Residential customers in Wichita pay more for water than it costs the city to deliver it to them.
Business customers pay less than it costs to serve them.
"What's happening now is that residential customers are subsidizing most of the other customers," said Thomas Beckley, a consultant with the Raftelis Financial Consultants, a firm hired by the city to analyze the Water Department's costs and rates.
That subsidy is one of the major issues the City Council will have to grapple with in coming weeks as it decides not whether, but how, to raise water rates for 2012.
The council's first official look at proposed increases will be in a workshop meeting scheduled Tuesday.
But a meeting of the city's Water Utilities Advisory Committee last week telegraphed the planned rate increase.
It also raised the issue of whether to address the disparity between residential and business rates, or leave it alone and pass an increase that would be the same percentage on all customers.
Panel likes differential
City staff is proposing to raise business rates a little more than twice as much as residential rates next year, to begin gradually reducing the subsidy that now flows from residential consumers to business.
Calculations done by Raftelis show that at current rates, residential customers would pay $42.4 million for service that costs the city $41.1 million to provide.
It would cost the city $22.3 million to serve commercial customers, who would pay $20.3 million in rates.
Overall, it would equal a $3.3 million advantage for business customers.
The Advisory Committee, a business-dominated panel appointed by Mayor Carl Brewer, wants to leave things pretty much the way they are and go for an across-the-board percentage increase.
Some committee members argue that giving business a break on the water bill benefits everyone, because it makes it less costly to do business and improves the local economy.
"I tend to look at things from an economic development direction," said committee member George Sherman, vice president for special projects at Key Construction. "It's important to keep our large commercial users here and attract more large commercial users. A commercial customer has to look at two things: what their cost is and what their cost would be if they were somewhere else."
Other committee members also felt that differing levels of increased rates could be confusing and introduce uncertainty for customers.
"You've got such a huge issue to sell the public in general, the rate increases you're talking about," said Steve Lackey, an engineer and former director of the city Department of Public Works. "Layering on a different rate structure is too much to take on at this time."
Wichita has no organization to represent residential utility consumers, but officials say they expect to hear plenty from individual residents before the matter is decided by the City Council.
People like Jerry Winkelman, a retired former city manager of Lee's Summit, Mo., and a former assistant city engineer for Kansas City.
"I think they should equalize it to the businesses," said Winkelman, who owns two houses in the Delano neighborhood. "When you raise it on people, they already are hard-pressed to pay their bills.
"The fact is they (businesses) make money and some of them bring it in from outside the city and if they're using city water, they ought to pay the full toll," Winkelman said.
City Manager Robert Layton said the Advisory Committee's recommendation won't be the last word.
"This committee wasn't meant to be representative of all the customer base," he said. "No doubt the public will participate after we workshop this."
Rate increases on way
About the only thing that is certain is that rates will be going up.
Overall, the Water Department will need to take in 4 percent more money to pay its costs in 2012, according to calculations by Raftelis.
Beckley said that increase basically covers inflation in the cost of running the system from year to year.
Sewer rates will also have to go up by about 9 percent to cover inflation and upgrades to that system, he said.
But in analyzing the sewer rates, there is not much difference in financial burden between the residential and business users like there is in the water rates, Beckley said.
Overall, the city staff is proposing a combined water and sewer rate increase of 5.9 percent.
In detail, their proposed increases would be:
3.9 percent for small residential customers, using 3,000 gallons of water a month. That would increase the average bill from $30.30 to $31.48, a $1.18 increase.
3.1 percent for mid-level residential customers, using 15,000 gallons, which would increase the bill from $88.39 to $91.17, or $2.78 a month.
2.6 percent for large-scale residential users at 22,500 gallons. Bills would increase from $139.68 to $143.26, a $3.50 hike.
Commercial and industrial users would receive bigger percentage increases, for example:
8.3 percent on a midsize commercial business using 100,000 gallons of water. That would increase the bill from $417.49 to $452.13, for a $34.64 increase.
8.2 percent on a large business that consumes 10 million gallons, raising the bill from $38,182 to $42,385, a $3,203 increase.
Advisory Committee members balked at those kinds of increases in business rates.
Instead, they're recommending that all customers pay 5.9 percent more next year while they give further study to the issue of rebalancing residential and business rates.
Rate shock feared
The city staff and its consultants said the 8.2 and 8.3 percent increases proposed for the business classes already represent a compromise.
They want to gradually phase in higher rates for the big users to avoid rate shock, especially for wholesale customers — primarily smaller neighboring cities such as Derby and Valley Center that purchase water from Wichita and resell it to their own residents.
The Raftelis study shows that the wholesale customers pay less than $2.8 million for water that it costs Wichita $3.9 million to deliver.
"If we want to go straight to true cost of service in one shot, we would basically leave residential rates where they're at and increase wholesale rates 40 percent," Beckley said.
But, he added, that's not realistic.
"We're all partners here and we looked at how to balance what's a more reasonable rate increase, phasing in wholesale rates over four years to help dampen that impact on them so that they're not taking it all at once," he said.
And the situation isn't looking much better going into the future.
The city will be paying more for a ongoing project to divert water from the Little Arkansas River into underground aquifers to prevent salt intrusion from spoiling the local well water.
In addition, the sewer system will need significant upgrades in a few years to meet new federal sanitation requirements, Beckley said.
To address that, city staff is projecting annual combined water/sewer rate increases ranging from 3.6 to 7.6 percent every year from now until 2021.
The City Council's water workshop is scheduled for 9 a.m Tuesday at City Hall, 455 N. Main, Wichita.