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Editor's note: A special-called meeting of the Lebanon City Council has been scheduled for 6 p.m. today, April 17, at city hall. The agenda includes the second reading of the ordinance setting the new water rates and a noise variance for the Color in Motion 5K.
Monday evening, the Lebanon City Council unanimously approved a 15 percent water rate increase for the Lebanon Water Company.
The water company presented its proposal during the April 8 council meeting.
Even though he didn’t have a vote, Mayor Gary Crenshaw said he supported the council’s decision at Monday’s special-called meeting.
“This is not something we want to do. This is not something we like doing,” Crenshaw said.
When the water rate increase will take effect is another question. The council must approve a second reading and publish the ordinance before the water company can begin charging the new rate.
Even then, the rate change may be delayed to allow the Marion County Water District time to adjust its own rates. The water district buys water from Lebanon, which means it would need to raise its rates it its costs increase.
City officials have encouraged the Lebanon Water Company to coordinate its rate increase with the Marion County Water District.
Under the first reading approved Monday, in-town water customers (which includes the Marion County Water District) would see their monthly meter charge increase from $6 to $6.75. The volume charge would increase from $2.14 per 100 cubic feet to $2.50 per 100 cubic feet.
An average in-town bill (about 4,000 gallons/535 cubic feet of water per month) would increase from $17.43 to $20.10 per month.
For the water company’s out-of-town customers (primarily a few hundred residents in the old Calvary Road area), the monthly meter charge would increase from $6.60 to $7.425 and the volume charge would increase from $2.354 to $2.75 per 100 cubic feet of water.
The average out-of-town customer’s bill would increase from $19.17 per month to $22.11 per month.
Holly Nicholas of the Kentucky Engineering Group was hired to analyze the water company’s financial condition. She told the city council April 8 that, the water company’s expenses increased roughly 4 percent per year from 2009 to 2012.
In 2009, the water company’s operating expenses were nearly $1.78 million. In 2012, those expenses were more than $1.93 million.
Health insurance and retirement costs have increased by 47 percent since 2009, according to Nicholas.
The water company’s revenues have not kept pace with their expenses. In 2009, the water company’s revenue was more than $2.26 million. In 2012, that revenue was around $1.74 million.
Nicholas explained that with the down economy, people tried to save money wherever they could, including using less water.
Despite rising expenses and declining revenue, the water company completed several projects with its own funds during the past seven years. Those projects ranged from an $11,000 booster pump station upgrade to a $592,000 water main improvement project around Corporate Drive.
The water company also partially funded an elevated tank on Springfield Highway, a extension along Industrial Drive, and tank mixers and painting on Old Calvary Road.
The $860,000 elevated tank project was funded by $360,000 from the water company and a $500,000 grant from the Kentucky Infrastructure Authority.
The Industrial Drive and Old Calvary Road projects cost $1,149,000 combined, but the water company only needed a $583,000 loan to complete those projects. The balance was covered by a $350,000 KIA grant and $253,000 reimbursement from the Kentucky Department of Transportation.
Nicholas explained that the water company saves on expenses when it can pay for more projects without needing to borrow money.
"If you had to go borrow money to do these projects, then you could probably add 25 to 30 percent to the numbers on this page," Nicholas told the council. "So, they are actually being very efficient by doing a lot of projects in house."
She added that the rate change is intended to keep the water company financially strong.
"I know nobody likes to raise rates, but in order to keep your water company financially healthy, you need to adjust rates," Nicholas said.
At the April 8 meeting, Councilman Jay Grundy asked if the water company was planning any specific projects to coincide with the rate increase.
"I won't say it's directly related to a certain project, but it probably will rollover possibly in a line we're looking to run from Campbellsville to Lebanon," Water Company Superintendent John L. Thomas replied.
That project is probably three to five years down the road, he said.
Grundy said repeatedly that he wasn’t questioning the water company’s information, but he thought the propose rate increase could be an issue for customers.
"I think 15 percent is going to be a sticker shock to the public,” Grundy said.
He also asked what he should tell a citizen who asks why the city raised the rates. Thomas said he would remind them that this is the first rate increase in seven years. Crenshaw argued that the rate increase is needed to further economic development.
In reference to the possible Campbellsville line, Crenshaw said the city will need a secondary water source to continue attracting new industries.
"In order to keep progressively pursuing economic development and to meet the costs of the overhead, rates have to go up some,” he said.
Grundy asked if the water company considered phasing in the rate increase over a few years rather that 15 percent all at once.
Pete Thompson, the secretary/treasurer for the water company’s board of directors, said they studied the finances for months before making their request.
The water company also wants to maintain a strong debt service ratio, if it doesn't, that could affect the water company's bond rating, according to Thompson, who is also the president of Citizen’s National Bank.
Nicholas agreed that increasing the rates every few years would be easier on customers, and she has advised the water company to seek rate increases more frequently.
The Marion County Water District is the Lebanon Water Company’s biggest customer. After buying water from Lebanon, the water district sells that water to its own customers.
Jimmy Mudd, the Marion County Water District general manager, explained in an interview that the water district will be paying about $18,000 more per month when the Lebanon Water Company’s new rate takes effect. To offset that cost increase, the water district will need to raise its own rates.
Before the water district can do that, it must get permission from the Kentucky Public Service Commission.
After the Lebanon Water Company notifies the PSC and the Marion County Water District of the rate increase. Then, the water district can request its own rate increase, according to Mudd. After the PSC receives the water district’s request, the PSC will have 30 days to decide whether to approve that request.
Even if the PSC approves a rate increase for the water district, the PSC can specify when new rate can take effect. If the PSC’s date is later than when the Lebanon Water Company’s new rate takes effect, then the Marion County Water District could lose thousands of dollars.
City officials were sympathetic to the county water district’s situation, and they encouraged the Lebanon Water Company to work with the water district to coordinate when their rate increases will take effect.