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Attachment A Memo To: Public Works, Environment & Transportation Commission From: Michelle Pietrick, Finance Director Date: October 25, 2022 Re: Review of Utility Rate Study on the 2023 Proposed Utility Rates and adopt a recommendation for the City Council Background Unlike many city services that are supported by property taxes, the City's utility or enterprise operations are funded primarily by user fees and are operated as separate, stand-alone functions. Over the past several months, city staff has been reviewing the City's utility operations to determine what customer rate adjustments are necessary for 2022. The City engaged Ehlers to perform an updated utility rate study of the Water and Storm Drainage Funds from 2021 and to perform an analysis of the Sanitary Sewer Fund rates for 2022. Operational Review Water Fund Operations The updated Utility Rate Study done by Ehlers on the Water Fund recommends an 8% increase in rates for 2023-2028 to cover fixed and variable costs, debt service and replenishment of fund reserves. The previous study recommended a 5% increase in rates for 2022-2026. St. Paul Regional Water increased their rate charged to Roseville by 9%, which is the main driver of our needed increases. To minimize the increases needed for capital projects, public works has prioritized projects for the next few years to reduce the amount of capital projects until this fund has a chance to increase reserves. Storm Drainage Operations The City provides for the management of storm water drainage to prevent flooding and pollution control, as well as the street sweeping program. In 2021 the Utility Rate Study done by Ehlers recommended a 4% increases for 2022-2024 to cover fixed and variable costs of the Storm Drainage fund and a 1% increase thereafter. Public Works did an intensive analysis of the infrastructure in the Storm Drainage system and identified a significant increase in capital improvements over the next 20 years. The initial improvements have been curtailed, however, they are still significant. The current update of the utility rate study is recommending a 33% increase for 2023 and 2024 and then a 2.5% thereafter. While the percentage seems high, the actual dollar amount change is about $5 per quarter for residential properties. Sanitary Sewer Operations The City maintains a sanitary sewer collection system to ensure the general public's health and general welfare. Ehlers included a review of the rates for Sanitary Sewer in this year's Utility Rate Study and is recommending a 2% increase. For 2022, the city increased the base rates by 3.5% and the usage rates by 1.92%. Public Works made some reductions in the proposed capital improvement projects so the 2% increase recommended by Ehlers is adequate for this fund. Page 1 of 4