If the City of Houston does not raise utility rates, the departments will start to run a negative cash flow within three years, according to a recent study.
Craig Woycheese, with Toth & Associates of Springfield, presented the results of the study Monday evening to the Houston City Council.
The study included a 2025 cost of service analysis and a five-year rate schedule recommendation starting in 2026 for electric, water and wastewater services.
ELECTRIC RATES
Based on an estimated 3 percent annual increase in operating expenses, Woycheese estimates that by 2028 the city’s electric services would run a negative cash flow with current rates.
He recommends that the city increase rates by about 4 percent in 2026 and then by a little less than 3 percent the next four years to maintain margins.
The average residential customer uses about 900 kilowatt-hours (kWh) per month, with the typical family using about 1,200 kWh, per the study. Most would see a monthly increase of about $6 to $8, said Woycheese.
He believes the study’s proposed rates are a reasonable adjustment and are in line with surrounding suppliers. He intends to deliver a rate comparison analysis to city officials.
He said that municipalities generally need higher cash reserves than cooperatives since it is harder to finance working capital.
Woycheese also recommended smaller more frequent increases rather than larger more periodic ones.
He also suggested that for large economic developments, the city implement a five-year phased out discount.
The council took the information under advisement.
WHAT IS A FUEL ADJUSTMENT CHARGE?
A fuel adjustment (FA) charge, or purchase power adjustment, is a variable charge on an electric bill that reflects the fluctuating costs the city incurs for the purchase of power used to generate electricity. The city’s fuel adjustment charge, which is around $0.05 per kWh, is on the high side according to Woycheese, since the city has not raised the FA base rate for an unknown number of years.
He stated that the city could “rebase” the FA rate by putting the current amount into its standard electricity rate to reduce the listed FA charge. However, this change would not affect the total amount customers pay.
Some other electricity suppliers, such as cooperatives, elect to raise rates more frequently or dramatically to account for increasing costs, rather than charge the adjustment rate.
WATER RATES
Similar to the city’s electric services, the water department is expected to incur a net loss within three years without a rate increase. The proposed increase is about 4 percent annually.
According to Woycheese, the average residential user is around 3,400 gallons of monthly water consumption. The change would result in about a $1.40 monthly bill increase for most users, he said.
WASTEWATER RATES
Out of the three departments, wastewater is in the best financial position, according to the study. A 2 percent increase over the next five years was recommended to reduce the effect of inflation. The average residential user, around 3,200 monthly gallons, would see an increase of less than $1, according to Woycheese.
OTHER MATTERS
- A $56,200 bid for an electric department mini excavator was approved, including a $20,000 trade-in of other equipment.
- A bid for about $17,000 was approved for fire department confined space rope rescue equipment.
- First and second readings took place for reimbursement for an airport lighting project and an upcoming airport paving project.
- Lloyd Wells, administrator, gave updates on engineering projects, columbarium progress, a speed limit sign on Oak Hill Drive and dangerous buildings.
- Ward II Alderwoman Ann Tottingham restated the importance of following up with residents who bring issues to the council’s attention.
The meeting adjourned into closed session at 7:08 p.m.