Wednesday, December 8, 2010

Water Rate Increase

Both the Commercial Appeal (Council approves rate hike)and ABC 24 (Memphis City Council Approves Increase in MLGW Water Bills) ran stories last night about the City Council's passing of the 2011 MLGW budget, which includes a 5 percent increase in water rates. Much of the focus of the stories was on the rate increase and the 2 percent pay increase that MLGW employees will receive this year.

Here are a few things to consider:

• MLGW has seen a loss of over 2,300 water customers since December 2007. The loss of revenue is approximately $362,000 annually.

• Projected change in net assets in 2010 is projected to be about $1 million. Without any rate increase, change in net assets would be a loss of $3.3 million in 2011.

• The preliminary budget report suggests a modest rate increase of 5 percent, which would generate approximately $3.8 million in positive contribution to the change in net assets. The result would be a projected positive change in net assets for 2011 of $554,000.

• The typical residential customer in the city of Memphis, for instance, would only see an impact of 66 cents per month.

• MLGW’s last water rate increase was 15 percent in June 2008.

• The rate increase is important because negative net income in 2011 and working capital below targeted thresholds would jeopardize bond ratings and could result in the state mandating a rate increase if negative net income persists for two years in a row.

• In other words, in proposing the rate increase, MLGW is being proactive and fiscally responsible. MLGW safely meets all bond coverage tests and has a goal of positive net income for all three divisions. No rate increase is expected for electric or gas.

• MLGW is consistently recognized as having the lowest residential water rates in a survey of cities around the country. The 2010 Utility Bill Comparison ranks MLGW lowest among 30 cities surveyed.

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