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Conservation Rate Study 2008, Financial Advisory Services, Ehlers & Associates Page I of2 Conservation Rates for Water Utilities New Minnesota Law Requires Water Conservation Rate Structures A new state law requires public water utlllties to implement residential and commercial rate structures that encourage conservation. The law will require most Minnesota utilities to review their existing water rates and, if nf!cessary, adopt conservatlon.comptlant rates. Who is affected? There are three Implementation dates that affect Minnesota publiC water utilities serving more than 1,000 people. (Suppliers serving fewer than 1,000 people or those lacking user meters are exempt from the conservation rate mandate.) . Now; Utilities must comply before requesting state (DNR) approval to construct a new well or increase existing well volumes. . 2009: Utilities in the metropolitan area must comply by January 1, 2010. . 2012: All other utilities must comply by January 1, 2013. What is a conseRVation rate structure? A conservation rate structure Is a rate structure that provides households with a financial Incentive to use leSS water. Tne most common ~conservatlon rate structure" In Minnesota employs increasing block rates. For example: I U_e II Rate per 1,000 Gallons I I 0-15,000 gallonS/quarter II $2.00 I I 15,000-45,000 gallonS/quarter II $2.50 I I 45,000-60,000 gallonS/quarter II $3.15 I I Over 60,000 gallonS/quarter II $4.75 I The ONR recommends that the increase in cost between block. sizes be at least 25% for the lowest blocks, and 50% for the higher block{s). More examples of conservation rate structures are on the DNR webslte at: http://files.dnr.state. mn .us/watersjwatermgmt_section/approprlations/conservation_rate_structureS.pdf The actual water rate for each block will depend on the revenue needed to pump, treat, store, and deliver the water In your community. Can we have different rate structures for commercial and residential users? Yes. while the "conservation rate structure" must apply to all customers, rates and structures may differ between customer categories. For example, cities will still be able to offer larger block sizes to water-Intensive commercial customers. Will a new rate structure affect water revenues? Yes. When a utility changes either its rates or rate structure, revenues wlll change. It Is our experience that conservation rate structures often increase revenues. However, the relationship between rate structures and ~venues Is complicated. Revenues are also affected by demographics, housing types In the community, and seasonal weather. Ehlers recommends undertaking a rate study to forecast how potential new conservation rate structures will impact: . Different types of users (e.g. seniors, families, a~rtments, small businesses) . Future revenues . Utility's ability to undertake planned capital Improvements. Who is enforcing the new rate requirements? The Minnesota Department of Natural Resources (ONR). The DNR will review the rates reported on the annual water reports and In the water supply plans. At this time there are no penalties In the law for non-compliance. However, after the effective dates, compliance will be required before the DNR will issue a we:1I permit or approve a water supply plan. For water supply plans submitted prior to the effective dates, the DNR will be lookIng for a description of how the City Intends to comply. http://www.ehlers-inc.comlutility2008.php 10/15/2009