For the 360 water customers in Star Valley, the rate hike holiday is over.
Water rates will jump 40 percent after the town takes over the water company May 1 from Brooke Utilities, the first time in 12 years.
The council on Tuesday approved the sharp increase from about an average of about $24 a month to roughly $33 a month to cover the cost of capital improvements.
The council agreed the current rates provided enough money to run the system, but not enough to replace aging meters, make emergency repairs or expand the system in the future.
“The policy decision is whether you want to acquire debt when something breaks or if you want to put into place rates that will build a fund for when something breaks,” said Town Manager and Attorney Tim Grier.
Currently, the average water customer in Star Valley — with a 5/8-inch meter — pays a $16 monthly service fee. That does not include water usage or taxes. Factor in average water use and bills hover around $23.80 a month, said Councilor Vern Leis.
Under the new rate structure, the average customer’s bill will increase to $32.80 a month, varying based on water usage and taxes.
Several months ago, the town proposed a $2.50 increase in the monthly service charge, making the new fee $18.50 a month. On Tuesday, Leis and Grier said while this would cover day-to-day operations, it would leave little to nothing for capital improvements.
“One of the reasons we purchased the water company was to ensure the reliability. To do that, you put money back into the system,” Grier said.
The rate increase should bring in an extra $18,000 a year.
If the council had picked the smaller rate increase, the net gain for the town would have been $7,200 and “$7,000 is not going to allow you to do any kind of maintenance and it is not going to allow you to do any capital expenditure work,” Leis said.
Councilors and town staff say they do not know what unexpected costs could occur since the town has never run a water company before.
Knowing this, Councilors George Binney and Gary Coon asked if the proposed rate structure was high enough to cover unexpected costs.
“We are shooting at this thing blind because we don’t really know (what operation costs will be),” Coon said. “We are probably undershooting our target.”
Leis said while he would like to see an even larger rate increase, he doesn’t believe it is economically possible.
“It is our fiduciary responsibility as a council to put together a package that is viable and sustainable,” he said.
The town based the rate increase on dozens of existing water company rate structures around the state, Leis said.
The rate structure allows the town to pocket a little money each month and deliver a higher level of service than Brooke offered, which reportedly had not maintained the system for years, Grier said.
With the new rates, we “put into place a slight amount of money for unexpected maintenance. You do make it a profitable system and … over a couple years, if you don’t have any major maintenance projects, you will have a little capital.”
Only Councilor Paty Henderson balked at the increase, citing the toll of the economic downturn on most homeowner’s budgets.
Binney agreed that while most people don’t have extra money, he supported the town’s decision to upgrade the system.
Mayor Bill Rappaport, a Brooke Utilities customer, said he was excited for the town’s takeover of the water system and confident the town would offer better service.
The council will officially adopt the new rate structure at the next council meeting.