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t r G November 11, 1 993 To: Steve Sarkozy City Manager From: Ed Burrell Steve Gatlin Finance Director Public works Di or Re- Utility late recommendation For 1994 We have completed an analysis of the City's utility revenues to assure the 1994 rate structures are sufficient to cover 1994 operations including the supply\treatment costs passed on to us by St. Paul Water and the Metropolitan waste Control Commission(MWCC), It appears we will have approximately a 1.5% rate increase from the MWCC in 1994 and a 3.3% increase in water charges from St. Paul Water for 1994. We have two major concerns regarding our current rate structure for both water and sewer: We have not been covering our total costs. While the City has tried to absorb the substantial prior major increases from the major suppliers (MWCc and St. Paul Water), the increases have gust been too great. . The current structure does not encourage nor reward conservation. As an example, our current grater rate is at $1.40 per 1,000 gallons, however if the usage is below 12,700 g allons for a resident they must pay a fixed rate of$17.48. Our sanitary sever rate has been historically set at a quarterly flat rate(cu fently at $32.46). Proposal We are proposing the 1994 utility rates be restructured to not only do a better job of recovering our costs but to also encourage conservation and cost reduetion by our customers. While a major portion of our costs are variable i.e. subject to demand, about 25 of our costs are fired. 'These are. tests which are incurred to assure our customers the utility service is available when they need it. Exam- ples of such costs include depreciation of equipment(pipelines, water tanks, pumps,and meters)labor costs to maintain the system, insurance and operating supplies. However, we can implement a system which will recover those costs and yet still provide significant control and incentive for our customers to be efficient in their water and sanitary sever use. Below are our specific recommendations: Water We are recommending our grater rates be left at the current $1.40 per 1,000 gallons, however, we suggest the old minimum billing be eliminated and replaced by a more moderate flat service fee. As an example: a resident who conserves water and uses 6.,000 gallons per quarter currently gays $17.48. Under the new ro osal, a non-senior resident would pay $16.02 ($'7.62 service fee plus $1.40 per p p 1 000 g allons used). The senior citizen service fee would be $4.65 plus the $1.40 per 1,000 gallons of water used. The conimerci aMndustri al rate would be adjusted to include a service fee based on their meter size demand plus the$1.40 rate per 1,000 gallons used. Below is a Iona orison of the City's current and proposed rates with other cities who also provide p softened water.