Chelsea State Bank ad

City of Chelsea utility rates: How are they set?

Chelsea logoThe Chelsea City Council’s rate study work session Tuesday, April 9, offered council members and residents an explanation of how their utility rates are set and what influences those rates.

Electric:

Good news to report on the electrical front.

Chelsea residents saw a 2-percent increase in 2008, a 5-percent decrease in 2009, no increase in 2010, a 5-percent decrease in 2011 and no increase in 2012.  This amounts to an overall 8-percent net decrease during those four years.

Chelsea City manager John Hanifan quoted a story in The Detroit Free Press that stated between 2008 and 2012, large electrical companies such as Consumer’s Electric and DTE, increased residential electrical rates 47 percent for Consumers customers and 28 percent for DTE customers.

City staff has kept expenses down and as part of an electric consortium, was able to lock the city into contracts for power that kept prices reasonably stable.

As the City Council budget process gets underway, a 2-percent increase in electrical rates is one of the proposals on the table.

“It’s an accomplishment that we’ve rolled back electric rates,” said Council Member Rod Anderson, who also asked a number of questions about proposed possible increases in both water and wastewater (sewer) rates.

In general, Hanifan said, the city’s goal is to meet 50-percent of the fund balance, which can be used for infrastructure maintenance, emergencies and replacement costs, but how soon the funds get to those goals is up to the City Council.

The exception, he said was for the electric department, where he feels comfortable if the reserve fund is at 25 percent.

Hanifan provided Council Members with a number of rate scenarios to show the changes that would take place in the fund balances as the budget process gets underway for the 2013-14 fiscal year.

Water:

One proposal under consideration by the City Council is a 3-percent increase in the city’s water rates. Chelsea logo 2

The water fund was in “rough shape” until the last several years, staff said. “It was barely breaking even.”

Hanifan explained that a large portion of both the water (and the wastewater) department’s proposed budgets is needed to ensure that bond debts are paid. Plus, he said, Chelsea’s water is naturally hard and requires treatment to soften it to acceptable levels for drinking, bathing, and washing. That treatment, which takes place using the city’s reverse osmosis system, is expensive.

“We’ve projected flat increases of 3 percent, 3 percent and 3 percent for the next three years,” he said.

Wastewater:

He said that about $1 million of the sewer fund’s $1.6 million budget is for debt service to pay off bonds for the city’s wastewater treatment plant and that once that debt is paid off, rates should stabilize.

The city is in the fourth year of a projected five-year rate model that called for 18-percent increases each year.

However, the proposal for wastewater is a 12-percent increase for the next fiscal year.

Ray Schmidt, water and wastewater superintendent, said about 150,000 gallons of water a day go through the wastewater plant. In addition, in both the water and the wastewater plants, the city is using about 50 percent of its capacity.

The city bases its utility rates on zero growth, Hanifan said.

“Your utilities, they cost what they cost,” the city manager said, not disputing that the rates are high.

Something to keep in mind is that enterprise funds – electric, water and wastewater – must pay for themselves by the rates that are charged.

Unlike the general fund, which is supported by city taxes, the utility funds are paid for by residential and commercial usage.

Print Friendly, PDF & Email

1 thought on “City of Chelsea utility rates: How are they set?”

Comments are closed.