Fountain staff present water cost-of-service study and five-year rate options; council schedules public review

City staff presented the results of a water cost-of-service and rate-design study and solicited public comment on Jan. 28, saying the water fund needs rate revenue increases and structural changes to avoid continued interfund borrowing and to build operating reserves.

Dan Blankenship, a utilities staff member, laid out the utility enterprise structure and financial background, and said the water fund is financed separately from the general fund and electric fund. Blankenship told the council that 2023 water revenues from rates were $9.8 million and that the fund has significant debt-service obligations tied to water resources and treatment; he said annual debt payments are roughly $3.5 million through 2027 and that some bonded debt will extend into the 2040s.

Blankenship said the water fund has relied on interfund loans from the electric fund in past years and that the balance of those loans had declined to about $4 million by 2023 from earlier highs. The city adopted a Water Fund Stabilization Plan in March 2024 to eliminate the interfund loan and create an operating and maintenance reserve. Blankenship said the stabilization actions included eliminating the electric fund payment‑in‑lieu‑of‑taxes (PILT) to improve combined utility liquidity and a refund stemming from a cost‑allocation study that put approximately $570,000 back into the water fund in 2023.

Blankenship described the objectives the council set for the rate study: make the water fund self‑supporting (no further interfund loans) with a minimum operating reserve of no less than three months of O&M, design rates that encourage efficient water use, and avoid charging existing customers for system capacity improvements that would benefit new growth. The city contracted a consultant to perform the study and obtained an editable rate model staff can update annually.

Blankenship presented several rate‑setting options: annual adjustments, a two‑year adjustment aligned with biennial budgeting (staff’s preferred approach), or adoption of the full five‑year plan now. He said if no action is taken, the city risks underfunding maintenance, declining reliability, continued interfund loans, and an adverse credit rating outcome; S&P Global had previously downgraded the combined utility rating to A‑ and noted liquidity concerns.

Blankenship presented an example bill impact: in the first year an average residential customer (staff described typical use as about 6,000 gallons per month) would see an increase of about $6.44 per month under the proposed plan; by year five the per‑gallon cost shown in staff materials would rise from about 1.2¢ to about 1.8¢. He said the council will review the study and rate model annually as audited results become available.

Council allowed public comment. Speakers raised concerns and suggestions: Benjamin Perongo asked the council to explore alternative funding sources and asked about potential health studies for forever chemicals (PFAS); Michael Browder praised staff cost‑control efforts and supported a phased plan (two‑ or five‑year); Sandy (last name not recorded) asked whether Air Force reimbursements will continue for groundwater treatment; Connie Weisenhunt asked about protections for customers who face shutoffs and whether new development contributes revenues; Al Lender and others expressed support for staff recommendations after one‑on‑one briefings. Blankenship and other staff answered questions about grants, the city’s class‑action participation related to PFAS, Air Force reimbursements for certain operational costs, grant‑funded projects (for example, a 30‑inch pipeline design funded by grants), and conservation and customer assistance options.

Blankenship said staff plans to bring the item back at the first council meeting in February for continued public input and to present a first reading of an ordinance to repeal the current rates (a procedural step). If council wishes to adopt new rates, the second reading and vote would occur at the second meeting in February; staff said no formal rate change would take effect before council action at that later meeting.

No vote on rates occurred on Jan. 28. Staff placed copies of the presentation, the water fund stabilization plan and a recent credit rating report on the back table and said the materials would be posted online.