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HomeMy WebLinkAbout8A - Water & Sewer Rates --r;~~ r.tH. . ' )y1f~ ~fkr ~ 0~)yY~ STAFF AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: SEPTEMBER 16, 2002 8A RALPH TESCHNER, FINANCE DIRECTOR Consider Approval of Ordinance Amendments Relating to Water and Sewer Rates: (1) ORDINANCE AMENDING PRIOR LAKE CITY CODE SECTION 704.1001 TO INCREASE THE BASE WATER BILLING RATE BY THIRTY FIVE CENTS (35~) FOR EVERY ONE THOUSAND (1,000) GALLONS OF WATER AND TO ESTABLISH A TIERED RATE (2) ORDINANCE AMENDING PRIOR LAKE CITY CODE SECTION 705.901 TO INCREASE THE SEWER BILLING RATE BY FIFTEEN (15~) FOR EVERY ONE THOUSAND (1,000) GALLONS OF WATER DISCUSSION: Introduction The City Council has adopted a goal for 2002 relating to groundwater. The goal provides that the staff is to "implement a groundwater plan emphasizing production, conservation, education and communication." The purpose for this agenda item is to consider increasing the City's water utility billing rate from the current charge of $1.40 to $1.75 per thousand gallons and increasing the sewer rate from $2.85 to $3.00 per thousand gallons effective upon the first billing period (2/1/03) in 2003. The agenda item also proposes establishing a two tier rate structure whereby the first twenty five thousand gallons of water would be subject to the new proposed rate of $1.75 and then the rate would step up to $2.00 per thousand gallons for water usage exceeding 25,000 gallons. The purpose of the "step-rate" is to encourage and reward conservation measures and practices by the user. History Water rates have remained fairly stable for the past 10 years going back to 1992 when the water and sewer rates were restructured to support actual expenditures within each activity. In fact, if approved, this will actually establish the water rate at 35 cents higher than the same $1.40 level as in 1984. Annualized, this rate adjustment would only represent an annual increase of 1.2% over this time period. Outlined below is a water and sewer rate table since 1982: H:\Water\Agenda rate increase. DOC 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER H:\Water\Agenda rate increase. DOC Water Sewer Water. Sewer Year Rate* Rate* Year Rate* Rate* 1982-83 $1.30 $1.30 1995 $1.05 $2.70 1984-9] $1.40 $1.40 1996-98 $1.15 $2.85 1992-93 $1.05 $2.10 1999 $1.30 $2.85 1994 $1.05 $2.30 2000-02 $1.40 $2.85 * per 1000 gallons. As indicated above the current sewer rate has remained the same for the past 7 years at $2.85 per thousand gallons. Current Circumstances The combined proposed rate of $4.75 per thousand gallons is a 50 cent increase and represents a total increase of 11 %% above the present rate of $4.25 per 1000 gals. Given the high priority the Council has attached to the ultimate construction of a water treatment plant over the course of the next 5-7 years it is important to begin establishing sufficient reserves to augment this project and utility replacement costs within the scope of our reconstruction projects. Also, the City should be considering yearly incremental increases in the future to keep pace with cost increases. Because Prior Lake does not have a sewage treatment plant (our sewage is actually piped to Blue Lake treatment plant located outside of Shakopee) the MCES (Metropolitan Council Environmental Services) controls nearly 65% of our costs and therefore our sewer rates. Since this summer has been extremely wet we will experience fluctuation in our sewer flow as a result of inflow and infiltration from ground sources. In addition to the cost impact of flow and growth, the MCES has increased their rate from $1,2001 ml gals to $1,300/ml. gals. which has resulted in the proposed increase in the sewer rate. Establishing a two tiered water rate system is really a conservation measure that would basically surcharge high consumption users. Less than a dozen cities in the metro area currently utilize a tiered rate system according to the latest available AMM fee survey of 2001. But in all likelihood as water becomes more and more valuable as a resource, regulatory restrictions will also increase and cities will reverse the trend of giving volume discounts in favor of surcharging high end users, particularly in the light of landscape, lawn and other related outdoor use demands associated with upper level housing. Tier levels varied on average from 15,000 to 50,000 gallons before the higher secondary rate would be applied depending upon the community and billing frequency in the AMM survey. The preferred billing frequency is quarterly, therefore those cities tended to have higher tiers. Since our billing is bi-monthly, a second tier of 25,000 gallons appeared to be most appropriate. Step increases ranged from 20 - 50 cents. Based upon this range Staff is recommending a step increase of 25 cents on the water rate. Implementing this proposal would result in the following tiered rate structure: Usage 1 st 25,000 gal. Over 25,000 gals. Rate $1.75/1000 gals. $2.00/1 000 gals. An estimated combined 2003 Water/Sewer Department Statement of Earnings position is projected below based upon the proposed new rates: * Water/Sewer Dept. Expenses Budget Expenditures Enterprise Fund Transfer Equipment Fund Transfer * Utility Revenue Proiection Utility Water/Sewer Receipts Water meter/pressure reducer sales Misc. revenue (incl. penalties, interest etc.) * Statement of Earnine:s Position Preliminary income before depreciation * Depreciation NET INCOME $2,098,025.00 $250,000.00 $60,000.00 $2,408,025.00 $2,568,750 $95,845.00 $238,350.00 $2,902,945.00 $494,920.00 <$388,000.00> $106,920 The City's water and sewer utility fund is operated as an enterprise fund which is intended to generate revenues to provide contributions to the General Fund to offset administrative and operating costs, revenue for fund transfers, i.e. the Maintenance Building, Equipment Fund and such long term needs as reserves to assist in sewer and water pipe replacement and a community water treatment plant. FINANCIAL IMPACT: When considering the entire water and sewer utility bill, which includes the capital facility charge of $7.50 and the storm water charge of $3.75, homeowners would experience, on average, a $4.50 rise on their total water bill amount per month in 2003. The financial impact of the rate increases are demonstrated below: Rate usage charge plus misc. CF AC charge plus misc. storm water charge Monthly Total... Monthly $ Increase... 2002 Average Monthly Bill $38.25 3.75 1.87 $43.87 $4.50 H:\Water\Agenda rate increase. DOC 2003 Average Monthly Bill $42.75 3.75 1.87 $48.37 ISSUES: H:\Water\Agcnda rate increase. DOC The above figures are based upon average monthly usage of 9000 gallons that is equal to an approximate daily consumption of 100 gallons per individual and a per capita household of three members. Assuming the above average, the typical homeowner will incur an annual increase of $54.00. Overall the fifty cent rate increase will provide the enterprise fund an additional $266,000 in revenue based upon a projected annual usage of 525 million gallons of water and 550 million gallons of sewer. Until the city has actual experience with tiered rates no increase in utility receipts attributed to the higher tiered consumption was calculated so that revenue remained conservatively stated. There is one policy consideration that the City Council may want to address that. is not incorporated into the attached resolutions. This particular issue deals with whether the Council wishes to continue to give residents the sewer rate break on the three summer billing periods. The following provision within City Code 705.901 presently exists; "... The charge for sewer usage for the August, October and December billing cycles shall not exceed one hundred frfty percent (150%) of the averagefor the February, April and June billings. The purpose for this sewer cap is to provide consideration for lawn and garden sprinkling and other related outside water usage which does not flow into the sanitary sewer system. " There are basically three options the Council could choose from in making your decision; 1. Make no change and continue the existing sewer break. 2. Base the sewer rate break upon winter consumption average. 3. Eliminate the rate break altogether. Eliminating the rate break would in essence result in a conservation measure by further surcharging the consumer for excess outside water usage by charging the full water and sewer rate on the entire amount of water used regardless if it ended up in the sewer or not. A few communities follow this application. A more common practice, by the majority of cities, is to charge sewer based upon a winter consumption average (see attached survey of neighboring communities). Only the cities of Prior Lake and Savage presently utilize the 150% method while Chaska and Rosemount charge sewer on actual usage and give no break on the sewer charge during summer. The remaining cities (70%) all utilize the winter consumption method. The difference between the two is that our rate is based upon 150% of the winter time average while the other is 100% of the winter time average. Changing to the winter consumption basis for the sewer break would actually reduce the effect of the sewer rate increase because it would only be applied to ALTERNATIVES: RECOMMENDED MOTION: REVIEWED BY: Attachments: H:\Water\Agenda rate increase. DOC the average cap versus 150% cap for the three summer billing periods. If the Council desires further action on this issue it should direct Staff to prepare an ordinance amendment that would incorporate a winter consumption average or elimination of the rate break altogether. If the Council prefers no change, then the 150% rate break would remain. Conclusion Staff would recommend approval of the proposed water and sewer rate increases including establishing the tiered rates for water. The proposed increase is required to maintain the revenue stream required to defray water and sewer related costs. Also, Staff would request direction from the Council relating to action on whether or not to continue the sewer rate break or modify it to the winter consumption option. There are two ordinances pending before the Council: 1. Adopt Ordinance Amending Prior Lake City Code Section 704.1001 To Increase The Base Water Billing Rate By Thirty Five Cents (35~) For Every One Thousand (1,000) Gallons Of Water And To Establish A Tiered Rate and Ordinance Amending Prior Lake City Code Section 705.901 To Increase The Sewer Billing Rate By Fifteen (15~) For Every One Thousand (1,000) Gallons Of Water. 2. Amend the water and sewer rates to another amount based upon Council consensus. 3. Take no action at this time and direct the staff to provide additional information. 1. A motion and a second to adopt Ordinance Amending Prior Lake City Code Section 704.1001 To Increase The Base Water Billing Rate By Thirty Five Cents (35~) For Every One Thousand (1,000) Gallons Of Water And To Establish A Tiered Rate and 2.A motion and a second to adopt Ordinance Amending Prior Lake City Code Section 705.901 To In ease The Sewer Billing Rate By Fifteen (15~) For Every usand (1,000) Gallons Of Water 1. Ordina e A endi Prior Lake City Code Section 704.1001 To Increase The se Water Billing Rate By Thirty Five Cents (35~) For Every One Thousand (1,000) Gallons Of Water And To Establish A Tiered Rate. 2. Ordinance Amending Prior Lake City Code Section 705.901 To Increase The Sewer Billing Rate By Fifteen (150 For Every One Thousand (1,000) Gallons Of Water. 3. Sewer Charge Survey. ORDINANCE 02-XX AN ORDINANCE AMENDING PRIOR LAKE CITY CODE SECTION 704.1001 TO INCREASE THE BASE WATER BILLING RATE BY TIDRTY FIVE CENTS (35~) FOR EVERY ONE THOUSAND (1,000) GALLONS OF WATER AND TO ESTABLISH A TIERED RATE WHEREAS, the City of Prior Lake reviews its sewer and water rate structure on an annual basis; and WHEREAS, the City has affirmed it is financially necessary to increase the existing water rate to generate sufficient water revenues to offset current operating and capital expenses; and WHEREAS, the City Council has reviewed and approved the financial justification support to increase the base billing charge by thirty five cents (35~) to $1.75 per one thousand (1,000) gallons of water for the first 25,000 gallons of water consumed; and. WHEREAS, the City Council has determined that a second tier rate of $2.00 per one thousand (1,000) gallons of water for water consumed in excess of 25,000 gallons shall be established as a water conservation measure. NOW THEREFORE, BE IT ORDAINED by the City Council of the City of Prior Lake, Minnesota that: 1. The recitals set forth above are incorporated herein as if fully set forth. 2. Prior Lake City Code Section 704.1001 (1) is amended to read: Rates: Effective February 1,2003 billing cycle a billing charge of one dollar seventy-five cents ($1.75) per thousand (1000) gallons of water shall be charged to the 1 st 25,000 gallons of water used and a billing charge of two dollars ($2.00) per thousand (1000) gallons of water shall be charged for all water consumed in excess of25,000 gallons. Passed and adopted this 16th day of September, 2002. This ordinance shall become effective upon publication. YES NO Haugen LeMair Gundlach Petersen Zieska Haugen LeMair Gundlach Petersen Zieska {Seal} City Manager City of Prior Lake 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER ORDINANCE 02-XX AN ORDINANCE AMENDING PRIOR LAKE CITY CODE INNESO'\~ SECTION 705.901 TO INCREASE THE SEWER BILLING RATE Y FIFTEEN (15~) FOR EVERY ONE THOUSAND (1,000) GALLONS OF WATER WHEREAS, the City of Prior Lake reviews its sewer and water billing rate structure on an annual basis; and WHEREAS, the City has affirmed it is financially necessary to increase the existing sewer rate to generate sufficient sewer revenues to offset current operating and capital expenses; and WHEREAS, the City Council has reviewed and approved the financial justification support to increase the sewer billing charge by fifteen cents (15~) to $3.00 per one thousand (1,000) gallons of water consumed. NOW THEREFORE, BE IT ORDAINED by the City Council of the City of Prior Lake, Minnesota that: 1. The recitals set forth above are incorporated herein as if fully set forth. 2. Prior Lake City Code Section 705.901 (sentence one) is amended to read: Rates: Effective February 1,2003 billing cycle a billing charge of three dollars ($3.00) per thousand (1000) gallons of water shall be charged. Passed and adopted this 16th day of September, 2002. This ordinance shall become effective upon publication. YES NO Haugen LeMair Gundlach Petersen Zieska Haugen LeMair Gundlach Petersen Zieska {Seal} City Manager City of Prior Lake 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER SEWER CHARGE SURVEY CITY BASIS FOR SEWER CHARGES Apple Valley Winter consumption Burnsville Winter Consumption Chaska Actual usaqe Eagan Winter consumption or current usage (whichever is lower) Eden Prairie Winter consumption Farminqton Winter consumption Lakeville Winter consumption Rosemount Actual usage Savaae 150% of 3 month average Shakopee Winter consumption ."....."-._-,_.._--"."~.._., --~- '_.- -". 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