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REQUEST FOR COUNCIL ACTION Date:November 9, 2020 Item No.: 7.c Department Approval City Manager Approval Item Description: Review the 2021 Utility Rate Adjustments 1 B ACKGROUND 2 Unlike many city services that are supported by property taxes, our utility or enterprise operations are 3 funded primarily by user fees and are operated as separate, stand-alone functions. Overthe past several 4 months, city staff has been reviewing the City’s utility operations to determine what customer rate 5 adjustments are necessary for 2021. The City engaged Ehlers to perform a comprehensive utility rate 6 study of the Water and Storm Drainage Funds based on the cash situations in these two funds. 7 8 9 Operational Review 10 11 Water Fund Operations 12 At December 31, 2019, the Water Fund had to internally borrow $1,234,554 from other funds to 13 eliminate the cash deficit. This fund has had a steadily declining cash balance for the past four years. 14 Staff identified that the rate setting formula was changed in 2014 which unfortunately has an error 15 when converting the water purchased from St. Paul from cubic feet to the Roseville system which is 16 billed in gallon units. In addition, the capital projects done for the water system have exceed the 17 averages used in the formula. We engaged Ehlers to perform a utility study on this fund which was th 18 presented at the October 19 Council meeting. 19 20 Ehlers presented two separate options, both introduce new water usage tier rates for Residential, 21 Commercial and Apartment properties. Both options realign who pays for water versus who uses water 22 to provide more equity and the definition of fixed costs versus variable costs adheres to the industry 23 standards. Option 2 provides for an average of capital costs to be included in the fixed costs, which is 24 more in line with our current structure. Option 1 would put the average capital costs on the 25 usage/variable side of the rates. 26 27 Storm Drainage Operations 28 The City provides for the management of storm water drainage to prevent flooding and pollution 29 control, as well as the street sweeping program. The cash balance in this fund had been steadily 30 declining so this fund was included in the utility rate study done by Ehlers. The study showed that the 31 current rate structure is equitable and needs a steady increase of 4% for the next four years to build up 32 some reserves to pay for the capital needs in this fund. After four years, the rate increases will level off 33 to about 1% annually thereafter. Staff will continue to monitor this fund and the needed capital 34 projects. Page 1 of 4