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MEQUEST FOR, COUNCIL ACTION <br />Department Approval <br />Item Description: Adopting the 2009 Utility at Adjustments <br />Date: 11/17/08 <br />Item No.: 12.a <br />City Manager Approval <br />1� BACKGROUND <br />2 Over the past several months, City Staff has been reviewing the City's utility operations to determine <br />1 3 whether rate adjustments are necessary for 2009. In addition, Staff has also assessed the changes necessary <br />A� to implement a conservation -based rate structure. The analysis included the City's water, sanitary sewer, <br />5 storm water drainage, and solid waste recycling operations. <br />drainage, 1 <br />7 The analysis entailed a review of: <br />Ll Fixed costs including personnel, supplies and maintenance, and depreciation <br />1� Ll Variable costs including the purchase of water from the City of St. Paul, water treatment costs paid to <br />1� the Metropolitan Council, and recycling contractor costs. <br />1� 2 Ll Capital replacement costs <br />1 Ll Current customer base, rates, and rate structure <br />1� 1111 <br />1� 5 On September 15, 2008, the City Council adopted the 2009 Preliminary Budget for each of the operations <br />1� 6 noted above. The remainder of this report summarizes the rate adjustment necessary to accommodate the <br />1� 7 budget, and scheduled capital replacements over the next 10 years. <br />1 ►later Operations: The City's water operation provides City customers with safe potable water, as well as <br />20 fire on-demand water pressure sufficient to meet the City 9 s tre protection needs. The City purchases its water <br />2 1� supply from the City of St. Paul, which remains the single largest operating cost to the water operation. It <br />22 is estimated that our wholesale water purchase costs will increase approximately 34%. In addition, the <br />23 City's internal operating costs are expected to increase by approximately 5% due to higher motor fuel, <br />2,4 insurance, and other operating costs. <br />25 <br />26 To facilitate a change to a conservation-based rate structure, significant changes in the water rates need to <br />27 occur. In essence, the portion of the rates designed to offset the City's fixed water costs need to increase <br />28 substantially. However, the variable rate portion can be lowered. Greater detail is provided below. <br />2 <br />Y"), The Water Fund is in a relatively weak financial position compared to other utility funds and even the <br />1� City's General Fund. Sustained increases in water rates will be needed for the foreseeable future to <br />32 improve this condition. <br />046M <br />