WATER AND SEWER RATE DESIGN CITY OF KAUFMAN, TEXAS

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1 Spring 19 SOUTHERN METHODST UN\ Water and Sewer R' )((jn Kaufiiicu i. 'X Johi M. \\'-toll WATER AND SEWER RATE DESGN CTY OF KAUFMAN, TEXAS DEPARTMENT OF OPERATONS RESEARCH AND ENGNEERNG MANAGEMENT SCHOOL OF ENGNEERNG AND APPLED SCENCE DALLAS, TEXAS 727

2 WATER AND SEWER RATE DESGN CTY OF KAUFMAN, TEXAS SENOR DESGN PROJECT SPRNG 1986 BY JOHN M. WESTON Abstract Data was gathered to determine the distribution of the customers that use water supplied by the city of Kaufman. A statistical package was used to analyze the data to determine suggested water and sewer rates to cover current expenses. Consumption reports for one year were studied to determine the input data. Current rates were analyzed for their effectiveness.

3 TABLE OF CONTENTS Page SUBJECT... 1 PURPOSE... 1 SCOPE... 1 PLANOF DEVELOPMENT... 2 OPENNG RESULTS... 2 THE CTY OF KAUFMAN... 3 CURRENTPROBLEM... 3 ANALYSS... 4 STATSTCAL NFORMATON... 5 NTERPRETATON... 6 CONCLUSON

4 WATER AND SEWER RATE DESGN SUBJECT The subject of this report is water and sewer rates for the city of Kaufman, Texas. The current rates history date back to the original ordinances written in 1932 and have no scientific method behind their construction. PURPOSE The purpose of this report is to determine a "Smarter" way to charge for water and sewer. This report uses one year's actual group SCOPE data to determine how the customers are distributed and a wayt.o them. Rates are determined to compensate for a predicted shortjall of income during this operating period. The overall goal is to restructure the rates to work effectively into the future. This report is based on information provided by Norman Smith, City Manager for Kaufman, and Bettye Mayfield, water department billing manager. Data used in the report was gathered from a past study and monthly consumption reports. The reports were generated from billing software developed for the city of Kaufman. The statistical information was generated by a software package called MNTAB. MNTAB was used on the BM 3081D in the Bradfield Computer Center at Southern Methodist University.

5 PLAN OF DEVELOPMENT The objective of this report is not only to come up with suggestions for new water rates, but to educate the city of Kaufman on the range of customers they have and where their customers are concentrated. With this as the objective, this report was organized in the following manner: 1. The first section will examine the history of Kaufman and the water department. This will focus on the old water rates and the reasoning behind them. 2. The next section will look at an approach to the current problemand why the problem occurred. An attemptwill be made to inform the reader of what kind of user population the city has. 3. The last section will analyze the data, statistical information, and the proposed new water rates. OPENNG RESULTS the Using the statistical package MNTAB, the distribution of the customers using Kaufman water was determined. The results from distribution showed that the breaks in the steps of the water rate schedule were wrong. The changes should be where the steps are placed, not in straight percentages across the board. This wil then put more of the customers in a higher cost per 1000 gallon bracket, which will dramatically increase the income for the city of Kaufman. 1-2-

6 THE CTY OF KAUFMAN Kaufman, Texas is a small city located approximately 35 miles southeast of Dallas with an estimated population of 4,900. The national average for water taps is 2.5 residents per water tap. Kaufman is very close to this average with a population of 4,900 and approxmately 1,950 water taps. From the data gathered, Kaufman is growing slowly. The watertaps are increasing by less than 3% last year. This growth has been constant and predictable and therefore should not be a factor in water rate construction. Although Kaufman is a farming town in the true sense, several small manufacturing plants are located in the city. With its for each location in respect to Dallas,a large percentage of the citizens live in Kaufman and work in Dallas. t gives them a feeling of living in a small east Texas town, but with the convience of Dallas. Many people go to Dallas to do their shopping and entertainment. The typical water user in Kaufman is very hard to define. Many older persons in the city use just a few hundred gallons of water month. On the other hand, the city sells water to 4 or 5 water corporations which resell the water to area rual users. A water corportation might use 300 to 400 thousand gallons in a single month. THE CURRENT PROBLEM According to FGURE 1 the city of Kaufman will come up with a -3-

7 (A FGURE 1 CTY OF KAUFMAN SEWER RATE STUDY REVENUES 1985/86* Water Sales $ 640,000 Sewer Sales 200,000 Miscellaneous ncome 24,500 nterest ncome 20,000 Total ncome $ 884,500 Operating Expense $ 619,500 Available for Debt Service $ 264,500 Debt Service $ 286,000 Coverage (%) Capital Outlay $ 39,000 (Deficit)/Surplus ( 60, 500) * Using present water rates.

8 deficit of 60,500 dollars at the end of the 1985/86 operating year. An outside engineering consultant was hired to come up with new water rates to prevent the deficit. FGURE 2 is the rates used before the predicted shortcomming. Then the consultant did a percentage increase of the water rates and calculated the increased revenue from each of three random rates (see FGURE 3). The rate "B" generated the most income, so it was recommended to the city by the consultant. This rate schedule was implemented last October (see FGURE 4). The problem with this suggestion, which prompted this report, is that the steps used for rate changes were not changed very much. One small step was deleted, but no other combinations of steps were even analyzed for their effectiveness. The first approach used the speed of a computer and Linear Programming to try every possible combination of rate and step. Before the model could be constructed the distribution of customers had to be determined. The distibution was definitely not a normal curve, or any type curve that would fit to statistical modeling. This turned out to be the center of the study; how are the customers distributed. The distribution could be broken up into small chunks and analyzed. The consumption and whether or not the customer had sewer were pulled from the input data and the statistical process was started. -4-

9 FGURE ORDNANCE NO..' (' Y- AN ORDNANCE AMENDNG THE CURRENT TATER AND SEWER ORDNANCE N THE CTY OF KAUFMAN, TEXAS AND DECLARNG AN EMERGENCY. BE T ORDANED BY THE CTY COUNCL OF THE CTY OF KAUFMAN: SECTON. That Chapter 23, Water and Sewer Ordinance No , Section 23-2, of the Code of Ordinances, City of Kaufman, Texas is hereby amended and supplemented to read as follows: (a) The monthly water rates to be charged and collected by the City from all customers obtaining service from the City, inside and outside the city limits, shall be as follows: First 1200 gallons ( gallons) minimum charge * $ 5.50 Next 3800 gal 1ons,_per 1q00 gallons.2. T5 Next 5000gailons, per 1000 gallons 2.50 S Next 500 gál1ons, per 1000 gallons Ne50OOállons, per 1000 gallops Next 80,000 gallons. per 1000 gallons 1.30 Q All over 100,000 gallons, per 1000 gallons 1.79 Water Corporations - per 1000 gallons 1.79 SECTON 2.. The existing ordinance as presently reflected in the City's Code of Ordinances shall be amended and supplemented only to the extent herein and not otherwise. SECTON 3WHEREAS, an emergency is apparent for.the immediate preservation of order, good government, and public safety that requires this ordinance to become effective at once; therefore, upon passage of this ordinance by the City Council, it shall be effective from and after the date of its passage. PASSED AND APPROVED this //' day of 0L,,, MAYOR ATTEST: D 4JU, CTY SECRETARY

10 RATE DESGN FGURE 3 To cover all expenses, the water rates must be increased to provide an additional income of at least $61,000 in the year This is a 9.6 percent increase over existing revenue. PROPOSED WATER RATES RATE A: 1. All Customers: First 1200 gallons (Mm. monthly charge) Next 3800 gallons (Per 1000 gallons) Next gallons Next 80,000 gallons Over 100,000 gallons $ 6.00 $ 3.00 $ 2.50 $ 1.45 $1.95 RATE B: Estimated Revenue = $698, All Customers: First 1200 gallons (Mm. monthly charge) Next 3800 gallons (Per 1000 gallons) Next 15,000 gallons Next 80,000 gallons Over 100,000 gallons $ $ 3.00 $ 2.75 $ 1.50 $ 2.00 RATE C: Estimated Revenue = $723, All Customers: First 120 gallons (Mm. monthly charge) Next 3800 gallons (Per 1000 gallons) Next 15,000 gallons Next 80,000 gallons Over 100,000 gallons $ 6.00 $ 3.00 $ 2.60 $1.45 $1.95 Estimated Revenue = $705,800

11 ORDNANCE NO. AN ORDNANCE AMENDNG AND SUPPLEMENTNG CHAPTER 23, UTLTY SERVCES, SECTON 23-2, WATER RATES, OF THE CODE OF ORDNANCES, CTY OF KAUFMAN, TEXAS, AND DECLARNG AN EMERGENCY BE T ORDANED BY THE CTY COUNCL OF THE CTY OF KAUFMAN, TEXAS:. SECTON 1. That Chapter 23, Section 23-2, Water Rates, of the Code of Ordinances, City of Kaufman, Texas is hereby amended and supplemented to read as follows: (a) That the monthly water rates, effective from October 25, 1985, to be charged and collected by the city from all customers obtaining service in the city, or metered at the city limits, or other contractually agreed locations, shall be as follows: U First 1,200 gallons ( gallons) minimum - charge $ Next 3,800 gallons, per 1000 gallons 3.00 Next 15,000 gallons, per 1000 gallons 2.75 t4t Next 80,000 gallons, per 1000 gallons 1.50 All over 100,000 gallons, per 1000 gallons 2.00 (b) Regarding water meters situated outside the corporate limits of the City of Kaufman, but not governed by Subsection (a) or (c), below, the following rates shall apply, effective October 25, 1985: First 1,200 gallons ( gallons) minimum charge $ 9.00 Next 3,800 gallons, per 1000 gallons 4.51 Next 15,000 gallons, per 1000 gallons 4.12 Next 80,000 gallons, per 1000 gallons 2.25 All over 100,000 gallons, per 1000 gallons 2.56 (c) A flat fee of $5.00 is assessed to each water meter situated outside the corporate limits of the City of Kaufman governed by the terms of water contract dated April 18, 1978, by and between the City of Kaufman and Kaufman Estates, nc. This flat fee is assessed to cover City's additional cost and expense of installing, connecting, reading, maintaining and servicing water meters and appurtenances situated outside the corporate limits of the City of Kaufman governed by said contract.

12 STATSTCAL NFORMATON The information was input from four months of consumption reports into data files on the 3081D. The data files were then manipulated by PASCAL and FORTAN programs to be put in the format that could be used by MNTAB. All four months were put into one data base in workspace in MNTAB (see Appendix ). MNTAB generated the basic statistical information seen in Appendix. The mean and the medians being so far apart prove that the distribution is not a normal curve. The power of MNTAB and ease are demonstrated in Appendixes ll-v which are the histograms of the four months: March, August, 1985 and January, February The curves in the histograms are quite unusual. Take for example as a typical month March 1985, the curve starts high, takes a dramatic dip, returns back up and then slowly declines off the edge of the histogram. One thing that does not show up on the histogram is the slight curve back up at the very right side of the distribution due to the water corporations. This information about distributions has not been known to the city or to the consultants. Some evidence that they did know something about the distribution is the curve in pricing of water. Water rates decline as more water is used until the consumer uses more than 100 thousand gallons in one month and then the rates per 1000 gallons goes up. This was specially designed for the water corporations. -5-

13 The old rates charged everyone a minimum charge of 6.00 per month, and then 3.00 per 1000 gallons. The price continued to get cheaper the more they used down to 1.45 per 1000 gallons up to 100 thousand gallons. According to Mr. Smith, the city Manager, this was logical because as more water was delivered to one location, it is cheaper to deliever because more water is sold in comparision to how much pipe network must be maintained. The old sewer rates were calculated by a very complicated method. n surnmerization: First, sewer is not metered, for its calculations 85% of the water consumption is used. This is how sewer is calculated in the winter. n the summer water is used more than sewer, so the sewer rate for the summer is the second highest sewer bill from the previous winter. The ordiance does not cover if the customer was not billed for sewer last winter. Simplification is the main priority in the sewer rates. NTERPRETATON After studying the histograms at length, a means was found to fit the water rate step to the curve of the distribution. Currently the minimum charge is too far to the right on the main curve, and the prices decrease too fast to include most of the right of the curve. The goal was to get the majority of the customers in the highest price per 1000 gallons of water. The minimum charge was moved to the left and broken down into three steps. The proposed rates are listed on FGURE

14 FGURE 5 PROPOSED NEW WATER RATES FOR CTY OF KAUFMAN FRST 500 GALLONS $ 5.00 (MNMUM) NEXT GALLONS PER 1000 GALLONS $ 3.00 NEXT GALLONS PER 1000 GALLONS $ 2.00 ALL OVER GALLONS PER 100 GALLONS $ 2.50 ESTMATED MONTHLY NCOME $ 55, PROPOSED NEW SEWER RATES FOR CTY OF KAUFMAN USE 100% OF WATER CONSUMPTON AND SAME RATE WNTER AND SUMMER FRST 1000 GALLONS $ 8.00 (MNMUM) ALL OVER 1000 GALLONS PER 1000 GAL. $ 1.00 MAXMUM SEWER CHARGE FOR RESDENTAL $20.00 (MAXMUM) ESTMATED MONTHLY NCOME $20,000.00

15 The sewer rates included on FGURE 5 also take into consideration the curve and simplify the method for calculation. This restructures the rates to the curve which can be effectively adjusted now instead of the guessing game to see how much review be generated. CONCLUSON The monthly incomes on FGURE 5 are just estimates. The actual prices can be manipulated for needed revenue changes. This report has turned out to be a statistical analysis instead of Linear Programming. t proves how important input information is to modeling and forcasting. The new rates should be a scientific tool in helping the city of Kaufman forcast their future revenue. -7-

16 APPENDX MTB > PRNT C1-C8 ROW Cl C2 C3 C4 CS C6 C7 C itt C1,C3,C5,C7 are consumptions in 100 gallons. C2,C4,C6,C8 are 1 if no sewer 0 if sewer also.

17 TOTALS

18 APPENDX Cl C2 C3 C4 C5 C6 C7 C8 N MEAN MEDAN TMEAN STDEV SEMEAN MAX MN Q Qi MTB > OJTFLE

19 APPENDX MTB > HSTOGRAM Cl 0,2 MARCH 1985 Cl EACH * REPRESENTS 2 OBSERVATONS 80 OBSERVATONS ABOVE THE LAST CLASS. MDDLE OF NUMBER OF NTERVAL OBSERVATONS *********** **************** ********************** *********************** ********************* **************************** ********************* ***************** ********************** ******************* *************** *********************** *********** *********************** ********************** ********************* ************* ********************* ************* ****************** ************* ************* ********* ************ ********* ******** ******** ******* ************ *********** ********* ********* ************** ****** ***** **** ******* ***

20 ******* ** *** ** ** *** ** *** ** *** ** ** ** * * *** * ** * * **** ** * ** ** * * * ** * * * *** * * *

21 APPENDX V MTB > HSTOGRAM C3 0,2.001 C3 EACH * REPRESENTS 2 OBSERVATONS 326 OBSERVATONS ABOVE THE LAST CLASS. MDDLE OF NUMBER OF NTERVAL OBSERVATONS *********************** ************ ********** ************* ********* *********** ************ ************ **************** ****** *********** ************** ********* ******** ********* ********* ********** ***4+********* ********** ************ ********** ************* ************ ************** ******** ********** *********** *********** ******* ******** ******** ********* ************ ******* ********* ********* ******* ******** ******* ***** ******** ********** *** ******* ********* ******** AUGUST 1985

22 ****** **** *4141*41*41* ******* *41*41*41* *41*4141*41*41* *4141*41* *41*41* *** ****** ***** *** *41*41* ***** **** *4* *41*4* ********* ***** *4* *41*4* *4* *414* * * * *** *4*4* *4* *41*

23 APPENDX V MTB > HSTOGRAM CS 0,2 CS EACH * REPRESENTS 2 OBSERVATONS 72 OBSERVATONS ABOVE THE LAST CLASS. MDDLE OF NUMBER OF NTERVAL OBSERVATONS **************************** ************* ****************** *************************** **************************** *********************** ********************** ********************* *************** **************************** ************* **************** **************** ************* ************ ************ ********* ********* ************ *** *** ***** ******** ***** *** ***** ***** ***** JANUARY 1986

24 **** **** *** ** * *** *** ** ** * *** * *** * * * * ** * ** ** * ** * * * * ** * * * * * * * *

25 APPENDX V MTB > HSTOGRAM Cl 0,2 Cl EACH * REPRESENTS 2 OBSERVATONS 71 OBSERVATONS ABOVE THE LAST CLASS. MDDLE OF NUMBER OF NTERVAL OBSERVATONS **************************** ************* ************** ********************** ****************************** *************************** *************** ****************** ************************ ********************** ************************ ****************** ********************** ********************* *************4+*** *********************** ************* ********************* *************** ************** ************** *********** ******* ********* ************* *4f********** ******** ******* ********* ********* *** **** ***** ******** ***** ******* *** FEBRUARY 1986

26 *** ** ** *** **** *** *** **** ** * ** * * ** * * ** * * ** ** ** * * ** * *** ** * * * * ** * * * * * *

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