1B - 2008 Utility Rate Study - Laserfiche WebLink

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~ ~~HILLS MEMORANDUM DATE: May 13, 2008 TO: Honorable Mayor and City Council FROM: Sue Iverson, Finance Directo~ SUBJECT: 2008 Utility Rate Study Background/Discussiou: As previously discussed, the enterprise funds have excess expenditures over revenues in the 2008 budget. 1 met with our financial consultants from Ehlers & Associates, Inc. in November to review the Financial Management Plan and to discuss conducting a Utility Rate Study. (This was to be part of last year's Financial Management Plan, but was postponed in order to get accurate numbers and accurately assess what our major problem areas were.) At our December work session, Mark Ruff and Jonathan North from Ehlers & Associates, Inc. were present to discuss policy direction to be used in the rate study. It was also noted that part of this study would be used for the TCAAP resource plan and could be charged back to the developer as it was part of the PDA agreement. In January 2008, the Council authorized Ehlers & Associate, Inc. to conduct the rate study. Elizabeth Diaz and Jonathan North of Ehlers will be presenting the Water and Sewer portion of this study at the May work session. The Storm Water portion will be presented at a later date, as it is not completed at this time. Attached you will find the Water and Sanitary Sewer Study prepared by Ehlers & Associates, Inc. They have presented three options and a tiered rate system as requested by the Council. One of the problems with the existing rate structure is the impact of the Senior Citizen Discount. The tiered rate system attempts to address this problem with minimal impact. At a preliminary look, the water rates need a 6% increase, the sewer rates need a 6% increase to the base charge and an 18% increase to the usage charge. The current rate structure has not accounted for the increases in the Metropolitan Council Environmental Services charges which have increased 5 - 9% each of the last four years. We have also factored in the 1&1 needs for this fund. STAFF RECOMMENDATION: Staff's recommendation would be to adopt Option II for both the water and sewer rates. This option gives the City more protection in low usage or "wet" years, as 41 % of the revenue is captured in the base charge and 59% is captured in the usage charges. It also provides incentive for water conservation.