Newport utilities present FY26 budgets, warn of large capital gap and uneven rate impacts

At a Department of Utilities budget workshop, Manager Rob Schultz laid out the proposed fiscal 2026 budgets for the water and water pollution control enterprises and described a funding gap driven by aging underground infrastructure, regulatory costs and concentrated revenue from a small share of large accounts.

Schultz said the city moved this year through a Public Utilities Commission rate proceeding that left the approved increase lower than the council’s initial proposal: "the 21.5% that was passed by council was what was proposed as the rate case. It didn't go into effect… That final approval in order was granted in March, and it went from 21 in change down to… down 17. Yeah," Schultz said, noting the March 1 effective date. He added the PUC order establishes a four‑step, multi‑year implementation that could run up to four years but that later steps are contingent on negotiated labor contracts and future filings.

Why it matters: the department says existing rates and reserves cannot cover urgent capital needs. Schultz presented large, multi‑year capital figures and warned that the rate model alone will not fund the work without a combination of rate changes, phased capital spending, grants or other financing. He also stressed that the customer base is unusually skewed — a small number of accounts produce a large share of revenue — so a blunt, across‑the‑board rate change affects low‑usage residential customers more than the data first appears to show.

Key facts and figures

- PUC order and rates: Schultz said the council-approved proposed rate (about 21.5%) was reduced in the PUC order to about 17.5% and took effect March 1. He described the PUC filing as a four‑step, multi‑year case intended to reduce future "rate shock." He said Step 2 was scheduled for July 1 but would not proceed until an AFSCME labor contract is settled.

- Average impact: Schultz said, "$144 is the average increase that a Newport water rate payer should expect to see in a bill," reflecting the PUC decision (the department provided that as a city average, not as an individual household guarantee).

- Capital and program figures presented by the department (as reported at the workshop): $35,000,000 for dam rehabilitation (Houston's Pond complex), roughly $62 million for water‑main replacement and system reliability, and $28.6 million related to lead service lines. Schultz said the department has already spent about $40,000,000 at the wastewater treatment plant in recent years and anticipates another roughly $20,000,000 of future plant work.

- Operating‑cost drivers: Schultz cited higher chemical costs (about $500,000 increase), pay‑as‑you‑go capital rising by about $800,000, growth in employee benefits, electricity and repair costs, and the fixed nature of many costs versus variable usage. He said the largest single revenue source remains the residential volume charge—about $8,000,000 in the water fund as presented.

- Customer concentration and distribution: The department reported roughly 9,000–10,000 accounts, with the top 5% of accounts generating about 51.5% of sewer revenue and the top 12 accounts (including the Newport Housing Authority, Salve, Newport Hospital, Newport Marriott and Festival Field) contributing roughly 30% of sewer revenue. Schultz warned the city does not have a typical average customer: "we don't have an average customer. It looks like we have an average customer, but there's a huge span." He said the bottom 45% of sewer accounts were paying about $270–$280 annually under prior structure, which produced large percentage increases for those low‑usage accounts under last year’s proposed change.

- Stormwater/CSO treatment: Newport’s sewer charge currently includes a stormwater (CSO) component, Schultz said, and the fixed CSO fee has not been adjusted since February 2011. He presented several scenarios for reallocating costs between an adjusted CSO fixed fee and usage‑based sewer charges, including an interim CSO fee increase (examples shown at up to 76% in the workshop slides) versus an extreme scenario to fund the full estimated stormwater cost (shown as a much larger CSO increase). Schultz described the share labeled "stormwater" as roughly one‑third of the water pollution control budget in his presentation and said a future integrated permit and further analysis would refine the stormwater number.

- Grants, loans and external funding: Schultz said the department is pursuing federal/state funding, including programs administered through the state infrastructure bank and the Drinking Water SRF (State Revolving Fund). He described an application that focused on a qualifying census tract hoping to meet affordability criteria and said forgivable funding might be possible but the federal/state landscape is "choppy" and not guaranteed. He also described the trade‑offs of SRF loans and private borrowing and noted the city had previously used bonds and loans for major water projects.

- Workforce and operations: Schultz said the department has shifted some underground assets from contractor operations to in‑house crews (a change that began in 2017), saving roughly $1,000,000 annually and allowing higher service levels. He emphasized investments in asset management, a cityworks tracking system and smart metering aimed at moving from reactionary maintenance to predictive asset management.

Council questions and concerns

Councilors pressed the department on who approves rates (the council’s prior budget had included the proposed increase and the PUC ultimately set the March effective order), the equity of charging commercial versus residential users, how low‑usage accounts would be affected, the affordability impact on people on fixed incomes, and alternatives to rate increases (deferring capital, using reserves, short‑term borrowing or pursuing SRF loans). Several councilors warned that steep increases for low‑usage, rent‑restricted households or for nonprofits and housing authorities would shift costs onto tenants or the organizations that serve them.

Schultz said some interim choices are possible (for example, deferring $2.6 million–$2.8 million of capital in the prior year and similar adjustments this year) but cautioned that deferring capital raises long‑term risk and can multiply repair costs if asset failures become emergencies. He also said the department will continue the Raftelis rate study the council authorized to produce an updated model that can address lifeline rates, equitable distribution by meter size and other potential structural reforms.

Quotes from the meeting

- "We've been transitioning from reactionary to proactive and preventative maintenance," Rob Schultz, manager of the Department of Utilities, said.

- "There was that little bit of of correction, and that's why you're seeing that slight decrease this year from what was approved last year," Schultz said of the PUC order that lowered the originally proposed increase.

- "We have almost 10,000 customers, 12 accounts provide 30% of the revenue," Schultz said when describing the concentration of sewer revenue.

Next steps

Schultz and staff said they will continue the Raftelis rate work and return with more detailed, customer‑level modeling, additional workshops and potential amendments to the FY26 budget. He recommended pursuing grants and shovel‑ready permits for large capital projects (dam rehabilitation and water‑main replacement) while the city evaluates financing options, including SRF or other loans, philanthropic partnerships and possible public‑private approaches. Councilors asked staff to provide more scenarios that show the distributional impacts by account size and to return with options that reduce near‑term rate shock while addressing the capital gap.

Ending note: the workshop framed the utilities budget as a multi‑year policy and finance challenge—one that combines regulatory compliance, aging infrastructure and a customer base whose concentrated revenue makes simple, across‑the‑board rate changes produce unequal effects across households, nonprofits and major institutional customers.