Water and Wastewater Cost of Service Rate and Impact Fee Study

Carollo is completing the current water and wastewater cost of service rate and impact fee study, miscellaneous fee evaluation, and business analytics enhancement for the City of Houston Public Works and Engineering (PWE) Department.

PWE has faced multiple challenges over the last several years that have required a recalculation of its rate structure. In 2017, Hurricane Harvey caused widespread flooding across the City, causing a need for substantial repair and replacement of PWE’s water and wastewater assets. In 2019, the Environmental Protection Agency and the City agreed to a consent decree to reduce sewer overflows, achieved through a series of capital projects exceeding $2 billion over the following five years. Finally, in 2020, the coronavirus pandemic caused widespread business disruption and economic distress in the City, jeopardizing the City’s revenue resilience.

Carollo worked with the City to address the first two challenges from the outset of the Study, and regrouped with the City to help mitigate the impact of the coronavirus pandemic. As part of the study, a ten-year financial plan is being prepared to determine the revenue requirements for each year of the planning period. Revenue requirements are calculated using both the utility basis and the cash basis and are being allocated among functional categories, customer service characteristics, and customer classes with close attention to the City’s unique contracts. Then, equitable and cost-based rates to recover sufficient revenues will be designed.

The team is also calculating the maximum allowable impact fees for water and wastewater in accordance with Texas Local Government Code Chapter 395. They are developing a Land Use Assumptions plan using data from the City Planning Department and service area maps from the PWE Department. Working with PWE staff, they will identify Capital Improvement Plan projects eligible for inclusion in the impact fee calculation.

For the miscellaneous fees evaluation, a cost-based model is being developed that calculates a fee based on labor, benefits, overhead, and equipment. This is being done through coordination with City staff to ensure the existing fees are appropriate, new necessary fees are included, and the fee calculation inputs are in line with the City’s current expenses for the service. The business intelligence and analytics enhancements will improve the water and wastewater utility’s data management efficiency. This increased efficiency supports better analysis of customer and financial data.