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depreciation on the distribution system. The distribution system assets were originally financed by special assessments and future replacement of these assets is planned to be financed by revenues. Below is a summary of the sanitary sewer operations: Operating Revenues User Charges Other Total Operating Revenues Operating Expenses Disposal Charge-MR'CC Depreciation Other Total Operating Expenses Operating Income Nonoperating Revenues Net Income 199Q $2,711,645 67,801 $2,779 4� 192s $2,904,499 68202 �976,� 2,264,447 82,453 .:• :� . . The Water Fund accounts for the operation of the water system, with 9,421 customers currendy being billed. The City purchases all of the water it uses from the City of St. Paul. The City reviews its financial position and the rate structure annually. Excess fund balances are used to finance current operations. It was determined in 1992 that some under-registration had taken place in the wholesale metering from the City of St. Paul. That under-registration was negotiated to the amount of $400,000. An agreement was entered to pay that amount with 7% interest over 4 years. Approximately 78% of the water operating expense, including depreciation of the distribution system, is for water provided by the City of 3t. Paul. Consequenfly, the water rates aze in a lazge pan determined by the City of St. Paul charges. Water rates are calculated to generate revenues to offset depreciation on the distribudon system since these assets were originally financed by special assessment, and future replacement of these assets is planned to be financed by system users. It is expected the City will continue to both increase rates and work to reduce cosu as much as possible to move the water operations to at least a break-even point during the next 2-3 yeazs. 11