Richmond utility officials said monthly rate increases proposed as part of Mayor Danny Avula’s budget are primarily being driven by inflation and the need to build up financial reserves in the gas utility.

Across the city’s utilities, “we’re seeing increasing operation costs,” Billy Vaughan, the Department of Public Utilities’ senior deputy director for finance, told Richmond’s Public Utilities and Services Commission during a presentation Thursday. 

Avula’s budget calls for a roughly 6% overall increase in the rates Richmond residents pay for gas, water, wastewater and stormwater, which would amount to about $12 extra on the average residential customer’s monthly bill. 

That bump would come from individual increases in the rates for each service: a 5.25% bump for gas, 5.75% for water, 6% for wastewater and 17.5% for stormwater. 

Besides operations and maintenance costs and debt for capital projects, the utilities also pay tens of millions of dollars to Richmond’s general fund annually through what’s known as a payment in lieu of taxes, or PILOT, as well as dividends on their profit. 

The PILOT, which has been controversial for years, stems from a provision in the city’s charter that requires utilities to pay for taxes that they would have owed “had the utility not been municipally owned.” It’s made up of two parts: equivalents of real estate and personal property taxes that are based on the value of the utilities’ assets and the equivalent of a consumption tax that is based on sales volumes. 

“The real estate and personal property tax stays relatively consistent. It’s on a slight upward trend because we are adding more assets every year,” said Vaughan. “The consumption tax obviously is going to vary year to year depending on weather. But it’s a smaller portion of the PILOT.” 

DPU is projecting that it will pay an average of $27.4 million annually over the next five years, peaking in fiscal year 2030 at $31 million. 

But while PILOT payments are expected to increase over the next five years, dividends — which under the charter must also be transferred to the general fund annually, assuming certain conditions have been met — are expected to fall over the same period, from $7.7 million in fiscal year 2026 to $2.7 million in fiscal year 2030. 

Gas 

Richmond customers’ gas bill is made up of several components: a monthly service charge, a distribution charge based on how much gas the customer actually uses, a charge for the cost of the actual gas DPU purchases that is adjusted on a monthly basis depending on market rates, and utility taxes.  

This year’s 5.25% jump would result from increases in both the monthly service charge and the distribution charge. The overall increase is “slightly higher than what we’ve had in previous years,” said Vaughan. However, he continued, “we feel it’s reasonable considering the inflationary impacts that we’ve seen.” 

Last year’s budget increased gas rates by 3.39%, while in fiscal year 2024, they increased 3.75%. 

Vaughan said commodities, equipment, vehicles and contractor costs are all being impacted by inflation, with many bids coming in above engineering estimates and labor costs rising as a result of collective bargaining agreements.

Because of the variability in gas prices, “we typically try to exclude them when we talk about the rate-setting process, because they are not a direct component of the rate-setting process,” Vaughan told the commission. 

DPU has said one of its focuses over the next few years is building up the gas utility’s capital reserves — the pool of money that Richmond authorizes it to spend on projects, either by using cash on hand or by issuing bonds to raise funds. 

“Historically, the water and wastewater utilities have carried a lion’s share of the reserves, whereas gas has had very little reserves,” said Vaughan. “So we are intentionally trying to build the reserves up in the gas utility while bringing them down slightly in the water and wastewater utilities, with the ultimate goal of keeping reserves at the level we want them to.” 

Much of the $234 million budgeted for capital improvements over the next five years will go toward replacement of antiquated cast-iron pipes in the gas system. Most of those costs will be covered by grants from the U.S. Pipeline and Hazardous Materials Safety Administration that have been awarded to Richmond. 

Water

Water bills are made up of a monthly service charge that is based on the size of the customer’s meter and a charge based on how much water the user consumes. Both would increase under officials’ proposal to raise the overall water rate by 5.25%.

Last year, according to the budget, the water rate rose by 2.04%, while in fiscal year 2024, it went up by 4%. 

“Much like gas, it’s the same story: people, power and chemicals,” said Vaughan. “We’re seeing inflationary pressures on all three of those, so that is driving the need for the rate increase.” 

While Commissioner Jackie Johnson said she had expected the water utility to take “a big hit budgetarily” as a result of the Jan. 6 water crisis, DPU Director Scott Morris said the impact of the $5 million cost was lowered because some of those investments “were already incorporated into the five-year” capital improvements plan. 

Wastewater 

As with water, wastewater is billed to customers as a service charge and a charge based on use, and both would rise under the current proposal.

DPU is asking for a 6% increase in the wastewater rate, above last year’s 4.97% increase but below the 6.5% increase that occurred in fiscal year 2024. 

Officials said they are expecting about $141 million in grants for the city’s combined sewer overflow system, which Richmond is required by the state to upgrade by 2035 to ensure that sewage does not run directly into the James River at times of heavy precipitation. 

Stormwater 

Richmond’s stormwater utility, which controls how and where runoff travels, has only existed since 2009. Payments are based on the amount of impervious surface area a property has.

“It was probably underfunded when it was created, and then it went seven or eight years without any rate increases at all,” said Vaughan. “So there's a significant amount of catch-up that needs to be done on the stormwater utility, because there are significant needs, especially in the 8th and 9th districts.” 

DPU is proposing a 17.5% increase — a figure Vaughan acknowledged was high “but on a dollar basis when you look at it, it’s not quite as bad.” That bump would produce a roughly $1.04 increase to the average residential customer’s monthly bill. 

Last year, the stormwater rate increased by 10.75%, while in fiscal year 2024 it rose 10.5%.