Bellevue looks at options for correcting sanitary utility operating loss

BELLEVUE – During its March 26 meeting, the Bellevue Village Board discussed options for correcting a net operating loss in its sanitary utility.

In July 2024, the village hired Kerber Rose to prepare a comprehensive review of Bellevue’s water and sewer rates.

“The Sanitary Sewer Utility rate study was conducted after our previous annual audits showed signs of stress within the utility due to the sustained increases we continue to see for the treatment of sewage costs paid to NEW Water,” a memo from Bellevue Director of Public Works Teal Spellman to the village board stated.

“The goal is to review utility rates annually in order to maintain, and at times increase, utility operating revenues in a sustainable fashion that is weathered from inflation and market changes. This process, as a goal, was originally set out through prior financial management plans but has not been followed as judiciously as recommended.”

The last increase the village saw was in December 2020, when rates were increased by 10.4%.

For residential users, the rates went from $5.98 per 1,000 gallons to $6.85 per 1,000.

Spellman said that the amount that the sewer utility pays to NEW Water continues to increase annually — adding up to a 30% increase.

“This increase in expenses that the village sanitary sewer pays to NEW Water for treatment is the main driver in the sewer utility’s net operating losses in the previous two audits. Other expenses including operations and projects have also increased but at a substantially lower percentage,” Spellman said.

“In order to correct the net operating loss from the 2024 audit of $434,589, a rate increase must be completed. The utility must generate additional revenue to account for the continued increase in expenses attributed to NEW Water. The amount of necessary revenue increase depends on the desired Rate of Return (ROR) ranging from 2.5% and up.”

The board was presented with the following two options from staff:

1. Maintain current system organization

This option would result in the sanitary utility utilizing a 2.5% rate of return and preliminary numbers showing a need to generate an additional $474,998 of revenue annually, approximately a 15.7% increase.

2. Sanitary Sewer Utility assume ownership of sanitary laterals within the road right of way

Currently, per the village municipal code, costs associated with the maintenance and replacement of sanitary laterals is the responsibility of the property owner from the main (including the Y or similar fitting) to the property line.

Option No. 2 would result in the sanitary utility needing to generate more additional revenue than option No. 1, so a higher rate of return would be utilized. The suggested rate of return for this option through the analysis would be 5% to result in additional revenue generated of $843,708, an increase of approximately 26.8%.

Under option No. 2 the property owner would be responsible for replacing the lateral and the village would have the right of recovery, and the process for replacing the lateral or performing maintenance in the right of way would be streamlined.

The board voted unanimously to move forward with option No. 2.

Staff will now analyze how the additional revenue will be generated through fixed charges and volume charges.

On April 9, the board will vote to approve the new sanitary sewer rates, and if approved, the new sanitary sewer rates would go into effect on June 1.