The members of the Utility Advisory Committee upped the ante of the water rate reduction discussion with its unanimous agreement Tuesday to recommend an immediate 34 percent water rate reduction, coupled with a refund in the order of $300,000 to be delivered to 2010 water utility ratepayers.

The motion was made after a UAC meeting in which committee members met with city staff to discuss the rate reduction and future of the city’s water utility.

Unable to come to agreement over the UAC recommendation, the City Council decided Wednesday evening to push the discussion to its Sept. 7 study session, which is also slated to include the final report from the utility business advisor on the water utility divestiture.

The $300,000 refund recommended by the UAC reflects the reduction in 2010 operating expenses after the city implemented both staff and other cost-cutting measures. Both the UAC and City Council have acknowledged that the water utility has accumulated a surplus of reserves, and the UAC used the meeting to decide how to provide an immediate respite to ratepayers who have been overcharged for the utility’s needs.

The City Council asked the UAC to bring forward a recommendation to be made in the interim, while the city continues deliberating over the future of the utility. Both the UAC and council expressed the need to provide some amount of immediate relief to ratepayers, and then review rates again in a second approach once the city decides whether to transfer, sell or retain ownershp of the utility.

At last week’s meeting, the council voted to reduce water rates across the board by 25 percent and directed staff to draft the ordinance to be discussed as a first touch item at Wednesday’s council meeting. The UAC had previously stated it wanted to consider a rate reduction and/or a refund in conjunction.

Initially, the UAC was concerned that a refund would be too complicated a process to be provided on an immediate basis. But after looking at the financial figures presented in the GHD consultants’ initial report, the UAC decided that a refund focusing only on 2010 would be a manageable task for city staff to implement.

Councilor Bob Scales said he thought the $300,000 would be eaten away quickly through staff time used to figure out the logistics of the refund, and the costs to actually send the checks. In lieu of the refund, Scales proposed a 40 percent rate reduction for a minimum of six months, which would be reevaluated at a specific date.

Councilor Barry Peters agreed, saying that a refund is a “time-consuming distraction” and he would like to see staff focus on issues in the city’s current work plan and not get involved in something that stretches beyond.

“So it’s easier to take people’s money who paid in good faith the rates we overcharged than to give it back to them?” said Councilor Kim Brackett. “These are consumers who paid money in good faith for costs that didn’t materialize. Why are we keeping the money? It isn’t ours to keep. What the utility doesn’t need we should refund back.”

The water fund is estimated to end the year with $4.4 million in unrestricted cash, which more than doubles the 2010 year-end balance of $1.8 million. The consultant team estimated the reserves target should actually hover around $980,000.

City Manager Brenda Bauer said that a “time-limited refund would be a much easier task for city staff.” Initially Bauer had said that refunds were complex and the legal issues could become expensive and time-consuming for the city to implement.

UAC member Arlene Buetow recommended looking at 2010 alone as a way to make the process easier. Buetow said she was an advocate for a refund in addition to the rate reduction as a way to be equitable to the ratepayers who were charged to build the surplus reserve.

“The historic ratepayers are the people that created the [water utility] reserve,” said Buetow. “It would really bother me if the only people who benefited from a change would be future ratepayers.”

Both the UAC and the council expressed their desire to select a conservative rate reduction percentage. Bauer warned that a 34 percent reduction may risk the need for the city to adjust rates at the end of the year and ask customers to pay more or less money when the rate structure is reviewed as a whole.

In looking at the numbers, the UAC concluded that the utility’s operating revenue would still be in excess even if the city drops rates by 34 percent, and the reduction would just be reducing the size of the surplus.

In its initial report, the consulting team had also estimated that the city could drop rates by 34 percent without compromising its level of service.