Longmont staff launches 2024 water rate study, warns higher costs and wet 2023 complicate revenues

Assistant Director Chris Huffer and Lance Smith briefed Longmont City Council on May 28 about the 2024 water rate study process and early indicators that the utility may need to adjust rates to cover rising costs.

"Rate studies provide a way of checking to make sure that the revenues collected for a utility service are covering all of the cost of providing that service," Lance Smith said, describing steps that include reviewing historical revenues and expenses, forecasting future costs, and allocating costs to customer rate classes. Smith told council the last water rate study was completed in 2019 and that inflation and other pressures have changed the fiscal picture since then.

Staff identified several near‑term pressures: increased debt service from the 2021 bond issuance, water assessments that have risen "about 15% a year," and personnel and materials cost growth driven by inflation. Staff also said 2023 was "the wettest year in Longmont in a century," which reduced consumption and led to about $2 million less operating revenue than 2022.

"We do expect that to bounce back a little bit," Smith said, but he warned the gap between operating revenues and expenses has narrowed and that the space used to fund asset renewal has been reduced. Staff outlined a timeline: capital planning in July, cost findings from the rate study in August, and possible rate adjustments to be considered in the fourth quarter to take effect Jan. 1 to align with the fiscal year.

Councilmembers asked for clearer splits of operating versus capital costs and for historic cost estimates (for example, projected 2020 costs for the Nelson Flanders plant compared with current prices). Staff said they will return in July with capital project details, replacement timing, and cost updates and that they will show cost of service allocations by function (source, treatment, delivery) as part of the study.

Councilmembers expressed concern about the cumulative effect of rising electricity rates, property tax changes and potential utility rate increases on residents' disposable income. Staff emphasized affordability remains a consideration and noted the city's CARES/assistance program as an existing support for customers who struggle to pay utility bills.

Staff did not present a proposed rate increase at the May 28 meeting; council received the informational presentation and directed staff to proceed with capital planning and the rate study timeline described.