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City Council Meeting Monday, November 22, 2010 Page 13 Councilmember Ihlan spoke in support of a sliding scale for residential or com- mercial use, noting that water was a scarce commodity and the need for overall conservation efforts, over and above the City's cost for providing water service; opining that current conservation rate structures provided no incentive to decrease consumption. Councilmember Ihlan supported more gradation and higher diffe- rentials in the rate structure to build in economic incentives for residential or commercial users. Councilmember Ihlan expressed concern with the proposed base rates that pro- vided for substantial increases for residential users, many of whom were not high volume users and had initially been well below the average consumption rates; and may actually serve the opposite affect for conservation rates, discouraging their natural conservation instincts, or smaller number of people in a home. Coun- cilmember Ihlan spoke in support of finding a way to address revenue needs, while structuring the rates so those using the higher volumes paid the most. Mayor Klausing sought clarification from staff that the base rate reflected the cap- ital cost of running the water main down the street, which was not sufficiently funded now, and attempting to achieve capital needs now and for future infra- structure upkeep or replacement. Mr. Miller concurred, noting that the base rate had been revised in 2009 to capture capital costs (including water mains, meters, lift stations, etc.); with some of those significant capital replacements already underway in 2010 and proposed in the 2011 budget. Mr. Miller advised that the revised base rate was based on concern in not having enough revenue, pushing the revenue generating ability onto the water usage rates; and once conservation rates were mandated by the legislature, it seemed counterproductive to apply those costs to usage rates, while telling people to conserve water. Under this current structure, Mr. Miller opined that smaller users realized some savings in their base rate. Councilmember Johnson returned to the dais at approximately 7:57 p.m. Councilmember Roe noted that the usage rate also included periodic, if not an- nual, increases from the St. Paul Regional Water Utility, increased this year at 5.4 as well as labor costs and other standard operational costs for the utility. Councilmember Roe sought clarification from staff on whether the base rates, and annual increases, were getting the City closer to covering capital costs, and could possibly stabilize in the future. Mr. Miller advised that the City's ten year CIP and ten year Financial Plan sus- tained increases in water and sewer rates to provide for their infrastructure re- placement, with the assumption that the City Council continued their preference for replacing infrastructure at the end of its projected life; and noted that increases 411 would be seen in the foreseeable future to accomplish that task.