In rate design, a cost of service study is performed using industry standard methods to equitably allocate the costs of the utility across all customer classes. Revenue requirements are then determined to cover those costs and final rates are calculated to ensure adequate end of year cash balances for the utility.
Costs include debt service, operation and maintenance costs, and capital costs associated with growth and maintaining infrastructure for serviceability and environmental compliance. Compliance with environmental regulations is a significant and ever-increasing expense associated with running the utility.
Debt service is allocated to pay for purchase of the LCRA system and capital improvements.
On the wastewater side, rates are set to cover the higher operating costs associated with these operations. This includes operating and maintaining 2 wastewater plants and complying with TCEQ TLAP and 210 regulations for land applying wastewater effluent. Since the PUA is in an environmentally sensitive area, the PUA cannot discharge wastewater from treatment plants directly into Little Barton Creek due to the Endangered Species Act and other restrictions. Rather, the PUA has to perform additional treatment of the wastewater through filtration and chlorine addition, and pump this effluent to large holding ponds for storage and subsequent land application at TLAP golf courses and 210 HOA common areas. We also spend $1,000,000 a year disposing of wastewater sludge and have to incur significant costs controlling odors due to proximity of our plants to residential areas and the characteristics of our effluent.
We have a 10-year capital improvement program to build water and wastewater infrastructure for growth and upgrade and maintain our system. The cost is in the millions over this 10-year period.