Cape May Exploring Different Method to Calculate Water Bills

CAPE MAY — With a formula for calculating water/sewer bills based on consumption, combined with declining use by residents, the city may be faced with raising rates for the second year in a row.
A committee was formed to look at the city’s current method of calculating bills with the possibility of finding another formula. Cape May’s formula seems to be unique with neighboring towns using other methods of calculating water/sewer bills, according to City Manager Bruce MacLeod.
The city’s water/sewer revenue is 90 percent driven by consumption and 10 percent by fixed costs for city residents and 100 percent consumption driven for water sold to other towns and the Coast Guard. The less water consumption, the less money collected by the city.
At an Oct. 1 meeting of the Water/Sewer Committee, MacLeod said the city has 3,800 water/sewer customers with a few customers receiving water only for irrigation and no sewer service. The city also sells water to the U.S. Coast Guard base, Cape May Point, West Cape May and a few residents in Lower Township.
In the past, selling water to other towns provided more revenue. Raising rates for other towns and the Coast Guard is based on rises in the Consumer Price Index, which was flat last year. Rate hikes for other towns are controlled by a long-term contract created when the city began operating a desalination plant in 1996.
Bulk water customers also pay a desalination plant fee.
Comparing overall water use from 2007 to 2008 showed a drop in consumption of 18 million gallons resulting in less revenue for Cape May. The first six months of this year are also showing a similar trend, a reduction in water consumption of 8 million gallons, said MacLeod.
Conservation has impacted water use with water customers installing low flow showers and low flush toilets, said MacLeod.
“There was a concern that people were not being rewarded for being conscientious and conserving,” he said.
MacLeod said water conservation was just a small piece of the puzzle with the poor national economy bringing fewer visitors to Cape May resulting in less demand for water. He said owners of second homes may have spent less time here.
Cape May Water/Sewer Superintendent David Carrick said the city may have gained 30 to 40 new homes per year during the real estate boom earlier this decade but the utility has not had to pump any additional water to accommodate those homes.
Mayor Edward J. Mahaney Jr. said the city pumped as much as 2.7 million gallons of water on peak days in the 1990s. Carrick said peak use this summer was 2.2 million gallons per day with most days less than 2 million gallons of use.
Council passed an ordinance earlier in the year to raise water and sewer rates to compensate for 18 million gallons less water use last year. Bulk users such as Cape May Point, West Cape May and the U.S. Coast Guard base consumed 11 million gallons less in 2008 than 2007.
In 2008, the city collected $333,000 less in water/sewer revenue. The reduced revenue resulted in $200,000 less in the utility’s surplus account.
The rate increase in January doubled the water facilities charge, which is a flat fee to cover the cost of wells, treatment and infrastructure. The annual fee is determined by the size of a customer¹s water meter.
Most Cape May water customers have three-quarter inch meters for which the water facilities fee went from $44 annually to $88. The sewer facility charge doubled from $60 to $120 for three-quarter inch meter users.
The regular sewer rate increased from $3.50 to $3.90 times the number of thousands of gallons consumed through the year. Peak demand sewer charge for the months April to October increased from $8.25 to $9.85 times the number of thousands of gallons consumed. Water usage rates did not increase.
Water consumption for customers is multiplied by the regular rate and then multiplied once more at the peak demand rate from April through October. Those two figures are added together plus the facilities charge for the total bill, said MacLeod.
The same method is used for sewer charges.
The city has the choice of keeping its current billing formula, modifying it or scrapping it, he said. Since the city is seeing declining water use, raising the water usage fees cannot be counted on for additional revenue.
Raising the facilities fee can be counted upon as firm income, said MacLeod.
Mahaney said there was no raise in the facilities fees from 1993 to 2009. He said whatever methodology for billing is determined, it must produce at least $6.1 million in revenue to produce a balanced budget. This year’s water/sewer budget is $6.4 million, which includes $300,000 revenue from a bond sale, a $100,000 increase in fees to the county Municipal Utilities Authority and $92,000 in additional debt service.
In addition, the budget showed a $31,399 increase over 2008. Including debt service and MUA fees, the budget increases a total of $223,529 or 3.6 percent over 2008. Due to a $300,000 reduction in revenue, the city needed to raise $555,000 just to balance the water/sewer budget according to MacLeod.
Water rates have remained stable since 1999 while sewer rates were increased in 2002 and 2007, he said. The rate increases may yield $750,000 producing about $200,000 in surplus based on 2008 consumption levels with no further downturns said MacLeod.
Lower consumption this year may not generate any surplus and if the city does not change its methodology for billing, it may be looking at another rate increase, he said.
Almost 83 percent of water sold in Cape May is consumed in the peak months within the city, he said. Mahaney said he hoped the 8 million gallon deficit would be overcome by usage in August, which will be read on meters at the end of October.
The committee is studying rates from neighboring municipalities such as Wildwood, Lower Township and Stone Harbor.
The committee’s next meeting is Thursday Oct. 8 at 5 p.m. at Cape May City Hall.