(or 134 cubic feet).
'.
- -- "-"- --
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._.u._.....
Adopted and approved by the Board of Commissioners of the City of
Sal ina, Kansas, and signed by the Mayor this 2nd day of February, 1981.
Dan S. Geis, Mayor
(SEAL)
ATTEST:
D. L. Harrison, City Clerk
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JULY 1980
(79-139)
SALINA, KANSAS
WATER RATE STUDY
ENGINEERING REPORT
,t~ 'tt, i~'" -k I'~
Dan S. Geis, Mayor
Commissioners
Roy W. Allen
Keith G. Duckers
Karen M. Graves
Dr. Merle A. Hodges
Rufus L. Nye, City Manager
D.L. Harrison, City Clerk
L.O. Bengtson, City Attorney
Dean L. Boyer, Director of Engineering and Utilities
Wesley Morris, Supt. Water Plant
WILSON
t COMPANY
I EHGINI!.I!.RS j'
, ARCHIT~CTS
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TABLE OF CONTENTS
SECTION 1 - SUMMARY AND RECOMMENDATIONS
PURPOSE
SCOPE
RECOMMENDATIONS
SECTION 2 - WATER REQUIREMENTS
POPULATION
WATER CONSUMPTION
WATER USE CHARACTERISTICS
SECTION 3 - REVENUE REQUIREMENTS
GENERAL
REVIEW OF REVENUES AND EXPENDITURES
PROJECTED REVENUE REQUIREMENTS
SECTION 4 - ALLOCATIONS OF COSTS
GENERAL
ALLOCATION OF COSTS TO COST FUNCTIONS
UNIT COSTS OF SERVICE
ALLOCATION OF COSTS TO CUSTOMER CLASSES
SECTION 5 - DEVELOPMENT OF RATE SCHEDULE
GENERAL
FORMS OF RATE SCHEDULES
DEVELOPMENT OF STEPPED RATE SCHEDULES
PRESENT AND PROPOSED WATER RATE SCHEDULES
BILLING PROCEDURE CHANGES
EFFECT OF FUTURE CAPITAL IMPROVEMENTS ON
WATER RATES
Page No.
1-1
1-1
1-1
1-2
2-1
2-1
2-1
2-1
3-1
3-1
3-1
3-5
4-1
4-1
4-1
4-2
4-3
5-1
5-1
5-1
5-2
5-4
5-6
5-7
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TABLES
2-1 - HISTORICAL AND PROJECTED WATER REQUIREMENTS 2-3
2-2 - PROJECTED WATER USE CHARACTERISTICS FOR 1982 2-4
2-3 - CUSTOMER DEMAND CHARACTERISTICS FOR 1982
3-1 - WATER UTILITY REVENUES AND EXPENDITURES
3-2 - COMBINATION WATER, SEWER AND SANITATION
UTILITY ACCOUNTS
3-3 - PROJECTED WATER UTILITY EXPENDITURES
AND REVENUE REQUIREMENTS
4-1 - ALLOCATION OF COSTS TO FUNCTIONS
4-2 - UNIT COSTS OF SERVICE
4-3 - ALLOCATION OF COSTS TO CUSTOMER
CLASSES
5-1 - MINIMUM USAGE BLOCKS
5-2 - SUBSEQUENT USAGE BLOCK COSTS
5-3 - PRESENT WATER RATE SCHEDULE
5-4 - PROPOSED WATER RATE SCHEDULE
5-5 - PRESENT WATER RATES VS. PROPOSED
WATER RATES
PLATES
5-1 - WATER USE CHARACTERISTICS BY
CUSTOMER CLASSES
B
2-5
follows 3-1
3-3
follows 3-4
follows 4-1
4-3
follows 4-3
5-2
5-3
5-4
5-5
5-6
follows 5-2
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SECTION 1 - SUMMARY AND RECOMMENDATIONS
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PURPOSE
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The Water Rate Study has been prepared to review existing water rates and
then, based upon that historical review and projected future operation
requirements, to recommend a new water rate structure that will ensure a
continued "self-sustaining" operation of the City of Salina Water Utility.
The recommended new water rate structure is designed to provide the Salina
Water Utility with sufficient revenue from its operation to enable the
utility to:
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Provide adequate service to its customers,
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2. Maintain the water system and water treatment facilities,
3. Earn a reasonable return for preventive maintenance (replacement
and depreciation),
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4. Maintain a financial status as required to borrow money at rea-
sonable interest rates for expansion and replacement of water system
facilities.
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This revenue is to be developed from the rates assessed for water sold and
the services rendered by the utility to its customers.
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SCOPE
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The review includes: a summary of the water utility expenditures and
revenues since 1972; a summary of population, pumped and metered water
consumption since 1972; projections of previously mentioned parameters and
proposed changes in operating and accounting procedures through the year
1984. Also included are recommendations for changes in the water rate
structure as required to produce adequate revenue for operating costs and
capital costs.
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Previous capital improvements for which debt service has been issued are
discussed in earlier ~ngineering Reports and therefore, are not discussed
in further detail. '
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The year 1977 is considered representative of normal operating conditions.
Projections and calculations are based on the water usage and revenue for
that year.
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lWilson & Company, Salina, Kansas, Water Distribution Study, (1972).
2Wilson & Company, Salina, Kansas, Water Study 1968-2010, (1968).
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RECOMMENDATIONS
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Based on this study of water rates, the following recommendations are made
to the City of Salina Water Utility:
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1.
Adopt the proposed water rate schedule shown in Table 5-4.
2.
Establish a new account for annual preventive maintenance expenses
and for the amounts shown in Table 3-3 - Projected Water Utility
Expenditures and Revenue Requirements for 1980-84.
3.
Continue financing minor capital improvements through operating
revenues produced from water rates. Annual expenditures projected
for minor capital improvements are shown in Table 3-3.
4.
Establish a cost accounting system for depreciation of water
system facilities. Depreciation is discussed in Section 3 under
Review of Revenues and Expenditures. A study of the investments
in different types of water system facilities and the depreciation
rates applicable for each type of these facilities will be neces-
sary to realistically establish a cost accounting system for
depreciation.
5.
Establish a policy for billing a customer (who is provided water
service through meters connected in parallel) for the minimum
charge applicable for an equivalent size of meter. This is
discussed in Section 5 under Billing Procedure Changes.
6.
Review the water utility's revenues and expenditures annually to
determine if the water rate schedule is providing adequate revenues.
7.
Consider a change from monthly billing to bimonthly billing.
Bimonthly billing is discussed in Section 5 under Billing Procedure
Changes.
8.
Eliminate the $25.00 flat fee charged for tapping a water main
with a I-inch top. Establish a policy for charging a fee equal
to the actual cost for tapping a water main.
9.
Eliminate the $2.00 per frontage foot charge for extending water
service into newly developed areas. Establish a policy of charging
for such service on a basis that reflects actual costs to the
City.
1-2
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SECTION 2 - WATER REQUIREMENTS
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POPULATION
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Historical and projected population are summarized in Table 2-1 for the
years 1972 to 1979 and 1980 to 1984, respectively. A steady increase in
population has occurred in the City since 1972, from 36,609 to 40,916 in
1979. This trend should continue. A population of 42,400 is projected for
1982 and 43,400 for 1984. This population projection is based on current
information available from the City, previous studies, and the population
trend projected to exist during the study period of this water rate study
as developed by Wilson & Company.
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WATER CONSUMPTION
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Historical and projected water consumption are summarized in Table 2-1 for
the years 1972 to 1979 and 1980 to 1984, respectively. Water consumption
in Salina has been relatively constant since 1971, ranging from 123 gallons
per capita per day (gpcd) in 1972 to 138 gallons per capita per day in
1976. Annual metered consumption has increased from 219.25 million cubic
feet (mcf) in 1972 to 252.90 million cubic feet in 1979. This increasing
trend in total metered consumption is expected to continue, although the
gallons per capita per day consumption is expected to remain relatively
constant. For use in this Study, a constant water consumption of 127
gallons per capita per day will be utilized through 1984. Total metered
water consumption will be 262.76 and 268.96 million cubic feet per year
(mcfy), respectively, for 1982 and 1984. These projections are conserva-
tive to ensure development of sufficient revenue in abnormal years. Speci-
fically, if an unusually high precipitation year occurs, the quantity of
water normally sold will decrease and, therefore, the revenue collected
will decrease. However, during this same year the City's cost of operat-
ing, maintaining, extending the water system and retiring debt will decrease
little, if any.
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WATER USE CHARACTERISTICS
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There are three principal types of water users in Salina: residential,
commercial, and industrial. These water users have been divided into cus-
tomer classes that typically have similar water use characteristics, pri-
marily similar demand characteristics. The division of residential, com-
mercial, and industrial water users into customer classes having similar
water use characteristics provides an effective approach to determine the
cost of providing service to each customer class and the applicable rate
schedule to recover these costs from that particular class of customers.
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Water users have been divided into four customer classes: residential,
multi-family residential, commercial, and combined business. Based on the
number of customers and annual water usage, the residential customer class
is the largest class of users. The residential class consists of residential
meters inside and outside the City Limits, residential yard meters, yard
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meters, multi-unit yard meters, and commercial yard meters. The commercial
customer class, consisting of commercial meters inside and outside the City
Limits, is the second largest class of users. The multi-family customer
class, when compared to the other classes, has the lowest annual water
usage and consists of multi-family meters and commercial multi-family
meters. The combined business customer class has the lowest number of
customers and consists of combined business meters. These meter designa-
tions (i.e., yard meters) are currently used by the City to designate the
type of water user.
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2-2
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TABLE 2-1
HISTORICAL AND PROJECTED WATER REQUIREMENTS
Historical Water Requirements
1972 1973 1974 1975 1976 1977 1978 1979
Population 36,609 37,162 37,377 38,378 39,682 40,569 40,512 40,916
Water Pumped (mcfy) 273.58 284.06 293. 13 299.66 322.63 282.59 306.74 313.61
Percent of Water Metered 80% 79% 79% 77% 83% 87% 82% 81%
Water Metered (mcfy) 219.25 223.74 232.73 230.12 267.15 245 . 71 250.39 252.90
Per Capita Metered Water
Consumption (gpcd) 123 123 128 123 138 124 127 127
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w Projected Water Requirements
1980 1981 1982 1983 1984
Population 41,400 41,900 42,400 42,900 43,400
Water Pumped (mcfy) 316.74 320.57 324.40 328.22 332.05
Percent of Water Metered 81% 81% 81% 81% 81%
Water Metered (mcfy) 256.56 259.55 262.76 265.86 268.96
Per Capita Metered Water
Consumption (gpcd) 127 127 127 127 127
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Table 2-2 presents the projected water use characteristics for 1982. The
percent of totals for number of customers and annual water usage used to
project characteristics for 1982 were developed from 1977 water use char-
acteristics.
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TABLE 2-2
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PROJECTED WATER USE CHARACTERISTICS FOR 1982
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Number Percent Annual Percent
of of Total Water Usage of Total
Customers No. Customers (mcfy) Water Use
Residential 13,120 87.0% 144.52 55%
Multi-Family 588 3.9% 15.77 6%
Commercial 1,342 8.9% 60.43 23%
Combined Business 30 0.2% 42.04 16%
TOTAL 15,080 100.0% 262.76 100%
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Note: mcfy = million cubic feet per year
number of customers = no. of bills per month & no. of meters
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For each class of customers, the annual water use, demand characteristics,
number of bills rendered, and meters used and serviced annually are factors
that provide a measure of customer class responsibility. Table 2-3 pre-
sents the customer demand characteristics for the customer classes.
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TABLE 2-3
CUSTOMER DEMAND CHARACTERISTICS FOR 1982
Annual
Usage
(mcfy)
Average
Daily Usage
(mcfd)
Demand
Factor
(ratio)
Total
Demand
(mcfd)
Extra
Demand
(mcfd)
Percent
Extra
Demand
Maximum Day Characteristics:
Residential 144.52 0.40 3.25 1.30 0.90 71%
Multi-Family 15.77 0.04 2.75 0.11 0.07 5%
Commercial 60.43 0.16 2.25 0.36 0.20 16%
Combined Bus. 42.04 0.12 1.80 0.22 0.10 8%
TOTAL 262.76 0.72 1.99 1. 27* 100%
Maximum Hour Characteristics:
Residential 144.52 0.40 5.00 2.00 1.60 70%
Multi-Family 15.77 0.04 4.25 0.17 0.13 6%
Commercial 60.43 0.16 3.50 0.56 0.40 18%
Combined Bus. 42.04 0.12 2.25 0.27 0.15 6%
TOTAL 262.76 0.72 3.00 2.28** 100%
*1.27 mcfd x 365 days/year = 463.55 mcfy
**2.28 mcfd x 365 days/year = 832.20 mcfy
NOTE: mcfy = million cubic feet per year
mcfd = million cubic feet per day
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SECTION 3 - REVENUE REQUIREMENTS
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GENERAL
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The Revenue requirements of a publicly owned water utility are not generally
based on a rate of return, but on cash or budget requirements. The City of
Salina Water Utility is typical in this respect. The Salina Water Utility
is not operated for a profit, but attempts to recover sufficient revenue to
cover total operating costs and capital costs. Operating costs include
both direct costs of operating the system and costs of maintaining system
facilities. Capital costs include annual costs incurred with investment in
system facilities: replacement, extensions, and improvements of facilities.
Major capital investments are normally financed through debt service:
serial bonds whose retirement (payment of principal, interest, and stipulated
reserves) is provided for annually.
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In order to project future revenue requirements (the sum of operating costs
and capital costs) past revenues and expenditures must be reviewed and
analyzed for trends.
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REVIEW OF REVENUES AND EXPENDITURES
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Revenues and expenditures of the Salina Water Utility have been reviewed to
evaluate the financial results of the operations of the utility for the
years 1972 through 1979. Table 3-1 presents a summary of major revenue and
expenditure accounts for each fiscal year from 1972 through 1979.
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Revenue accounts show the revenues the utility derives from furnishing
water services and from services incidental thereto. Revenue accounts of
the Salina Water Utility include the following:
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"Revenue from Sale of Water" account includes revenues developed from
water sold to customers as determined from the rate schedule and metered
quantity of water.
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"Tapping and Frontage Footage" account includes revenues from assess-
ments for use of water mains by properties that were not using water on
September 13, 1954 and have not subsequently been in a benefit district. A
$25.00 flat fee is charged for tapping a water main with a I" tap. The fee
charged for other size taps are charged at cost. Whenever a person desires
to obtain water service to a property, not heretofore served with water by
the City, a fee of $2.00 multiplied by the front footage of the property to
be served is charged.
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"Interest on Investments" account includes revenues from interest
earned on investment of moneys held in any account which are not immediately
needed for the purposes of that account. For example, the moneys held in
the "Combined Water and Sewage System Depreciation and Emergency Replacement
Account", "Combined Water and sewage System Extension and Bond Retirement
Account", and "Reserve Account for Revenue Bonds" may be invested when
these moneys are not immediately needed. The latter accounts appear on the
"Balance Sheet" as "Liabilities".
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3-1
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TABLE 3-1
WATER UTILITY REVENUES AND EXPENDITURES
FOR YEARS 1972 THROUGH 1979
ACCOUNT
1972
1973*
19711
1975
1976
1977* *
1978
I 979lt';lC'
REVENUES;
REVENUE FROM SALE OF WATER $630,858 $965,013 $1,003,237 $1,0111,121 $1,110,578 $1,371 ,267 $1,530,516 $1,528,903
------- ~_._-_.-
TAPPING & FRONT FOOTAGE 12,171 6,810 19,3711 13,251 16,960 20,1911 19,7115 23,7011
---~-_..__._-~._-- --- _____c___
MISCELLANEOUS INCOME 11,091 2,086 8,259 20,3511 10,019 11,187 5,361 20,8113
I NTEREST ON INVESTMENTS 611,513 77,777
>--- ---
FIRE HYDRANT 81,135 33,701 --
-~
GAIN ON ADVANCE REFUNDING 186,816
TOTA l REVENUES $6117,120 $973,909 $1,030,870 $1,0711,726 $1,137,557 $1 ,1176,783 $1,8110,652 $1,651,227
EXPENDITURES:
OPERATING COSTS
WAT~R SUPPLY EXPENSES $ 7,0116 $ 10,221 $ 12,776 $ 21,3116 $ 25,197 $ 35,2911 $ 31,683 $ 35,680
----~---------------- ..~_.- ------- -
SOFTENING & TREATMENT EXPENSES 191,060 2011,010 280,758 299,61111 328,1182 350, I 711 1131,298 1193,3611
--1-- ~--- 1---- ---------- --- -'--------
PUMPING EXPENSES 117,969 52,11911 62,982 81,1119 88,1133 88,1150 96,398 113,6112
------- --
DISTRIBUTION EXPENSES BO,I38 103,616 96,2011 116,5116 109,360 II 1,6117 125,557 151_~
------- - _~__m___ ---- -
CUSTOMERS' ACCOUNTING & COllECTION EXPENSES 88,685 911,768 117,1187 1211,631 1311,879 1113,603 1115,762 159,791
,-.- -~._-_.__._- --
ADMINISTRATIVE & GENERAL EXPENSES 93,817 96,659 119,173 128,865 158,098 161,967 180,2116 196,8011
~--------------------
TOTAL OPERATING COSTS $508,715 $561,768 $ 689,380 $ 772,1151 $ 81111,11119 $ 891,135 $1,010,91111 $1,150,1122
CAPITAL COSTS
BOND & INTEREST EXPENSE $115,860 $113,660 $ 1111,170 ~_'1I,1I10 $ 1111,570 $ 117,310 $ 227,730 $ 212,770
1--------- - ___________u__________________ -~-- -+~---- -------
MINOR CAPITAL IMPROVEMENTS 81,280 97,11116 112,11711 2811,1117 '93,697 2811,352 199,063 60,332
1----- -------------______ ______
TOTAL CAPITAL COSTS $197,1110 $211 : I 06 $ 226,61111 $ 398,827 $ 258,267 $ 1101,662 $ 1126,793 1 273, I 02
TOTAL EXPENDITURES $705:855 $772,8711 $ 916,0211 $1,171,278 $1 ,102,716 $1 :292,797 $1,1137,737 $1,1123,5211
~T INCOME (OFLNET !-OSS)'
($58,735)
$201 ,035
$ 1111,8116
($96,552)
$ 311 ,8111
$ I 83 , 986
$ 1102,915
$ 227,703
-;{- WATER RATES 'NCREASE EFFECTIVE JANUARY I OF TIIAT YEAR
"* 7{ WATER RATES INCREASE EFFECTIVE FEBRUARY I OF TIlAT YEAR
SALINA, KANSAS
WATER RATE STUDY
WCEA FilE: 79-139
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"Fire Hydrant" account includes revenues from the resale of fire
hydrants to contractors for installation in extension projects.
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"Gain on Advance Refunding" account includes revenues or gain re-
sulting from redemption of a bond issue before maturity by a new bond issue
at conditions more favorable (i.e., lower interest rates) to the issuer
(City) .
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Expenditures consist of operating costs and capital costs accounts.
Operating costs accounts show the expenses for depreciation, taxes,
operation and maintenance applicable to furnishing water utility service.
However, the Salina Water Utility does not presently record any expenses
for depreciation. Operating costs accounts of the Salina Water Utility
include the following:
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"Water Supply Expenses" consist of utilities, well house, signals and
maintenance costs incurred in the operation of the supply wells and river
intake.
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"Softening and Treatment Expenses" consist of superv1s1on, labor,
supplies, chemicals, utilities, and maintenance costs incurred in the
operation of the water treatment plant.
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"Pumping Expenses" consist of supervision, labor, utilities, supplies,
and maintenance costs incurred in the operation of the water distribution
pumping stations.
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"Distribution Expenses" consist of superv1s1on, labor, vehicle, equip-
ment, tapping supplies; meter maintenance, salaries and supplies; mainten-
ance of distribution mains, elevated tanks, and hydrants; miscellaneous
materials and labor.
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"Customer's Accounting and Collection Expenses" and "Administrative
and General Expenses" are both combined accounts for the water, sewer and
sanitation utilities. The water, sewer, and sanitation share of these
expenses for each account are tabulated in Table 3-2. Only the water
utility's share of these expenses will be considered and shown in the
tables.
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3-2
COMBINATION WATER, SEWER AND SANITATION UTILITY ACCOUNTS
PERCENT SHARE OF EXPENSES
WATER SEWER SANITATION
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TABLE 3-2
ACCOUNT
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CUSTOMER'S ACCOUNTING & COLLECTION EXPENSES:
Office Salaries
Servicemen & Meter Readers' Salaries
Servicemen & Meter Readers' Supplies
Collection Stations
Maintenance - Office & Equipment
Postage
Miscellaneous Supplies & Expenses
Lease EDP Equipment
60%
100%
100%
60%
60%
40%
70%
60%
ADMINISTRATIVE & GENERAL EXPENSES:
Supervision
Salaries
Social Security
Employees Retirement
Insurance - Building & Accident
Sales Tax
Property Tax
Services Performed by Other Departments
Building - Maintenance, Utilities, etc.
Miscellaneous Supplies & Expenses
50%
50%
69%
69%
50%
100%
70%
50%
60%
50%
25%
15%
25%
25%
40%
20%
25%
15%
15%
20%
10%
15%
50%
50%
31%
31%
50%
30%
50%
25%
30%
15%
20%
Capital costs consist of a minor capital improvements account, bond and
interest expense account:
"Minor Capital Improvements" account includes the costs for con-
structing improvements and extensions to the water distribution system and
water treatment plant to the extent that such costs can be provided directly
from revenues.
"Bond and Interest Expense" is a combined water and sewer account.
The water utility share and sewer utility share of the bond and interest
expense are 54.2 percent and 45.8 percent, respectively. This account
includes expenses for bond principal payments, bond interest payments,
issuance costs, and interest expense.
Water utility revenues increased an average of 14.3 percent* per year from
1972 to 1979 and averaged $1,229.106 (Table 3-1). Expenditures averaged
$1,102,851 from 1972 to 1979 and fluctuated with an increasing trend of
12.6 percent* per year apparent. Operating costs steadily increased 12.4
*compounded annual interest
3-3
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rate percent* per year from 1972 to 1979 and averaged $803,658. Capital
costs remained relatively constant from 1972 to 1979 and averaged $299,193.
The water utility experienced net losses from its operations for the years
1972 and 1975. Net income (including net losses) for the period from 1972
to 1979 averaged $126,255.
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As emphasized earlier, depreciation is considered an applicable operating
cost; however, the Salina Water Utility currently does not record any
annual expenses for depreciation.
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Depreciation is the loss of value of water system facilities, not restored
by current maintenance, which is due to all the factors causing ultimate
retirement of those facilities. These factors include wear and tear,
decay, inadequacy and obsolescence. Depreciation cost accounting is usually
based on an annual percentage of the investment in facilities adequate to
return the original investment to the utility during the useful life of
those facilities.
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The annual percentage or rate of depreciation varies with expected service
life of each type of facilities (i.e., pumps, mains, elevated storage
tanks, etc). This results in different depreciation rates being applied to
different types of water system facilities.
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In the past the Salina Water Utility has had little or no money available
for immediate replacement of water system facilities that have either
expectantly or unexpectantly failed (because of wear and tear, obsolescence,
etc). In such emergencies, the utility has used funds available from the
"Combined Water and Sewage System Depreciation and Emergency Replacement
Account" established by the bond covenant.
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Implementation of a cost accounting system for depreciation would ensure:
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1. Funds are available to replace facilities as they are ultimately
retired.
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2. These funds are recovered annually and equitably through an
adequate rate structure.
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3. Minimal water rate increases due to costs for periodic and
sometimes unpredictable replacement of system facilities.
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An intensive study of the investments in different types of water system
facilities and the applicable depreciation rates for each type of
facilities is required to realistically establish a cost accounting system
for depreciation. A study of this magnitude is beyond the scope of this
report.
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Realizing the immediate need for a cost accounting system for depreciation,
it is recommended the Salina Water Utility temporarily add an operating
cost account for "Preventive Maintenance" until a cost accounting system
for annual depreciation has been established. The preventive maintenance
account is defined later in "Projected Revenues Requirement".
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3-4
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PROJECTED REVENUE REQUIREMENTS
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Development of revenue requirements is the first step in the rate design
process. Future revenue requirements are equal to the utility's projected
cost of providing service which is the total of projected operating costs
and capital costs. Projected water utility expeditures and revenue re-
quirements for years 1980 through 1984 are shown in Table 3-3. Expend-
itures, operating costs and capital costs, are projected based on a review
of historical revenues and expenditures and estimates of anticipated future
expenses due to changes in operation or the addition of new system facilities.
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The total revenue requirements developed in Table 3-3 are to be developed
from the sale of water and do not include any revenues from other income
sources. Other income sources include the "Tapping and Front Footage",
"Miscellaneous Income", "Interest on Investments", "Fire Hydrant", and
"Gain on Advance Refunding" accounts shown in Table 3-1. These accounts
are not included in the projected revenue requirements because their revenues
fluctuate widely each year and therefore they are not a dependable source
of revenue. Any revenue developed from these accounts would lower the
total revenue requirements shown in Table 3-3.
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Water utility operating costs are projected to increase 12.8 percent per
year from 1979 to 1984. From 1972 to 1979 operating costs increased an
average of 12.4 percent per year. The largest anticipated increases in
operating costs will be in energy related accounts (i.e., utility costs for
operating supply wells, followed by maintenance and supplies, and then
supervision and salaries). Energy related accounts are projected to increase
between 15 to 25 percent annually. Supervision and salaries (operating)
costs are projected to increase 7 percent annually. Maintenance, supplies
and other operating expense accounts are projected to increase between 10
to 15 percent annually.
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The following new operating cost account included in Table 3-3 should be
added to the water utility's system of accounts:
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"Preventive Maintenance" account includes the costs for labor and
materials used annually in performing preventive maintenance, constructing
replacements to the water distribution system and water treatment plant.
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Costs for preventive maintenance are estimated projected to remain a constant
$100,000 per year (Table 3-3). Water utility capital costs, are projected
to remain relatively constant from 1980 through 1984. Projected bond and
interest expenses are based on the schedule of debt service and sinking
fund requirements for 1978 series water and sewer revenue bonds. The water
and sewer utilities' share of bond and interest expense are 85 and 15
percent, respectively.
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No major capital improvements which would require new debt financing are
included for the period 1980 to 1984. Possible major capital improvements
and their impact on water rates are discussed in a later section of the
report. Minor capital improvements are estimated and projected to remain a
constant $300,000 per year.
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3-5
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In Table 3-3 year 1982 has been selected as the target year. The revenue
requirements for the target year (1982) represent the minimum (average)
level of revenue that must be produced to provide adequate service and
ensure a "self-sustaining" operation of the Salina Water Utility over the
next five years (1980-84). The revenue requirements and expenditures for
the target year are used in later sections of the report for allocations of
costs and development of a rate schedule.
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3-6
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TABLE 3-3
PROJECTED WATER UTILITY EXPENDITURES AND REVENUE REQUIREMENTS
FOR YEARS 1960 THROUGH 1964
ACCOUNT I 1980 I 1981 1982 "* 1983
EXPENDITURES .
198~
OPERATING COSTS
WATER SUPPLY EXPENSES $ ~3,~00 $ 52,800 $ 6~,~00 $ 78,600 $ 96,200
SOFTENING & TREATMENT EXPENSES 555,~00 628,500 709,300 802,000 908,600
PUMPING EXPENSES 12~,900 137,300 151,100 166,800 18~, 100
DISTRUBUTION EXPENSES 18~,300 202,500 222,500 2~5,~00 269,800
CUSTOMERS' ACCOUNTING & COLLECTION EXPENSES 178,100 192,000 206,800 22~,000 2~1 ,100
-- -.-----.--
ADMINISTRATIVE & GENERAL EXPENSES 221 ,200 239,000 258,~00 279,700 302,800
PREVENTI VE iotA I NTENANCE U 100,000 100,000 100,000 100,000 100,000
TOTAL OPERATING COSTS $1 ,~07,300 $1,552,100 $1 , 71 2 , 500 $1,896,500 $2,102,600
CAPI TAL COSTS
BONDS & INTEREST EXPENSE $ 333,~00 $ 332,500 $ 3~3, 900 $ 3~6,200 $ 3~3,800
-------- -
MINOR CAPITAL IMPROVEMENTS 300,000 300,000 300,000 300,000 300,000
---
TOTAL CAPITAL COSTS 633,~00 632,500 6~3,900 6~6,200 6"3,800
TOTAL EXPENDITURES $2,O~0,700 $ 2 , 1 8~ , 600 $2,356,~00 $2,5"2 700 $2 7..6...00
REVENUES:
TOTAL REVENUE REQUIREMENTS
-II TARGET YEAR
\H- NEW ACCOUNT
$2,0"0,700
$2,18~,600
$2,356,~00
$2,5"2,700
$2,7"6, ..00
SALINA, KANSAS
WA TER RATE STUDY
WCEA FILE: 79-139
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SECTION 4 - ALLOCATIONS OF COSTS
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GENERAL
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Total revenue requirements of a water utility are equal to the costs of
providing service (operating and capital costs). In providing service, the
water utility is required to supply water in amounts and at delivery rates
desired by the customer. The water utility incurs costs in relationship to
these operating requirements and the necessary investments in system
facilities required to meet customer needs. Since these needs or require-
ments for total volume of supply and peak rates of use vary among customers,
so does the cost to the utility of providing service to respective customers
or classes of customers.
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To assure equity in charges to different classes of customers, the actual
cost of providing service to each class must be recovered from that class.
Cost allocation procedures must recognize the specific service requirements
of each class of customers for total volume of water used, peak rates of
use, and billing related services. For example, a customer having a high
demand factor (i.e., a high peak rate of use as compared with their average
rate of use) requires larger capacity pumps, pipes and certain other system
facilities than a customer who has a comparable total consumption, but uses
water continuously at a uniform rate.
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The revenue requirements discussed in the previous section are stated in
terms of capital costs and operating costs. The method used in preparing
the proposed water rate structure is referred to as the "Base Extra Capacity"
method. All costs of service are separated into three functions: base
cost, extra capacity cost, and customer cost. Base costs are costs that
tend to vary with the quantity of water used plus those operating and
capital costs associated with service to customers under average load
conditions. Base costs do not include the elements necessary to meet water
use variations and resulting peaks in demand. The elements necessary to
meet water use variations are extra capacity costs. Extra capacity costs
include capital and operating costs for additional plant and system capacity
beyond that required for average rate of use. Extra capacity costs are
subdivided into costs necessary to meet maximum day and maximum hour demands.
Customer costs are costs associated with serving customers irrespective of
the amount of water used or maximum demand. These customer costs are
subdivided into costs associated with providing water meters and billing
services.
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ALLOCATION OF COSTS TO COST FUNCTIONS
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Costs of service, consisting of operating costs and capital costs, are
allocated to the three cost functions: base cost, extra capacity cost, and
customer costs. Table 4-1 presents the allocation of operating and capital
costs to the cost functions. Expenses that tend to vary with water usage
(i.e., power and chemical costs) are allocated to base cost.
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4-1
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TABLE 4-1
ALLOCATION OF COSTS TO COST FUNCTIONS
4CCOUNT
19B2
PROJECTEO
EXPENSE
COST FUNCT IONS
EXTRA CAPAC ITV COSTS
CUST~ER COSTS
BASE
COST
MAX IMUM
OAY
MAX I MUM
HOUR
METER
BILLING
OPERATING COSTS:
WATER SUPPLY EXPENSES
UTILITIES $ ~5,800 $ 45, BOO
MAINTENANCE & SIGNALS 18,600 8,000 $ 10,600
SUBTOTAL $ 64,400 $ 53,800 $ /0.600
SOFTENING AND TREATMENT EXPENSES
SUPER V I S I ON $ 36, I 00 $ 36, I 00
SA LAR I ES /32,000 56,800 $ 75,200
UTILITIES. SUPPLI ES & CHEM ICALS 507,000 507.000
MA I NTENANCE 34,200 I 4 .700 19,500
SUBTOTAL $ 709.300 $ 61 ~,600 $ 94,700
PUMPING EXPENSES
SUPERV I S I ON $ 35.300 $ 35,300
SALARIES 5~. 000 14.600 $ 39.400
UTI LI TI ES & SUPPLI ES 52 . 900 52 . 900
MIo I NTENANCE 8,900 2.400 6 500
SUBTOTAL $ 151.100 $ 105.200 $ 45,900
DISTRIBUTION EXPENSES
SUPER V / S ION $ 17,700 $ 17.700
SALARIES 97.900 26,400 $ 71,500
VEHICLE & EOUIPMENT EXPENSES ~ 18,800 " ,800 $ 1,500 2,100 $ 2,000 $ 1.400
TAPPING SUPPLIES 18,900 18.900
_.
~MA INTENA,!Ci~~~'!~ & SUPPLIES 19.700 19 700
MAINTENANCE 0lSTRI8UTION MAINS 33,200 9,000 24,200
MAINTENANCE - ELEVATED TANKS 4,500 1,200 1.600 1.700
MA I NTENANCE - HYDRANTS . B.800 5.500 700 /.000 900 700
MISCELLANEOUS MATERIALS & LABOR 3.000 BOO 2.200
SUBTOTAL $ 222, SOD $ 72 . 400 $ 3,800 $102.700 $ 41,500 $ 2.100
CUSTOMERS ACCOUNTING AND COLLECTION EXPENSES
OFFICE SALARIES $ 53.200 $ 53.200
SERVICEMEN. METER READERS SALAR IES & SUPPLIES 103.400 $103.~00
MA I NTENANCE - OFF I CE & EOU I PMENT 3,000 3.000
COLLECTION STATIONS & POSTAGE 15,100 15,100
--.-.---.---- ..
MISCELLANEOUS SUPPLIES & EXPENSES 16.700 16,700
LEASE EDPE 15.~00 15. ~OO
SUBTOTAL $ 206, BOO $103,400 $103.400
ADMINISTRATIVE AND GENERAL EXPENSES ..
SUPERVISION & SALARIES $ 24.500 $ 15,300 $ 2.000 $ 2 .700 $ 2.600 $ 1.900
SOCIAL SECURITY & EMPLOYEES RETIREMENT 65,200 40.700 5.300 7.200 7.000 5,000
INSURANCE 5B,200 36,400 4.700 6.400 6,200 4,500
TAXES 70.600 44, I 00 5,700 7.800 7,600 5.400
f---._- t--- --- ----- ---.--
BU I LO I NG EX PENSES 10.000 6.200 800 1,100 / ,100 800
--------- --
SERV ICES PERFORMEO OTHER DEPARTMENTS I 5 .700 9,800 1.300 1,700 1,700 1,200
MISCELLANEOUS SUPPLIES & EXPENSES 14,200 8.900 1,100 1,600 1.500 1,100
SUBTOTA L 258.400 161.400 20.900 28.500 27.700 19,900
PREVENTIVE MAINTENANCE 100.000 27 . 000 35.000 38,000
TOTAL-ALLOCATION OF OPERATING COSTS $1.712.500 $1,034,400 $165,000 $215.000 $172.600 $125.~00
CAPITAL COSTS:
MINOR CAPITAL IMPROVEMENTS
DEBT SERV ICE
TOTAL- ALLOCA TI ON OF CA PITA L COSTS
TOTAL:ALLOCATION OF REVENUE REOUIREMENTS
300.000 93 . 900 $ 60,300 $130.500 $ 11,700 3.600
343 , 900 107.700 69.100 1~9,600 13. ~OO 4,100
643.900 201,600 129.400 2BO, I 00 25./00 7,700
$2,356,400 $1,236,000 $294,~00 $495,200 $197,700 $133.100
· COSTS ALLOCATEO BASED ON THE PROPORTIONS OR
PERCENTAGES OF ALL OTHER OPERATING COSTS
SALINA. KANSAS
WATER RATE STUOY
WCEA FILE: 79-139
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Expenses associated with facilities are allocated on the design capacity
requirement of each facility. Expenses incurred for facilities designed to
meet maximum day demand requirements are allocated on the basis of the
maximum day to average day ratio of 2.3. Thus, 43 percent of these expenses
are allocated to base cost and 57 percent to maximum day extra capacity
cost. Expenses related to facilities designed to meet maximum hour demand
requirements are allocated on the basis of the maximum hour to average day
ratio of 3.7. This allocates 27 percent of these expenses to base cost and
73 percent to maximum hour extra capacity cost.
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Expenses related to facilities designed to meet both maximum day and maximum
hour demands are allocated 27 percent to base cost, 35 percent to maximum
day extra capacity cost, and 38 percent to maximum hour extra capacity
cost.
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Customer costs associated with providing, maintaining, and reading meters
are allocated to meter customer costs. Similarly, costs associated with
billing are allocated to billing customer costs.
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General and administrative expenses and all other operating costs (not
allocated as discussed above) are allocated on the basis or in the propor-
tions of all the other operating costs. For these expenses, 62.5 percent
are allocated to base cost, 8.1 percent to maximum day and 11 percent to
maximum hour extra capacity costs, and 10.7 percent to meter and 7.7 per-
cent to billing customer costs.
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The capital costs in Table 4-1 are allocated to the cost functions (base
cost, extra capacity costs, and customer costs) in the proportions resulting
from the allocation of the investment in all existing facilities to the
cost functions, These proportions or percentage distributions of capital
costs for existing facilities allocated to the cost functions are develo~ed
in Table 6 - Allocation of Capital Costs of the Water Distribution Study .
Thus, capital costs are allocated 31.3 percent to base cost, 20.1 percent
to maximum day and 43.5 percent to maximum hour extra capacity costs, and
3.9 percent to meter and 1.2 percent to billing customer costs.
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Allocation of revenue requirements to cost functions for the target year
1982 is the sum of the allocation of operating costs and allocation of
capital costs as shown in Table 4-1.
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UNIT COSTS OF SERVICE
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Table 4-2 presents a summary of total costs of service by cost functions
and the resulting unit costs of service. The unit cost of service for base
cost is the minimum unit cost of service, after recovery of customer costs,
applicable only if a perfect load factor use could be achieved (perfect
load factor is use of water at a continuous, equal rate
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lWilson & Company, Salina, Kansas, Water Distribution Study, (1972)
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4-2
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year around). Unit base cost provides a measure of the lowest potential
charge in a schedule of rates for firm service, an important guide in
preventing possible establishment of charges that could result in the sale
of water by the utility at below cost. This unit base cost per 100 cubic
feet is $0.47.
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TABLE 4-2
UNIT COSTS OF SERVICE
Operating Capital Total Unit Cost
Costs Costs Costs Units of Service
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Base Costs $1,034,400 $201,600 $1,236,000 262.76 mcfy $0.47 ccf
Extra Capacity Costs:
Maximum Day 165,000 129,400 294,400 463.55 mcfy $0.06 ccf
Maximum Hour 215,100 280,100 495,200 832.20 mcfy $0.06 ccf
Customer Costs:
Meters 172,600 25,100 197,700 15,080 mtr. $1.10jmtr.jmo.
Billing 125,400 7,700 133,100 15,080 bills $0. 74jbilljmo.
TOTALS $1,712,500 $643,900 $2,356,400
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Note: ccf = 100 cubic feet
mcfy = million cubic feet per year
mtr. = meter
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ALLOCATION OF COSTS TO CUSTOMER CLASSES
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Prior sections have allocated both capital and operating costs of service
to cost functions. Cost functions are distributed to each customer class
in proportion to the cost responsibility each respective class contributes
to the total cost of the customer classes served by the system.
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For each class of customers, annual water use, demand characteristics,
number of bills rendered and meters used and serviced annually are factors
that provide a measure of customer class responsibility. These water use
characteristics and customer classes are discussed in Section 2 - Water
Requirements.
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Table 4-3 presents the allocation of the total costs of service incurred by
the water utility to the customer classes in proportion to the cost responsi-
bility of each class.
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4-3
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-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
TABLE 4-3
ALLOCATION OF COSTS TO CUSTOMER CLASSES
EXTRA CA PAC /TY CUSTOMER
BASE
CUSTOMER MAXIMUM DAY MAXIMUM HOUR METER BILLING TOTAL
CLASS PERCENT COSTS PERCENT COSTS PERCENT COSTS PERCENT COSTS PERCENT COSTS COSTS
RESIDENTIAL 55% 679,800 7/% $209,000 70% $3116,700 87.0% $172,000 87.0:( $115,800 $1,523,300
MULTI-FAMILY 6% 7'1,200 5% 1'1,700 6% 29,700 3.9% 7,700 3.9% 5,200 131,509
COMMERC I A L 23% 28'1,300 16% '17,100 /8% 89,100 B.9% /7,600 8.9% " ,800 '1'19,900
'- _.~--- --
COMBINED BUSINESS 16% /97,700 8% 23,600 6% 29,700 0.2% '100 0.2% 300 25/ ,700
TOTAL /00% $1,236,000 I Oat. $29'1,'100 100%, $'195,200 /00% $1 97,700 100r. $133,100 $2,356,'100
SAlI NA. KANSAS
WATER RATE STUDY
WCEA FILE: 79-139
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SECTION 5 - DEVELOPMENT OF RATE SCHEDULE
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GENERAL
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Water rate schedules should be designed to recover the cost of serving dif-
ferent classes of customers while maintaining equity between the customer
classes. Proper rate development concepts do not take quantity discount
into consideration or advocate lower rates simply for water sold in larger
quantities.
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Rate design should recognize cost of supplying the amount of water used,
rate of use and costs involved in maintaining the customers account. Rate
design should also recognize that different classes of customers have
characteristic and measurable demand requirements on system facilities.
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FORMS OF RATE SCHEDULES
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Stepped rate schedules are based on the assumption that different customer
classes have identifiable water use characteristics. Water usage blocks
are developed so that the price of water reflects the true cost of service
to a customer. Blocks are sized to encompass the majority of water use by
anyone customer class. With stepped rates, the unit cost of water tends
to decrease with increasing water consumption.
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With inverted rate schedules, the blocks are designed so that the unit cost
of water increases with increasing consumption. Such rates are generally
attractive when water rationing is desirable. Inverted rates attempt to
decrease water consumption through the pricing structure. This type of
rate may have merit in temporarily solving an immediate problem; however,
in most water utility situations the shortage of water is generally the
result of inadequate facilities rather than an actual lack of water.
Shortage of water may occur in supply, treatment, transmission or distri-
bution because of inadequate or no action to expanded facilities (i.e.,
because such improvements would increase the cost of water).
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Flat rate schedules usually have a minimum charge to recover the customer
related expenses followed by a constant unit cost of water thereafter.
This rate is most applicable when most users have the same water use charact-
eristics. Flat rates are somewhat of a compromise between the stepped rate
structure and inverted rate structure.
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There are other types of rates that are variations or modifications of the
three discussed. The stepped rate approach to pricing of water best fits
the. needs of the Salina Water Utility. The water rate schedule developed
in this report utilizes stepped rates.
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5-1
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DEVELOPMENT OF STEPPED RATE SCHEDULE
Minimum Usage Blocks
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Minimum usage blocks are established to recover customers costs, base cost
and extra capacity costs incurred for providing service to the smallest
users. Table 5-1 indicates the minimum monthly cost that a customer with a
specific size of meter would be charged. For example, a customer having a
2-inch water meter and using 2,400 cubic feet or less in a given month
would be billed $30.00 for the minimum usage block.
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TABLE 5-1
MINIMUM USAGE BLOCKS
Meter~\- Minimum Minimum Usage
Size Usage Block Base Extra Cap. Costs Customer Costs Block Cost
(in. ) (cf) Cost Max. Day Max. Hour Meter Billing (Total Costs)
5/8" 300 $ 1.41 $ 0.43 $ 0.72 $ 1.10 $0.74 $ 4.40
3/4" 600 2.82 0.84 1.44 1.56 0.74 7.40
1" 900 4.23 1.26 2.16 2.61 0.74 11.00
1-1/2" 1,500 7.05 2.10 3.60 5.51 0.74 19.00
2" 2,400 11. 28 3.36 5.76 8.86 0.74 30.00
3" 4,800 22.56 6.72 11.52 15.46 0.74 57.00
4" 8,400 39.48 11. 76 20.16 26.86 0.74 99.00
6" 14,400 67.68 20.16 34.56 51. 86 0.74 175.00
8" 25,200 118 . 44 35.28 60.48 95.06 0.74 310.00
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*Meters 3-inch and larger in size are furnished, installed, and maintained
by that customer.
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Maximum day and maximum hour extra capacity costs are computed in Table 5-1
using an extra demand factor of 2.25 and 4.0, respectively. Minimum usage
block and meter customer costs for a particular meter size are based on a
ratio of the capacity of that size meter to the capacity of a 5/8-inch
meter.
Subsequent Usage Blocks
The usage blocks that control the charges for the rate schedules are de-
signed on the basis of water usage information of the respective customer
classes, derived from meter book and billing information from the City.
Subsequent usage blocks should include sufficient numbers of users and
sufficient volumes of usage to recover the costs attributable to that usage
block. Plate 5-1 shows curves that express the various levels of monthly
use per customer in a class as a percentage of the total water use by that
class.
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The first usage block, subsequent to the m1n1mum usage block, in the pro-
posed rate schedule allows a maximum usage of 2,000 cubic feet per month
per customer. In Plate 5-1 the curve for the residential class shows 90
percent of the total water usage of the residential customer class occurs
5-2
-------------------
PLATE 5-1
WATER USE CHARACTERISTICS BY CUSTOMER CLASSES
100
90
/'" - I /
/' ~ J
/ 7 /
MUL I- i
FAM LY
--/ CLA S '" / /
R SIOE~ IAI C ASp- ~
-
f----- -H~ INII IuM US .G _ lc K IR .L ~ ~31 -~!:~.. SI CON ~ l- I- ~ R U~GE OU J!! U<A(
61ES .~ E T B ~-J) ~-USAI E} OC B WK BL CI .-
-- - -- - -I- I V
- - --
J
1/ ,I J /
1-- .v- -- -- - -- - - -
J ~@ J COMBIN D Ii
BUSINE S
-- c--- - I- t! ~-- .- --- c- 1'1 A <1<1
RCIA . ---- / V
II CLAS ~ '7
..1--- -- --- ~- r--- - .- -II ~~-~ 1----- V .- - --~- 2 -. - --- I- -
/. I) /""
) a.
- ;/ l) c.- -~ f-- -/ --
.
--<" .-- ~ .- - '-
100
1,000
10,000
J 00,000
80
70
UJ
<.!)
~ 60
=>
..J
<X
I-
~ 50
"-
o
~ lJO
UJ
o
<>:
UJ
0.. 30
20
10
o
MONTHLY WATER USE PER CUSTOMER (CUBIC FEET)
SA LI NA, KANSAS
WATER RATE STUDY
WCEA FILE: 79-139
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in the first usage block. Similarly, the curves for the multi-family class
and commercial class indicate that 44 percent of the multi-family class and
only 11 percent of the commercial class use occurs in the (2,000 cubic feet
or less monthly usage) first usage block. Essentially, no combined business
class water use occurs in the first usage block.
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The second usage block, subsequent to the first block, in the proposed rate
schedule allows 6,000 total cubic feet per month per customer. This in-
cludes 76 percent of the water used by the multi-family class, the re-
maining usage of the residential class, and 30 percent of the usage in the
commercial class. Again, essentially no combined business class use occurs
in the second usage block.
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The third usage block, subsequent to the third block, in the proposed rate
schedule allows 20,000 total cubic feet per month per customer. This block
includes 94 percent of the water used by the commercial class, the re-
maining usage of the multi-family class, and 9 percent of the usage of the
combined business class.
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The final (fourth) usage block, subsequent to the third block, in the
proposed rate schedule accounts for all monthly usage over 20,000 cubic
feet per customer which primarily applies to the combined business class.
The final usage block also includes the remaining usage of the commercial
class.
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Table 5-2 shows the unit costs of service for each customer class that
should be recovered from the subsequent usage blocks. Since the first
usage block consists of primarily residential users, it is assigned the
unit cost of service for the residential customer class $0.85 per 100 cubic
feet. Similarly, subsequent usage blocks are assigned unit costs of service.
The second usage block, primarily multi-family, is assigned $0.80 per 100
cubic feet. The third usage block, primarily commercial, is assigned $0.70
per 100 cubic feet. The final (fourth) usage block, primarily combined
business, is assigned $0.60 per 100 cubic feet.
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TABLE 5-2
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SUBSEQUENT USAGE BLOCK COSTS
Customer Class
Unit Costs
Base
Cost
of Service ($ per 100 cf)
Extra Capacity Costs
Max. Day Max. Hour
Total
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Residential
Multi-Family
Commercial
Combined Business
$0.47
0.47
0.47
0.47
$0.14
0.12
0.08
0.05
$0.24
0.21
0.15
0.08
$0.85
0.80
0.70
0.60
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Applying the unit costs of service to subsequent usage blocks in the manner
just described will normally recover too much or not enough revenue.
Therefore, several trials using different unit costs are required to deter-
mine the rate most nearly matching the usage characteristics of the respec-
tive customer classes. The final proposed rates selected for each usage
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5-3
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block vary from the actual unit costs derived in Table 5-2 due to the
compromises inherent in developing the usage blocks and respective unit
costs for each usage block.
PRESENT AND PROPOSED WATER RATE SCHEDULES
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The present water rate schedule is shown in Table 5-3. It will not gener-
ate the revenue required to ensure a continued "self-sustaining" operation
of the Salina Water Utility for the next five years. The present water
rates will generate only 77 percent of projected annual revenue require-
ments for 1980, 73 percent for 1981, 68 percent for 1982, 64 percent for
1983, and 60 percent for 1984.
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The proposed water rate schedule is shown in Table 5-4. It has been designed
to generate from each customer class revenue sufficient to meet each customer
classes' cost responsibility and therefore, to provide sufficient revenues
to meet the revenue requirements.
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Table 5-5 shows a comparison of the revenue generated from the present rate
schedule, revenue generated from the proposed rate schedule, and the revenue
requirement (cost of service). The percent increase in revenue generated
from the proposed rate schedule is an indication of the percent increase in
a water bill that typically can be expected for a customer in one of the
customer classes when the proposed rate schedule is implemented.
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TABLE 5-3
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SALINA, KANSAS
PRESENT WATER RATE SCHEDULE*
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Rates Inside City
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First 2,000 cubic feet @ $0.56 per 100 cubic feet
Next 28,000 cubic feet @ $0.38 per 100 cubic feet
Allover 30,000 cubic feet @ $0.35 per 100 cubic feet
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Monthly Minimum Charges
Size of Meter
Minimum Charge
Cubic Feet Allowed
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5/8"
3/4"
1"
1-1/2"
2"
3"
4"
6"
8"
$ 2.90
4.50
5.65
9.45
11.60
21.50
112.10
160.15
182.00
300
500
600
1,000
1,100
2,000
25,000
30,000
30,000
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Multiple consumers served by a master meter are charged $0.56 per 100 cubic
feet for all water consumed in excess of the minimum.
5-4
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Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the rates
inside City.
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Minimum charge is two (2) times minimum charge for water consumed inside
City.
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Multiple consumers served by a master meter are charged for all water
consumed in excess of minimum at a rate 125 percent of the rate for multiple
consumers inside City.
Rural Water Districts' m1n1mum charge is 125 percent of the inside City
minimum and for all water consumed in excess of the minimum rate charged is
125 percent of the rate for multiple consumers inside City.
Bulk sales $2.10 per 1,000 gallons (or 134 cubic feet).
Hydrant rental outside City $25.00 per annum.
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*Effective February 1, 1979.
TABLE 5-4
SALINA, KANSAS
PROPOSED WATER RATE SCHEDULE
Rates Inside City
First 2,000 cubic feet @ $0.85 per 100 cubic feet
Next 4,000 cubic feet @ $0.80 per 100 cubic feet
Next 14,000 cubic feet @ $0.70 per 100 cubic feet
Allover 20,000 cubic feet @ $0.60 per 100 cubic feet
Monthly Minimum Charges
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Size of Meter
Minimum Charge
Cubic Feet Allowed
5/8"
3/4"
1"
1-1/2"
2"
3"
4"
6"
8"
$ 4.40
7.40
11.00
19.00
30.00
57.00
99.00
175.00
310.00
300
600
900
1,500
2,400
4,800
8,400
14,400
25,200
Rates Outside City
Water consumed in excess of minimum is charged at 125 percent of the rates
inside City.
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5-5
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Minimum charge is two (2) times minimum charge for water consumed inside
City.
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Rural Water District's minimum charge is 125 percent of inside City minimum.
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Bulk Sales $10.00 minimum charge plus $3.50 per 1,000 gallons (or 134 cubic
feet).
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TABLE 5-5
PRESENT WATER RATES VS. PROPOSED WATER RATES
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1982 Revenue
Requirement
and Cost of Revenue from Revenue from
Customer Class Service Present Rates Proposed Rates % Increase;'~
Residential $1,523,000 $ 975,500 $1,523,300 56%
Multi-Family 131,500 99,800 131,500 32%
Commercial 449,900 295,500 449,900 52%
Combined Business 251,700 237,500 251,700 6%
TOTAL $2,356,400 $1,608,300 $2,356,400 46%
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;~ypical percent increase in water bill for a customer in one of the
customer classes shown.
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BILLING PROCEDURE CHANGES
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Minimum Charge
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In several instances the City provides water service to a large volume user
through more than one water meter rather than one larger capacity meter.
Where more than one meter is installed these meters are connected in paral-
lel to measure a wide range of flows more accurately than is possible with
a larger meter having the same total capacity. A customer having meters
connected in parallel is billed the minimum charge applicable for only one
meter of the size installed. However, to ensure equitability among all
users this customer should be billed the minimum charge applicable for an
equivalent size of meter (a larger sized meter having the same total capa-
city as smaller sized meters connected in parallel). For example a customer
served by three I-inch meters connected in parallel should be billed the
minimum charge for a 2-inch (equivalent capacity and size) meter.
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Bimonthly Billing
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The Salina Water Department is considering billing customers bimonthly
(every two months) for water service instead of every month as presently is
done. For bimonthly billing, meters would be read less often; bimonthly
rather than monthly. Consequently meters would be inspected less often.
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5-6
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A change to bimonthly billing should reduce the annual expenditures as-
sociated with billing and meter reading. Also, to change from monthly to
bimonthly billing the present water, sewer use, and sanitation rate schedules
for monthly billing must be reviewed and revised for bimonthly billing.
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The proposed rate schedule shown in Table 5-4 is designed for use with
monthly billing and meter reading. For use with bimonthly billing and
meter reading, Table 5-4 must be revised as follows:
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1.
Change Rates Inside City to:
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First 4,000 cubic feet @ $0.85 per 100 cubic feet
Next 8,000 cubic feet @ $0.80 per 100 cubic feet
Next 28,000 cubic feet @ $0.70 per 100 cubic feet
Allover 40,000 cubic feet @ $0.60 per 100 cubic feet
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2.
Double Minimum Charge.
3. Double Cubic Feet Allowed for minimum charge.
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EFFECT OF FUTURE CAPITAL IMPROVEMENTS ON WATER RATES
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No major capital improvements (improvements requiring debt financing) are
included in the revenue requirements projected for 1980-84. However, minor
capital improvements (improvements financed directly from operating revenues)
are included in the revenue projections.
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The only major capital improvement project that is being planned at this
time and that may be constructed prior to 1984 is the expansion to the
water treatment plant. However, no definite time frame for completion of
the project has been established. This expansion is necessary to serve the
growing community of Salina's present and long-range water supply needs.
Presently and for the past several years portions of the water treatment
plant have been operated at near capacity to supply periods of continuous
peak day demands. The expansion would result in a 20 MGD treatment capacity
for all components and process units at the existing site.
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Additionally, the City has indicated continued interest in the long-range
water supply needs of the community. Several communities including Salina
have been considering, Kanopolis Reservoir and Milford Reservoir as possible
long range supply sources. The impact of the long range supply source for
the City should be addressed in order to assess the compatibility of addi-
tional treatment plant improvements with the long range supply sources.
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5-7