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1~~ <br />REQUEST FOR COUNCIL ACTION <br />Department Approval <br /> <br />Item Description: Adopting the 2009 Utility Rate Adjustments <br />Date: 10/13/08 <br />Item No.: <br />City Manager Approval <br />BACKGROUND <br />Over the past several months, City Staff has been reviewing the City's utility operations to determine <br />., whether rate adjustments are necessary for 2009. In addition, Staff has also assessed the changes necessary <br />to implement aconservation-based rate structure. The analysis included the City's water, sanitary sewer, <br />,. storm water drainage, and solid waste recycling operations. <br />The analysis entailed a review of: <br />F<, <br />© Fixed costs including personnel, supplies and. maintenance, and depreciation <br />~o ^ Variable costs including the purchase ofwater from the City of St.. Paul, water treatment costs paid to <br />the Metropolitan Council; and recycling. contractor costs. <br />~~2 ^ Capital replacement costs <br />^ Current customer base, rates, and rate structure <br />-, <br />~~ ~ On September 15, 200$, the City Council adopted the 2009 Preliminary Budget for each of the operations <br />-€ ~ noted above. The remainder of this report summarizes the rate adjustment necessary to accommodate the <br />~~ ~ budget, and scheduled capital replacements over the next 10 years. <br />~~ f <br />~~s Water O erations: The City's water operation provides City customers with safe potable water, as well as <br />~o on-demand water pressure sufficient. to meet the City's fire protection needs. The City purchases its water <br />supply from the City of St. Paul, which remains the single largest operating cost to the water operation. It is <br />zz estimated that our wholesale water purchase costs will increase approximately 3-4%. In addition;. the City's <br />{ internal operating costs are expected to increase by approximately 5°/a due to higher motor fuel, insurance, <br />z! and other operating costs. <br />To facilitate a. change to aconservation-based rate structure, significant changes in the water rates need to <br />~ occur. In essence, the portion of the rates designed to offset the City's fixed water costs need to increase <br />~~; substantially. However, the variable rate portion can be lowered.. Greater detail is provided below. <br />~~ <br />~~ The Water Fund is in a relatively weak financial position. compared to other utility funds and even the City's <br />37 General Fund. Sustained increases in water rates will be needed for the foreseeable future to improve this <br />sz condition. <br />Page t of 7 <br />