Apalachicola’s water and sewer customers, who saw rates rise by 3 percent last month as part of an annual increase instituted nearly a decade ago, should consider that the good news.

The bad news is the rates are about to go an even higher.

A detailed water and wastewater rate study, prepared by the Florida Rural Water Association and unveiled to city commissioners at a special meeting Oct. 26, proposed that monthly combined bills for residential customers, both inside and outside the city, go up by about 25 percent, phased in over the next three years.

This proposed series of rate hikes, said Bob Mearns, a financial/management circuit rider for the FRWA, would still be insufficient to cover the total expense of providing these services, particular for wastewater, which the study suggested would need to nearly triple its rates over the next three years to entirely cover debt service and operating expenses.

A more modest phase-in, he said, would prevent “rate shock,” particularly for those who use less water, he said. The FRWA also proposed the city scrap its current system of having a base rate, plus a standard uniform rate per each additional 1,000 gallons used.

Instead, Mearns said, the city ought to keep its base rate unchanged, but implement a multi-tiered system in which the cost for each additional 1,000 gallon increments would rise, thus encouraging conservation.

“Since it costs more to produce water and treat wastewater, the city should recover that expense by charging more for more water consumed or wastewater treated,” read the study.

“If you pay more, they’ll be more conscious of how much they’re using,” said Mearns.

The study said rate hikes were also needed to create adequate reserves for capital improvements and contingencies, which it estimated should be at least 15 to 26 percent of the total system budget. “For the purpose of this rate study, the FRWA recommends that 18.5 percent of the systems expenditures be used as the reserve constant,” read the study.

“You need a capital improvement plan. It helps you understand the condition of your system as it is,” said Mearns. “How old are these components, and when would they have to be replaced? That we need to save this much money over this many years to replace this component.

“A lot of citizens don’t understand the complexity, that it costs a lot of money to do that,” he said. “This system has to be here forever and you’re the stewards of keeping it forever.”

The study found the combined water and wastewater systems had a gross income loss of about $240,000, and a net loss of about $850,000, which includes combined depreciation of about $883,000.

Depreciation was not included in the rate study, and so without it, the combined systems have a positive cash flow of a little more that $650,000. But when combined debt service of nearly $730,000 is taken into consideration, there’s a net cash loss of nearly $78,000 annually.

A previous wastewater treatment loan from the Florida Department of Environmental, with a balance now of nearly $4 million, has been part of an ongoing dispute with the state. Last year’s effort to have DEP forgive the loan, in exchange for a swapping of land, fell through, and a renewed effort is set for the upcoming legislative session to see if the city’s continued status as an area of critical state concern can achieve a lifting of the annual debt service payment of about $532,000.

“(This debt) is what causes the rate to be so high,” read the study. “The elimination of the debt however will not result in the rates remaining the same, as other factors must be considered which include rising treatment expenses caused by regulations and increased costs in operational expenses.”

Mayor Van Johnson, who has resisted rate hikes while instituting a monthly surcharge to help balance the books, said he believed a rate hike was needed.

“Obviously we’re going to have to address the rates,” he said. “We’re at the point now where I don’t think we have any other options.”

Johnson’s remarks led to a back-and-forth with Commissioner Mitchell Bartley, who shared a viewpoint he said he often hears from constituents. “You’re making us pay for water we can’t even drink,” said Bartley.

Johnson said that it is a unfounded misconception that the city’s water has led to higher than normal cancer rates. “I drink the water, I cook with it,” he said.

Mearns said another contributing factor to lower revenues is that the city’s water loss is about 36 percent, more than three times greater than the 10 percent water loss the Northwest Florida Water Management District regards as acceptable.

Mearns said this can be due to large amounts of water being flushed from the system or other non-compensated and unaccounted-for uses, such as water being stolen or leaked from city pipes. He said that, like the rate study, the FRWA can provide a water audit at no charge as a membership benefit.

The water consultant also suggested the city do away with its rate discount offered to seniors age 62 and over regardless of their household income.

“I’ve never seen this many different rates. You could be a millionaire and still get a discount,” said Mearns.

He said the only other Florida city he knows that offers such a senior discount is Fernandina Beach, where it is done through an infusion of money from an agency serving senior citizens.

“That’s the only place I know,” he said. “They pay the same rate but they get supplemented.”

After the commissioners signaled their support, Johnson asked City Administrator Lee Mathes and City Attorney Pat Floyd to draft an ordinance incorporating the FRWA’s proposed rate schedule.

If approved at a future meeting, the new rates could be effective as early as the end of December bills, due Jan. 10, 2018.