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Secondary Meters

Hubbell, Roth, and Clark, Inc., consulting engineers for the City of Bloomfield Hills determined that secondary meters are not needed.  There report is as follows:

At the September City Commission meeting, our office was asked to prepare a report on the pros, cons and financial impacts of instituting a policy to permit the installation of secondary water meters. These meters are used to record the volume of water used for outdoor purposes such as irrigation, pool filling, vehicle washing, etc. Residents installing the secondary meter do so with the intent of saving money on their sewer bill, since this water theoretically does not enter the sanitary sewer system. For a water user that does not practice conservation or irrigates excessively, this would appear at first glance to amount to a significant quarterly savings. However, as we have shown, this savings would be offset by increases to the residents that do not install a secondary meter.

Our financial analysis is not without limitations. HRC has prepared this report from an engineering perspective. An audited comprehensive water and sewer rate review is beyond the scope of our services.  We have however, utilized a Plante and Moran, LLP study for Wixom as reference. Our report makes several assumptions regarding actual water usage, anticipated rate increases, the stability of the number of connections on the system, etc. The rates used herein do not include any rate increases the City may elect to implement. Further, our office has benchmarked this analysis against a user that would be considered an average water and sewer customer on the City’s system. As we have mentioned before when discussing rates, water usage in the City is anything but average, so caution must be observed when reviewing our findings.

Both the Detroit Water and Sewer Department (DWSD) and the Oakland County Drain Commissioners office (OCDC) have minimum annual revenue requirements to convey and treat and operate and maintain the system respectively. The City has contractual arrangements with these parties. Currently, to determine the sewer rate charged to the City by OCDC and DWSD, they take the required revenue to perform their services based on the anticipated volume of sewage generated by the City and divide it by the anticipated total water consumption of the City. Therefore, sewage billing is not truly based upon the actual amount of sewage, rather the water consumption of the City. Most people fail to see that due to these fixed costs, a direct relationship exists between the water consumption and the sewer rate. A simple example is if everyone in the City installed a dual meter and used 50% of their water outdoors, sewer rates would double to generate the same revenue needed for the operation and maintenance of the system. Secondary meters are explicitly used to record the volume of water that is spent for outdoor purposes to deduct this volume for the user’s sewer bill. This does not mean that the sewage generated from a residence or business will decrease. This is important because as stated, the revenue requirement is based on the anticipated sewage volume. Therefore, secondary meters have no impact on the revenue requirements of the agencies providing services to the City. As shown in the report, we estimate that as the number of residents or businesses install secondary meters increases, the rate increase necessary to support City of Bloomfield Hills Secondary Meter Financial Analysis the revenue requirements gets shifted to those residents that elect not to install the secondary meter until such time as everyone has a secondary meter. At which point no one realizes a savings or increase. Please note that in the first seven (7) years of this program in Farmington Hills only 3% of the community installed a secondary meter.

The spreadsheet simply shows the sewer rate components as approved by the City for 2003-2004 and the estimated rates for 2009-2010 assuming a 3% annual increase. The sewer rate multiplied by the average annual water usage (which has remained generally stable) determines the approximate total revenue required by DWSD and OCDC. Page 1 also shows how we calculated the average water use and bill for an average City water and sewer customer. The purpose of extrapolating the data out to 2009-2010 is to show how normal rate increases will exacerbate this billing disparity.

Page Number 2

This spreadsheet works through our calculations for determining the financial impacts of secondary meters for the billing year of 2003-2004. The first set of calculations show a hypothetical situation where various numbers of City residents install secondary meters immediately and the impact it will have on the current sewer rate. For example, if 50% of the City’s Residential Equivalent Units (REUs) installs a secondary meter, the sewer rate will increase from $15.22 to $18.83 or an increase of 24% to meet the revenue requirements. This calculation assumes the water consumption pattern is as shown on the spreadsheet.  Several of the water bills from last year that we reviewed generally conform to this pattern.

The next two sets of calculations show the savings realized by an average person who elects to install the secondary meter and the increase costs that burden someone who elects not to. As you can see, at 5% of the REUs having a second meter, they will save approximately $269.80 per year and will cost the REUs without secondary meters approximately $20.94 more annually. Again as the number of REUs that install the secondary meter increases, costs will also increase substantially for the person that has chosen not to connect.

Page Number 3

This spreadsheet is a duplication of Page No. 2 but for the year 2009-2010. Due to steadily increasing water and sewer rates, the difference between the savings of those with a secondary meter and the increase in costs of those without one will also increase steadily.

Summary

In summary, we offer the following observations. Secondary meters will in fact cause everyone’s sewer rates to increase. While everyone will be paying higher rates, those with second meters will be paying on less water usage and thus will realize a savings. This provides a significant benefit to the users that are first to install one. Also, secondary meters dramatically favor high volume users. However, as more and more secondary meters are installed, the savings of existing secondary meter users will diminish while causing everyone else’s rate to increase for using the same amount of sewer capacity as they have in the past. In the end, DWSD, OCDC and the City will still receive the revenue needed to operate and maintain the system. Secondary meters simply redistribute the costs of doing so to the residents that do not choose to participate in installing a second meter. The only way this would make sense from an engineering perspective is if the City were selling the meters. The City could use the revenue generated from that to offset the increased costs to everyone else. However, unless the costs of the secondary meters are substantially higher than $800-$1,000 typically charged by the area communities that allow secondary meter installations, this is not feasible.

There are three historical perspectives on this. The first is the people likely to take advantage of this type of program are those who are currently driving the water rate increases seen in recent years. For a secondary meter to be an attractive proposition for a resident, they have to assume that the meter and installation costs will be paid for by the savings realized on their sewer bill in a reasonable timeframe. In other words, if you are an over user of the water, you will save more and pay off the meter costs faster. But it is the over users of the system that are causing the system problems that we have talked about in the recent past. Basically, you will reward those residents that over irrigate their lawns, do not conserve water and are not good stewards of the water and sewer systems.

The second perspective is that once people realize the amount of water they use for irrigation, it is assumed that they will become better at conserving this resource. As talked about in the rate meetings, an ultimate goal of the City is to reduce the peak demands so DWSD rates will plateau and become steadier. However, it is our opinion that this is not a conservation issue, but rather a pure cost issue. Secondary meter users in the City may in fact use more water because it will be cheaper. We do not believe that secondary meters will show the benefits of conservation to the user.

The third perspective is that the inspections of the meter installations will require home access. The City could tie these inspections into a program to also inspect the sump pump to make sure that it is not connected to the sanitary sewer. Sump pumps connected to the sanitary sewer system are a large source of inflow and infiltration and are illegal. In the near future the City will be faced with a decision regarding the requirement for home inspections to check for these illegal connections in an effort to remove the inflow from the system.

Recommendation

HRC does not recommend instituting a policy to permit the installation of secondary meters for the following reasons:

•  It will cause everyone’s sewer rates to increase.
•  It benefits the minority of customers that install the secondary meter first.
•  It greatly benefits high volume users.
•  It simply redistributes costs of sewerage to the customers that do not install a secondary meter.
•  Secondary meters, in our opinion, within the City will not promote conservation.
•  Over users of the water system are rewarded for installing a secondary meter.