2010-10-26_PWETC_AgendaPacket - Laserfiche WebLink

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~, Memo To: Public Works, Environment, and Transportation Commission From: Chris Miller, Finance Director Date: October 19, 2010 Re: Preliminary 2011 Utility Rates Background Over the past several months, City Staff has been reviewing the City's utility operations to determine whether rate adjustments are necessary for 2011. The analysis included the City's water, sanitary sewer, storm water drainage, and solid waste recycling operations. The analysis entailed a review of: • Fixed costs including personnel, supplies and maintenance, and depreciation • 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 • Capital replacement costs •'• Current customer base, rates, and rate structure Water Operations Overview: 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 our wholesale water purchase costs will increase by 5.4%. In addition, the City's internal operating costs are expected to increase significantly due to higher capital replacement costs, the addition of a new full-time Utilities Engineer, and a reallocation of a portion of staffing-related costs from the City's sanitary sewer function. The staffing reallocation is based on recent employee time-spent profiles that were conducted in conjunction with the City's new program-based budgeting approach. The 2011-2020 Capital Investment Plan call for an investment of nearly $ l . l million dollars per year in the City's water system. By comparison, the City is currently setting aside only $400,000 per year. To ensure that the City's water system infrastructure is replaced at the end of its useful life, sustained increases in the water rates will be necessary. Sustained rate increases will also be needed to improve the Water Fund's overall financial condition which is currently in a relatively poor position. Sanitary Sewer Operations Overview: The City maintains a sanitary sewer collection system to ensure the general public's health and general welfare. The single largest operating cost to the sanitary sewer operation is the treatment costs paid to the Metropolitan Council Environmental Services Division (MCES). The MCES has notified us that our treatment costs are expected to increase by approximately 3.2% in 2010. This increase will be offset by the reallocation of some staffing-related costs to the City's water function.