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� � ��.�__� , _ � � � Memo To: City Council From: Chris Miller, Finance Uir�ct � Date: November 21,2005 Re: Discussion on the 2006 Utility Rates Date: 11/21/OS Item: 3. 2006 Utility Fees Introduction Over the past several weeks, Staff has been analyzing the City's utility operations to determine whether rate adjustments are necessary for 2006. The analysis entailed a review of the following services: 1) Water 2) Sanitary Sewer 3) Storm Water Drainage 4) Recycling For each operation, the following service inputs were reviewed: � Fixed City costs including personnel, supplies and maintenance, and depreciation C� Variable costs including the purchase of water from the City of St. Paul, water treatment costs paid to the Metropolitan Council, and recycling contractor costs. C� Capital replacement costs f� Current customer base, rates, and rate structure On September 12, 2005, the City Council adopted the 2006 Preliminary Budget for each of the operations listed above. The remainder of this report summarizes the rate adjustment necessary to accommodatethe budget, and scheduled capital replacements over the next few years. Discussion Items Water O�erations: The City's water operation provides City customers with safe potable water, as well as on-demand water pressure sufficient to meet the City's fire protection needs. The City purchases its water supply from the City of St. Paul, which remains the single largest operating cost to the water operation. It is estimated that are wholesale water purchase costs will increase approximately 3%. In addition, the City's internal operating cos�s are expected to increase by approximately 3.5% due to higher personnel and capital replacement costs. The Council is reminded that the Water Fund is in a relatively weak financial position compared to other utility funds and even the City's General Fund. Above-inflation increases in water rates will be needed for the foreseeable future to improve this condition.