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Department Approval <br />City Manager Approval <br />Item Description.- Adopting the 2009 Utility Rate Adjustments <br />I BACKGROUND <br />2 Over the past several months, City Staff has been reviewing the City's utility operations to determine <br />3 whether rate adjustments are necessary for 2009. In addition, Staff has also assessed the changes necessary <br />4 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 />6 <br />"7 The analysis entailed a review of <br />9 Ll Fixed costs including personnel, supplies and maintenance, and depreciation <br />I 4w. Ll Variable costs including the purchase of water from the City of St. Paul, water treatment costs paid to <br />"I'll the Metropolitan Council, and recycling contractor costs. <br />12 Ll Capital replacement costs <br />13 Ll Current customer base,, rates,, and rate structure <br />14 <br />15 On September 15, 2008, the City Council adopted the 2009 Preliminary Budget for each of the operations <br />16 noted above. The remainder of this report summarizes the rate adjustment necessary to accommodate the <br />I 7 budget, and scheduled capital replacements over the next 10 years. <br />19 Water Operations.* The City's water operation provides City customers with safe potable water, as well as <br />2('_-) on-demand water pressure sufficient to meet the City's fire 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 />24 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 />2,',i substantially. However, the variable rate portion can be lowered. Greater detail is provided below. <br />29 <br />3�,,:-) The Water Fund is in a relatively weak financial position compared to other utility funds and even the <br />3 1 City's General Fund. Sustained increases in water rates will be needed for the foreseeable future to <br />32 improve this condition. <br />Page I of 7 <br />