FAIRMONT - Because of the drought, cities across Minnesota have been forced to implement water restrictions. It's a problem, obviously, but Fairmont is about to feel the impact in a unique way, since few other cities are building a water treatment plant.
As water usage has declined, so have customers' utility bills. The trouble is, the city's costs have remained the same.
On Tuesday, the Public Utilities Commission discussed a 15 percent increase in water rates in 2013, a hike that would hit the pocketbooks of residents and businesses that already have endured several years of significant rate increases in order to pay for the new water plant.
"The drought has forced us to look at how to split the water rate," said Fairmont finance director Paul Hoye.
In the past, the city split the rate increase between the actual water usage, which fluctuates depending on a variety of factors, and fixed costs. Hoye suggested the PUC consider revamping the system, by focusing more on fixed costs than usage.
Commissioners were concerned about the impact this will have on low-income families trying to conserve water and save on their bills.
"Lower-income families, smaller users, this helps keep their rate down," Hoye said. "We need to keep rates as low as we can, but we also need to generate revenue."
Commissioner Dave Segar asked what happens when the drought ends:?"Can we go back and adjust the fixed cost?"
A conservation surtax was an alternative suggested by fellow commissioner Jeff Ziemer.
"It's harder to lower a rate than eliminate a surtax," Ziemer said.
Regardless, the change in the rate system is necessary, according to city administrator Mike Humpal. Since 2006, he said the city has seen a downward trend in its water usage, which is around the time the rate increases to pay for the plant began.
"The amount we're selling is going down and the costs are going up," Humpal said.
Ziemer, who works for 3M, described the situation as a death spiral and encouraged city staff to look at ways to cut costs, besides just increasing prices.
Ziemer pointed to a 10 percent increase in the budget for administration that seemed "hefty" considering the city's financial situation.
Hoye explained that the majority of those funds will go toward technology, for new computers and a phone system, with the city splitting the costs with the PUC.
Humpal also countered that the real cause of the problem goes back to the city waiting too long to set aside money for the water treatment plant: "We artificially, I believe, kept rates lower than they should have been. We should have been working on this for decades."
In addition to water rates increasing, wastewater rates are set to go up 10 percent, which also goes back to customers using less water and the city making less money in utility bills. Electric rates will remain steady.
Hoye gave the following breakdown for the estimated impact of the water rate increase on households and businesses:
o Smaller water users, such as empty nesters, should expect their monthly bill to increase by about 7.5 percent, or $9.50 a month.
o Families with children would likely see a 6 percent increase, or $12.65 a month.
o Commercial and industrial users' bills could go up by anywhere from 2.6 percent to 7 percent, depending on their usage.