HomeMy WebLinkAbout10A - Water and Sewer Rates
16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
STAFF AGENDA REPORT
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
JANUARY 3, 2005
lOA
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 & SECTION 705.901 TO APPROVE
REVISED WATER AND SEWER UTILITY RATES BY
REFERENCE IN THE 2005 OFFICIAL CITY FEE SCHEDULE
and
(2) AMEND THE UTILITY BILL CAPITAL FACILITY CHARGE
(CF AC) ON THE 2005 OFFICIAL CITY FEE SCHEDULE
DISCUSSION:
Introduction
A key element of the 2020 Vision and Strategic Plan is to
((implement a groundwater plan emphasizing production,
conservation, education and communication. " The purpose for this
agenda item is to consider adopting a water and sewer rate which
would increase the City's water utility billing rate from the current
charge of $1.85 to $2.65 per thousand gallons, increase the sewer
rate from $3.15 to $3.65 per thousand gallons (both effective upon
the first billing period 2/1/05 in 2005) plus adjust the CF AC (capital
facility charge) from $7.50 to $10.00
If the City is to have a water treatment plant, replace worn out water
and sewer pipe and lift stations and provide adequate potable water
to our growing community over the next twenty years, rate increases
in the above amounts are necessary.
Current Circumstances
The City Council authorized the firm Engineering Resources Inc. to
provide engineering services for the update of the comprehensive
wate~ system plan. A critical component of this study is a utility and
trunk rate analysis that sets forth both water and sewer rates
necessary to pay for the following municipal system costs:
1.) Annual operating and maintenance of water and sewer system.
2.) Replacement of water and sewer infrastructure.
3.) Construction of new water treatment plant.
The attached Utility and Trunk Rate Analysis is based upon a
community build-out assumption of 20 years. In other words Prior
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Lake will have completed its installation of all necessary water and
sewer infrastructure i.e., pipe, wells, water treatment plants, storage
facilities, lift stations etc. over the course of the next twenty years to
serve Prior Lake's ultimate population of 42,400. This includes our
present undeveloped lands and the 3,000 annexation acres.
The study is very careful in separating the cost responsibility
between the development community and our existing city utility
customers (residential and commercial/industrial). It is important
that developers pay their fair share as it relates to future trunk
expansion and new facilities required by new development as it
relates to water towers, wells and ground storage. As such the
financing of these items are discussed in the next item on the council
agenda.
But for the purpose of this agenda item the cost of the operation and
management of the existing municipal system approved annually
within the enterprise fund budget, construction and operation of the
proposed water treatment plant #1, refurbishing of present wells, lift
station renovation program and the replacement of all existing water
and sewer pipe must be supported by the water and sewer utility
rates that are paid by our present customers. All of these cost
categories have been identified under the USER (W A TER) and
USER (SEWER) section tabs in the study.
A basic premise of the study is that sufficient funds must be set
aside to provide for pipe replacement based upon the depreciated life
of sewer and water pipe. This is an important consideration because
the city has been paying nearly $450,000 annually over the past 5
years in sewer and water repairs as part of the city's road
reconstruction projects. In addition, the City is in need of a water
treatment plant for our existing customers, which is scheduled for
2006 at a cost of $9-10 million dollars. To sustain these
infrastructure costs on a long-term basis and avoid deferring these
costs that would result in an unfunded liability, the study proposes a
water rate increase of $.80 per thousand gallons and a sewer rate
increase of $.50 per thousand gallons.
The proposed new 2005 water rate of $2.65 is very much in line
with the average 2002 Statewide Survey rate of $2.53 (see Rate
Review tab) for municipalities that operate iron/manganese water
treatment plants. Assuming a 3% cost index for the past three years
the survey rate would in fact be closer to $2.75 per 1000 gallons.
The 2nd tier rate, for water usage above 25,000 gallons, is also
proposed to increase from $2.10 to $3.65 per thousand. Providing
water treatment is a high priority that has been identified by both the
city council and city residents. Implementing the new water rate
would allow the City to build and operate the new water treatment
plant as well as provide adequate funding for life cycle water main
pipe replacement.
On the sewer side of operations our proposed 2005 sewer rate of
$3.65 would position the City on the high end from a comparison
standpoint to most other cities. The reasons are primarily twofold.
At present it appears that virtually all cities that have sewer
treatment by MCES (Metropolitan Council Environmental Services)
charge a utility sewer rate that covers their MCES monthly
treatment charge plus a small amount for operations. No amount is
being set aside for depreciation that would provide for sewer pipe
replacement. Nor they may not include funding for lift station
replacement as well. In Prior Lake this is critical since we have a
very high number (34) of lift stations that are expensive to operate,
maintain and replace.
In addition to the utility rate increase the study also proposes that the
base CFAC charge of $7.50 be increased to $10.00. This charge is a
flat fee and is not based upon water consumption. The capital
facility charge currently is used to amortize the debt on the
Maintenance Building which houses our maintenance operating
equipment and supplies for the municipal water and sewer system.
FINANCIAL IMPACT: The combined proposed rate of $6.30 per thousand gallons is a $1.30
increase and represents a total increase of 26% above the present
rate of $5.00 per 1000 gallons. When considering the entire water
and sewer utility bill, which includes the capital facility charge of
$7.50 and the storm water charge of $6.00, homeowners would
experience, on average, a $12.95 rise on their total water bill amount
per month in 2005. The financial impact of the rate increases are
demonstrated below:
Rate usage charge
plus CF AC charge
plus storm water charge
Monthly Total...
Monthly $ Increase ...
2005 Average
Monthly Bill
$56.70
5.00
3.00
$64.70
$12.95
2004 Average
Monthly Bill
$45.00
3.75
3.00
$51.75
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 $155.40. Future rate increases within the Utility
and Trunk Rate Analysis are programmed to increase annually by
4%. The study is modeled so that it can be modified based upon
changes in information such as actual construction amounts and real
growth experience.
Conclusion
The City's water and sewer utility fund is operated as an enterprise
fund which is intended to generate revenues to provide contributions
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ALTERNATIVES:
RECOMMENDED
MOTIONS:
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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 as
identified within the study. The Utility and Trunk Rate Analysis
study quantifies each such cost over the next twenty years and
establishes a correlation of fees necessary to fund these
expenditures.
The Utility and Trunk Rate Analysis comprehensively identifies all
costs associated with Prior Lake's municipal water and sewer
system and proposes a utility rate structure required to fund quality
water and sewer service to the community. Therefore, Staff would
recommend approval of the proposed water and sewer rate increases
included within the Utility and Trunk Rate Analysis. Costa
Domitracopoulas of Engineering Resources, Inc, will give the
formal presentation of the study.
If the Council believes a lesser sewer and water rate implementation
would be in order the proposed rates could be reduced. However, if
a smaller increase were approved it would result in pushing back the
timing of the water treatment plant, delay our lift station renovation
program and probably eliminate the water and sewer replacements
that occur with our street reconstruction projects. None of these
implications are desirable. Also there is a considerable amount of
public expectation as there has been significant communication to
the public with respect to the water treatment plant planned for
construction in 2006.
The following alternatives are available with respect to the
ordinance pending before the Council:
1. Approve an Ordinance Amending Prior Lake City Code Section
704.1001 & Section 705.901 To Approve Revised Water and
Sewer Utility Rates by Reference in the 2005 Official City Fee
Schedule.
2. Approve the utility water and sewer rates as proposed within the
Utility and Trunk Rate Analysis study.
3. Amend the water and sewer rates to another amount based upon
Council consensus.
4. Take no action at this time and direct the staff to provide
additional information.
1. A motion and a second to adopt an Ordinance Amending Prior
Lake City Code Section 704.1001 & Section 705.901 To Approve
Revised Water and Sewer Utility Rates by Reference in the 2005
Official City Fee Schedule.
2. A motion and a second to accept the Utility and Trunk Rate
Analysis study findings as pertaining to the water and sewer utility
rates.
3. A motion and a second to approve the following rates as part of
the 2005 Official City Fee Schedule:
L~~~~~::~~!.~::~!.~~~::~r:::I:~:~:;:~~::P.~~:X~??::~~~:~:;::::::::J
~ Sewer Rate (tier 2) ~ $3.65 per 1000 gals. ~
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REVIEWED BY:
Attachments:
1. Ordinance e ng or Lake City Code Section 704.1001 &
Section 705.901 To Approve Revised Water and Sewer Utility Rates
by Reference in the 2005 Official City Fee Schedule.
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16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
ORDINANCE OS-XX
ORDINANCE AMENDING PRIOR LAKE CITY CODE SECTION 704.1001 & SECTION
705.901 TO APPROVE REVISED WATER AND SEWER UTILITY RATES BY
REFERENCE IN THE 2005 OFFICIAL CITY FEE SCHEDULE
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 and sewer rates to generate sufficient utility revenues to offset current
operating, replacement and capital expenses; and
WHEREAS,
the City Council has determined that the water and sewer rates and capital
facility charge shall be approved by reference to the Official City Fee
Schedule.
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 and Section 705.901 is amended to read as
follows:
704.1001 Rates:
(1) Effective February 1, 2005 the water utility rates and capital facility charge shall be
determined annually by the City Council by reference to the Official City Fee Schedule.
(2) Delete in its entirety
(3) Remains unchanged and becomes (2)
(4) Remains unchanged and becomes (3)
705.901 Rates:
(1) Effective February 1, 2005 the sewer utility rates shall be determined annually by the
City Council by reference to the Official City Fee Schedule.
(2) The charge for sewer usage for the June, August and October billing cycles shall not
exceed one hundred and fifty (150%) of the average for the December, February, and
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.
(3) There will be a delinquency charge of ten percent (10%) on any bills that are delinquent
within the terms of this subsection.
(4) The rates for sanitary sewer system usage shall be determined annually by the City
Council by reference to the Official City Fee Schedule for those users not connected to
the Municipal water system.
(5) All water and sewer bills are the responsibility of the property owner.
Passed and adopted this 3rd day of January, 2005. This ordinance shall become effective upon
publication.
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Phone 952.447.4230 / Fax 952.447.4245
{Seal}
H:\Water\Agenda rate increase 200S.doc
Haugen
vacant
LeMair
Petersen
Zieska
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YES
Haugen
vacant
LeMair
Petersen
Zieska
NO
City Manager
City of Prior Lake