03-09-2016 Additions Packet - Laserfiche WebLink

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TO: Mayor Keis and Members of City Council FROM: Joel Hanson, City Administrator DATE: March 4, 2016 RE: Water & Sewer Rate Adjustments STAFF REPORT With first quarter utility bills going out by mid-April, we need to finalize our water and sewer rates for 2016. Here is a summary of each component: Water The 2015 Budget for the Water Fund anticipated a net loss of $28,683. The projected actual result anticipates a net profit of $22,945. This positive variance of $51,628 is largely attributable to the refund and rate reduction from St. Paul Regional Water Service (SPRWS). If the summer had been more typical versus being wetter than normal, we would have experienced an even greater positive variance. In 2016, SPRWS is not changing the rates we pay (they are increasing their base fee but that will not impact us). With our settlement with them, we are now paying 65% of St. Paul rates versus the 71% we previously paid as a wholesale customer. We also pay a flat fee of $7,800 a month. Given the wet years we have experienced recently, sales of water have been lower than estimated. Therefore, we are basing 2016 revenues on lower water sales, essentially using 2015 SPRWS water purchases as the base point. In doing so, we project a net loss of $75,509 with no increase in our rates. Projecting a small loss in the water fund has been an acceptable practice as long as we cover our operating costs and the projected transfer of depreciation to the Water & Sewer Capital Replacement Fund. From a depreciation standpoint, we project $250,000 in the Water Fund (601) and $146,000 in the Sewer Fund (602). To service debt associated with the new Public Works Building and still provide some capital funding for system needs going forward, we have budgeted $300,000 in the 604 fund so we have an adequate cushion to absorb some loss. However, to keep the loss manageable and avoid more dramatic increases in the future, staff is recommending a 3.00% increase in our water rates for 2016. As a result, the winter rate would increase from $3.20 per 1000 gallons of water to $3.30. The summer period rate would increase from $3.31 per 1,000 gallons of water to $3.41. These rates are still competitive with other users of SPRWS water as evidenced by the survey attached. (Note: It is important to remember the SPRWS water has a much higher level of treatment (softening and granulated charcoal filtration) than is typically undertaken by other cities. With the recommend rate increase, we still project a loss of $41,917 in the Water Fund for 2016 but that still allows for a transfer of at least $200,000 for depreciation for the 604 Fund. We have also been very conservative in projecting investment earnings and hopefully, actual results will lessen the impact a bit. 7