Newton WaterWorks to review water rates for IRUA

Editor’s note: A previous version of this story incorrectly referred to IRUA as Iowa Rural Utilities Association instead of Iowa Regional Utilities Association. The article has since been corrected.

Iowa Regional Utilities Association has been undercharged for water by the Newton WaterWorks for several years, but now that the city has taken over the utility it is likely rates will increase. However, city officials on June 5 suggested it won’t be the residents who see their bills go up, but rather the rural water distributor.

IRUA uses approximately 60 percent of Newton’s water, according to utilities director Jody Rhone. Data from the city shows the utility company is paying much less for water than the other two communities it buys from. This information was shared at a city council workshop earlier this month.

Rhone first showed council members the list of proposed WaterWorks projects identified in the Water Treatment Facility Plan Report, which also had estimated costs and the year they would be scheduled. Seven projects were proposed between 2025 and 2030, costing a combined $28.2 million.

Here are the list of projects:

• New Jordan Well, $6.4 million, 2025

• Clearwell baffling, $300,000, 2026

• Four shallow wells $2.5 million, 2027

• Recase existing Jordan Well, $1.3 million, 2028

• Four shallow wells, $2.5 million, 2029

• Replace transmission mains, $15 million, 2030

• Lime pump system, $200,000, 2030

The city also hired a consulting firm to conduct a rate analysis study for the WaterWorks, though Rhone described it more as a “rate comparison” because staff wanted to see how Newton fit alongside comparable cities. The study looked at water rates, sewer rates, wholesale water rates and suppliers to IRUA.

As a result, the study found 25 comparable cities, from Marshalltown to Creston. Not all are exact, Rhone added, because water and wastewater plants are rated on the complexity of how they treat the water. Both the water and wastewater plants in Newton are Grade 4 plants, which is the highest rating in the state of Iowa.

Of the 25 comparable cities, only Burlington, Keokuk, Marshalltown, Mason City, Newton and Ottumwa had Grade 4 water and wastewater treatment plants.

Using the common denominator of 5,000 gallons per month per user (Rhone said this is the average amount of sewer water a home goes through), the study shows Newton’s sewer rate is one of the lowest among the 25 comparable communities. In fact, it was the fifth lowest sewer rate.

“I’m here to tell you that’s not a good thing,” Rhone said. “When it comes to utilities, when your rates are low it means you’re not putting the money you need to back into your infrastructure. What we are proposing on that for the sewer rates is to continue with a 5 percent per year increase on that.”

WaterWorks charges the same sewer rates for residential properties in Newton as it does for commercial properties. The sewer rate is $14.49 for zero to 200 cubic feet. More than 200 cubic feet adds $3.65 per 100 cubic feet. Rhone said the gradual increase to rates will help get the city where it needs to be.

WHERE DOES IRUA FIT INTO ALL OF THIS?

Of course, the main reason for the study was to look at IRUA’s rates. Rhone said the water utility company is the only customer WaterWorks has that charges per 1,000 gallons rather than per 100 cubic feet. Included in the presentation was a copy of the rate structure for IRUA.

For zero to 31 million gallons a month, IRUA is charged about $1.09 per 1,000 gallons, which equates to about $33,982. The next 14 million gallons IRUA is charged $1.14 per 1,000 gallons; the next 48 million gallons will cost $1.17 per 1,000 gallons; and anything over 93 gallons is $1.23 per 1,000 gallons.

“Except for when they use 3.5 million gallons per day, then it goes to $1.51 per 1,000 (gallons), except for the first two days that they only get charged $1.14 per 1,000. Any third and subsequent day after that in a 30-day period, from (noon) to (midnight) the next day it is $1.51 per 1,000,” Rhone said.

If that sounds confusing, it should. Several council members began shaking their heads and chuckling at the provisional rates. Rhone was quick to note he wants to fix the contract and come up with a per 1,000-gallon rate. After some further calculations, Rhone determined IRUA was paying $1.14 per 1,000 gallons.

“We are wanting to switch that,” Rhone said.

Residential and commercial properties in Newton are paying about $3.84 per 1,000 gallons of water. Those customers outside city limits are paying about $4.80 per 1,000 gallons of water. Rhone said the costs to make the water is about $3.75 per 1,000 gallons of water.

For wholesale water rates (the water that is sold to IRUA), Newton ranks at the second lowest of the 25 comparable communities.

“We are selling somewhere between approximately 80 to 100 million gallons a month to IRUA,” Rhone said. “It’s a massive quantity. We are, I think, the second largest in the state of Iowa for supplying water … IRUA has their own water plant up in Waverly. Marshalltown sells to ‘em. We sell to ‘em, and Pella sells to ‘em.”

Rhone noted WaterWorks still has not completed its full analysis; it will take about a year before it is finally finished. But the city’s data shows IRUA is paying Newton far less for water than Marshalltown and Pella. Rhone said Newton “is carrying the load.”

With less revenue to invest back into the city’s water infrastructure, Rhone said a little more than 60 percent of the distribution system is undersized; not to mention a significant portion of the system is aging out. City staff found records of when the 16-inch transmission mains were first installed, dating them at 97 years old.

Replacing the transmission mains will cost $15 million.

SOLUTIONS & KEEPING A LONG-TERM PARTNERSHIP

The city has presented council members with some options. Rhone said the first option would be to increase IRUA’s rates to $3.75 per 1,000 gallons on July 1, 2024, which would be a 228 percent increase. Sewer would continue to get five percent increases for the next five years.

The second option would be to raise IRUA’s rates to $4.99 per 1,000 gallons by the start of the next year, which would be a 338 percent increase. Sewer rates would continue the five percent increase for the next five years. Stormwater would also get a two-and-a-half percent increase for the next five years.

The third option would maintain the sewer rates as stated before but gradually increase the water rates to IRUA over the next five years. The rate in 2024 would start at $1.63 per 1,000 gallons and then gradually increase every year until it reaches $3.75 per 1,000 gallons in 2028.

The fourth option maintains sewer rates mentioned previously and gradually increases water rates to IRUA over the next five years, but the starting rate would be two cents higher than the previous option. Eventually the rates would increase to $3.75 per 1,000 gallons in 2028.

The fifth option keeps the sewer rates schedule the same as all other options, and the rates to IRUA gradually increase over time. But the starting rates and ending rates are significantly higher. In 2024, IRUA would have to pay $1.87 per 1,000 gallons. By 2028, their bills will have increased to $4.99 per 1,000 gallons.

Rhone referred to the city’s comprehensive plan where it states the city’s mission is to provide excellent services dedicated to fiscal responsibility.

“I don’t feel like right now where we’re at is being fiscally responsible with our water rates to our citizens who are subsidizing people who don’t live in Newton.”

Regardless of which option council chooses, Newton City Administrator Matt Muckler said it will be the first time IRUA will see a rate increase from Newton WaterWorks since 2019. Council members asked why some of the options are five-year increments. Muckler said it’s because changes need to happen now.

It also gives IRUA time to plan. The city administrator stressed the City of Newton wants to keep a good working relationship with IRUA, and he isn’t placing blame.

“We need to take a long-term approach, we need to be a good partner with IRUA. It’s not their fault or our fault. What’s behind us is behind us, and I think we need to work with them as a partner moving forward,” Muckler said, noting IRUA may not have received a lot of feedback of rates changes in the past.

The city wants to be more communicative in its approach to IRUA and will provide the scenarios to the utility company.

By fiscal year 2028, Muckler said the city will do a cost-of-service study to determine what it costs to make water for residents and what it costs to make water for IRUA. The city administrator expects it will be more than $3.75 per 1,000 gallons when the study is completed.

Plus, if the council is going to decide to make big investments in the WaterWorks system, then the city needs to know it has a long-term partner to buy water.

“Otherwise, we shouldn’t be doing them in the first place,” Muckler said. “I think we want to work well together. And that’s why we presented it that way.”

COUNCIL IS CONVINCED BY STAFF’S FINDINGS AND WANT CHANGE

IRUA already has a contract with Newton WaterWorks that was amended a few years ago to provide the utility company water for the next 40 years. Of course, that was prior to the city council taking over the administrative duties from the Newton WaterWorks Board of Trustees.

Although IRUA will have to pay more for water, Rhone and Muckler stressed that residents will not be seeing increased water rates for some time. When rates do go up for customers, it will likely be an incremental change over five years, which seems to be the regular and agreeable practice among city officials.

Council members asked staff if IRUA would pitch in for the $28 million of projects listed in the report. Rhone said in a roundabout way the utility company is paying for them by purchasing water. But he also noted in the past that IRUA contributed to some projects, but in return they bought down their rates. That won’t fly now.

Rhone said, “I don’t want to do that. That’s how we got into this situation.”

Other council members thought the gradual increases over five years was giving IRUA too much time and the city too little time to recoup losses. The worst-case scenario would be for IRUA to build its own plant and hire its own staff, and thereby cutting out its water purchases altogether.

When Rhone investigated that scenario, he learned it would take IRUA approximately seven years to build a plant, provided the land was already identified and secured. Muckler said if Newton raises its prices too high, IRUA could be more inclined to purchase water from Marshalltown or Pella.

Newton Mayor Mike Hansen looked at all five options and said he would sign the first one, which would immediately increase IRUA’s rate by 228 percent by 2024. But council member Evelyn George said that rate of $3.75 per 1,000 gallons means the city is still selling water at cost, noting the fifth option could be better.

“We need to think about going to $4.99, don’t we?” George asked.

Council member Craig Trotter was adamant about the second option, which immediately raises rates by 338 percent to $4.99 per 1,000 gallons.

“Oh, my,” George said.

Trotter later remarked, “They’d have a year to think about it.”

WHAT IS COUNCIL’S CONSENSUS? RAISE IRUA RATES

Hansen suggested the city increase the rate to $3.75 per 1,000 gallons the first year and then jump it to $4.99 per 1,000 gallons the second year.

“Then they know you’re going to start at $3.75 and we’re going to end up at $4.99, and then you’re going to do an analysis of where you’re at,” Hansen said.

Trotter softened his stance and could agree with the mayor’s suggestion, though he made a point that he still liked the second option. Council members were relatively in consensus with this initial deal, though since it was a workshop no decision was put to a vote. Plus, IRUA had yet to negotiate with city staff.

Muckler was instructed by the mayor to meet with IRUA first before drafting an ordinance for council consideration.

Trotter asked Rhone if there were any downsides for the city if IRUA purchases water some place else.

Rhone said WaterWorks is “literally losing money” selling water to IRUA now.

Hansen said, “If you all had a financial advisor give you this information tonight and say, ‘Hey, give me $100,000, you guys, and this what I’ll do with your money,’ you’d tell him, ‘See ya!’ and kick him or her out the door in a heartbeat. It just makes no sense.”

George added, “It makes negative sense.”