Issaquah committee leans toward phased cost-of-service approach for utility rates

May 15, 2025 —00: The City Council Mobility and Infrastructure Committee on Thursday reviewed a consultant—ost-of-service analysis for the city—lectricly managed utilities and signaled support for a phased move toward cost-of-service rates for water and sewer.

The analysis, presented by consultant Sergei Trossa and reviewed by Public Works Director Emily Moon, found most customer classes fall within a conventional —range of reasonableness— (plus or minus about 10 percent of cost-of-service), but singled out single-family residential and some irrigation classes as outliers. Committee members favored a gradual approach that spreads adjustments across years rather than applying full reallocations in a single year.

The study covered three steps: (1) revenue requirement, (2) cost-of-service allocation by customer class, and (3) rate design. Sergei Trossa told the committee the city—urrently can avoid adding new debt during the next five-year period by changing timing of noncritical capital projects and using existing cash balances. He summarized results showing a combined typical residential bill increase of about 4.9 percent under the staff-recommended scenario (4.75 percent for water, 4.0 percent sewer and 6.25 percent stormwater on the city-controlled portion of bills).

Emily Moon, Public Works Director, flagged a separate capital item that will affect the rate picture: the Newport Sewer Relocation project. Moon said the city must relocate a sewer line to accommodate a Washington State Department of Transportation fish-passage project and that the recent bids came in well above earlier estimates. "We will be coming back asking you to award that contract because we need to move forward with the project," Moon said, noting the city is wholly responsible for the cost under state law and has a contractual obligation with WSDOT. Moon said the new bids add about $2,900,000 to an existing $3,700,000 allocation in the current Capital Improvement Plan.

On rate-policy choices, the committee reviewed three broad alternatives presented by the consultant: - Option 1: an across-the-board, system-average increase (the committee was shown an example average of 4.75 percent for water and 4.0 percent for sewer) and revisit cost-of-service later; - Option 2: move customer classes immediately to 100 percent of cost-of-service (an example showed residential water increases as high as 13.8 percent in year one to close the gap); and - Option 3: a phased, multi-year transition that spreads class-specific adjustments over several years while keeping the system-average increase near the staff target (an example multi-year path produced a first-year combined bill change near 5.07 percent, rounded to 5.1 percent).

Deputy Council President Barbara DeMichele told staff she supported doing cost-of-service and preferred a phased approach: "I would support doing cost of service ... I would go with the phased in approach," she said, adding concern about affordability and the city—udget. Council members asked staff to continue coordination with the Parks Department regarding irrigation-account impacts and to return with rate-design recommendations and general facility charge proposals at the June meeting.

No formal vote was taken on a final policy; the committee provided direction to staff to proceed with further modeling and stakeholder discussions and to bring recommendations to the full council. Staff said they will return in June to present rate design and proposed general facility charges, and will present the Newport Sewer Relocation contract to City Council on June 9.

Ending: Staff will continue detailed modeling and outreach and return next month with rate-design options and a recommendation for action to the full City Council. The committee left open the option of implementing phased cost-of-service adjustments rather than an immediate full reallocation.