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Posted on: January 11, 2022

City of Danville Utilities - Rate Discussion

Utility 2

The City of Danville Municipal Utilities Department is responsible for provision of high-quality drinking water and wastewater treatment for its customers, while adhering to strict regulatory compliance standards. More specifically, the water Department currently serves over 10,500 customer accounts including residents in Danville, Perryville, Junction City, and some outside these incorporated boundaries in Boyle County plus seven wholesale customers. Wastewater totals are beyond 6,800 connections with three additional wholesale customers.  The City of Danville water system is municipally owned that thus does not directly fall under the purview of the Public Service Commission (PSC). However, like most municipally owned utilities, this Department must operate within responsible and accepted practice while maintaining its capital facilities in good working order. This is exemplified any time adjustments to wholesale rates are administered in relation to depreciation schedule and City’s capital program.    

 Expenses for the water system are divided into four major categories – Administration, Treatment, Distribution, and Finance/Capital Costs.  These major categories are funded primarily or in-part by revenue generated by water provision rates. The City of Danville reviews its water rates regularly to maintain consistency and to account for major changes in debt, maintenance, and operations of the system.  For many years, City of Danville has implemented cost-based rates pertaining to different customer classes (residential, commercial, industrial, and wholesale) as adopted from industry standard and defined in American Water Works Association (AWWA) guidelines.  Being cost-based the utility is not a revenue generator for the City, rather is used as an economic tool to support a stable and competitive cost of living within a five county service area. The various customer classes demonstrate groups of users with similar water usage characteristics and service requirements.  Revenue generated is therefore, more directly related to the true operations and maintenance cost for the utility overall; broken down by each customer class.   For example, wholesale customers typically do not use all of the components of the water system such as service lines, distribution lines, meters, fire hydrants, etc. So, their rates should not include reimbursement for those costs.  Water and wastewater are two different branches within the utility and have separate revenues and expense with only combined billing and administration. 

 For many years now, the City of Danville has reflected the water rates described above in per 100 cu ft units.  The rates decrease stepwise as the consumption increases, better known as a “declining block rate”.  As water consumption increases, the attributed rate decreases as monthly consumption milestones are achieved by the customer.  The customer base rate creates revenue for municipal billing/administrative costs, debt payment, and capital investment.  The following step rates thereafter cover labor, the cost to manufacture the water, chemical treatment, as well as depreciation.  The City of Danville has an obligation with its customers to recoup the total revenue required to meet it’s total expenditures of operating and maintaining its system.  

 This methodology continues to meet the satisfaction of the State Auditor’s Office.  Though the City of Danville has just recently moved to monthly billing, the previous method of bi-monthly billing was also reflective of a combination of monthly rate consumptions.  In 1998, the City instituted cost of living adjustments (COLA) to maintain the demand for materials and supply needs.  This COLA rate is updated annually per Kentucky Department of Local Government.  The City also regularly conducts Cost of Service Studies to consistently evaluate and publish proper rate implementation for the customer base.  Utility 1

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