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ARDEN HILLS CITY COUNCIL WORK SESSION—NOVEMBER 19, 2012 4 Mayor Grant suggested the Council move to Item D on the agenda since members of the Financial Planning and Analysis Committee were present to discuss the utility rate study, and after which, discussion can return to the JPA. D. Utility Rate Study Mayor Grant thanked FPAC members James Ostlund, David Radziej and Arlene Mitchell for being present this evening. Finance Analyst Howard explained the Financial Planning and Analysis Committee (FPAC) has been reviewing the City's Utility Rates and Structure. Members of the committee were present this evening to discuss their recommendations with the Council. Staff then provided long-term forecast models to show the projected cash flows for the utility funds, along with scenarios the proposed changes will have on residential bills. Finance Analyst Howard discussed the current rate structure along with a proposed tiered rate in further detail. He reviewed the three goals of FPAC and noted the recommendation before the Council was to have the rates remain revenue neutral with 75% of fixed costs being covered by the meter charge. The other 25% of costs would be covered by variable expenses. This would assure that those with higher usage were paying their share. Staff commented that those residents with low water usage would benefit through the tiered rate structure. He noted that long-term expenditures were considered with the rate structure to assure that capital improvements would be funded. Councilmember Holmes questioned why the fund balances were projected to be so low in 2013. Director of Finance and Administrative Services Iverson explained this was due to projects scheduled for 2013 along with the decreasing profits from the current utility rate structure. Finance Analyst Howard further reviewed the proposed tiered rate structure with the Council. He stated this model would reward residents for low usage. Councilmember Holden asked how the tiers were established. Finance Analyst Howard stated all water usage was reviewed and some natural breaks were observed. A large group used 15,000 gallons or less. Another group used 35,000 gallons or less, and another group had water consumption of 35,000 gallons plus. Mayor Grant inquired the percentage of users in each tier. Ms. Mitchell explained that the first tier, users under 15,000 gallons made up half of the households in Arden Hills. She noted if the City were to select a "per gallon fixed fee" these users would pay only for the gallons used plus a fixed fee. Finance Analyst Howard commented the City could not account for 60,000,000 gallons in the system last year. This would continue to improve in the future as new meters were now in place.