Stantec consultant Danica Katz presented a financial plan and follow-up cost-of-service analysis to the Kalamazoo City Utility Policy Committee on Aug. 14 that recommended a 5% overall rate increase for the water system in 2026.

The study used the city’s FY2025 budget as the baseline, assumed 1.1% annual customer growth and a 10-year capital program with annual capital needs of about $40 million to $80 million (modeled at 75% execution). Katz told the committee the consultant team was modeling an overall 5% revenue increase for 2026 and testing three ways to distribute that revenue across customer classes to move each closer to full cost recovery.

Why it matters: the committee must balance system financial stability, regulatory obligations and evolving meter and customer data. Staff and consultants said the largest driver of revenue needs is capital spending for station reliability, lead service line replacement and a ramp-up of smart meters; the panel set a schedule to consider a UPC recommendation in September and to take rates to the city commission at the two October meetings ahead of the election.

Key findings and assumptions
Stantec said the financial plan uses FY2025 operating figures and year-end estimates for FY2025 rate revenue, adds roughly three full-time equivalents for 2026 in the model, and includes existing debt-service payments plus the city’s 10-year CIP executed at 75% in the forecast. Katz summarized the recommended change as a 5% systemwide revenue increase for 2026 and showed alternatives for allocating that revenue among single-family, multifamily, commercial, industrial and seasonal classes.

Cost-of-service results and options
The cost-of-service snapshot showed that a straight application of the model (Option A) would produce larger increases for single-family customers (roughly 9.2% to reach full cost recovery in that class) while industrial and seasonal classes would show slight decreases. Stantec offered Options B and C as alternatives that still yield 5% system revenue but smooth the impacts among classes.

Staff recommendation and rationale
James Baker, City of Kalamazoo public services director and city engineer, said staff’s recommendation was Option B, a “slowest/most muted” path that moves customer classes toward proportional cost while recognizing data limitations and expected refinements. "From a staff perspective, I would recommend option B," Baker said, citing ongoing improvements in billing and meter data and an upcoming commercial-account audit and RFQ.

Data limits, meters and nonrevenue water
Committee members pressed the presenters on data sensitivity: seasonal irrigation accounts can create large summer peaks, and residential peaking (the panel heard examples of summer use 6–8 times winter levels) drives infrastructure sizing for wells, boosters and tanks. Danica Katz and city staff said nonrevenue water is tracked and is primarily maintenance and operational use (system flushing twice per year and response to water-quality complaints); meter program upgrades and a commercial-account audit are expected to refine future cost-allocation results.

Capital program and regulatory drivers
Baker and consultants emphasized that much of the near-term upward pressure on rates comes from large capital and regulatory-driven projects in the CIP: station consolidation and upgrades, PFAS treatment and lead service line replacement programs supported by DWSRF/EGLE grant funding. Staff said the city is on schedule to complete lead service line replacement under current funding assumptions by about 2029, noting recent federal and state rule updates accelerated some deadlines.

Process and next steps
No formal rate vote was taken at the meeting. Staff and consultants asked the UPC to review the options and seek a recommendation at the September UPC meeting; staff plans to present rates to the city commission at the two October meetings so action would occur before the election. Consultants offered to provide benchmarking of regional utilities' recent rate actions for the next meeting.

Ending
Committee members repeatedly urged a gradual approach because data and capital timing can change year-to-year. Staff asked the UPC for time to circulate underlying model data to committee members before the next meeting so members could review line-item inputs and assumptions.