City Council Launches Water Rate Model Discussion

The Port Townsend City Council opened discussion of an update to its water utility rate model during a workshop held August 10.

Public Works Director Steve King presented background on the 2019 Water System Plan, which guides decision-making for the rate model last updated in 2021. He told the council his staff spent weeks of "intense" information-gathering to prepare for the rate-modeling process.

King divided his presentation into an explanation of the raw water and potable water rate models, focusing more attention on the latter because his staff is still "doing a lot of work on cost estimates, particularly around capital."

King reminded the council that state law requires the water utility to be self-sustaining—water rate revenue cannot subsidize general city services. This is to ensure public health standards, infrastructure maintenance, cost fairness, debt financing protection, and financial transparency.

The Port Townsend Paper Mill draws raw water from the Olympic Gravity Water System, accounting for nearly 90% of the system's total daily raw and potable water consumption.

"The city rate base cannot afford to operate and maintain the system without the mill as a customer," King said.

Rate policies and principles

King pointed out that rates are a charge for service, not a tax, as some residents believe.

He said the city's relatively high base charge helps offset fixed costs and provides revenue stability. He acknowledged there are some questions about equity, but noted the city has a low-income discount program.

Balancing the base rate against the consumption rate can influence customer’s water use, King said. "It gives customers some ability to control their bill," he said.

King said inflation is a major cost driver, compounded by a backlog of repairs and replacements needed on the pipeline that supplies water from the Big Quilcene watershed. He noted that the decade-old water filtration plant is beginning to need parts replacement and upkeep as it ages.

Several rate policy questions were raised for the council's further consideration, including a review of the reserve policy to help maximize the city's bond rating, and whether system development charges (SDCs) should be based on house size rather than meter size. King also suggested the city consider seeding a fund to assist infill and affordable housing development, and noted that many utilities have adopted tiered rate structures to encourage conservation and improve affordability for low-volume water users.

King identified increasing water storage capacity as a high priority for long-term water supply sustainability, citing a consistently diminishing snowpack feeding the rivers that supply the city's water.

For the potable water system, the rate-modeling process will include running model scenarios and calculating allowable SDCs, with options to be presented to council in October. Staff will then recommend updated rate policies and standards based on the legal framework and council feedback.

For the raw water system, a capital plan—including backlog work estimates—will be presented in October, alongside a refinement of operating and maintenance estimates based on cost-benefit analysis.

Exploring ways to make rates more equitable

During public comment, Port Townsend small farmer Jude Rubin said, "I would love to see irrigation-only growers be charged at a grower's rate. I don't think it should exceed the business rate, because it's the same rate." Rubin said irrigation users are effectively subsidizing business users under the current structure.

Port Townsend resident Mark Paxton also advocated for lower rates for food bank growers, noting that current rate structures presume water flows from the tap into the wastewater stream—which, he said, doesn't apply to irrigation water, effectively charging users for a wastewater service they don't receive.

The irrigation rate question sparked extended discussion among council members. "Irrigation classification seems to be a problem because we have such a variety of users clumped together," said Councilmember Monica MickHager.

King said summer water demand is more than double winter demand, which drives capital costs. "That means the size of reservoirs, the size of the water filter plant, the size of your pipes in order to meet peak demand," he said.

Council and staff discussed how a fairer rate structure for irrigators might be devised. King said irrigation rates could potentially be reduced to residential levels if a cost-of-service analysis found irrigators' costs to the system were comparable to those of residential users. Councilmember David Faber asked how such a change would affect rates for other customer classes, including multifamily, government and commercial users; King said that scenario would need to be modeled to determine its impact.

Even a rate match to residential levels would leave two affordability issues unresolved for irrigators: under the residential tiered rate model, higher water consumption eventually pushes irrigators into a higher tier, and many small-scale growers on residential properties would still need to install a separate irrigation tap, at a cost of roughly $6,000.