06-09-2004 Council Agenda - Laserfiche WebLink

Home Browse Search

reduction in our costs based on SPRWS's current offer to Roseville versus what we are presently paying. ➢ Depreciation reflects the portion of replacement costs built into our current operation. It is cash we are generating to offset future costs such as water tower painting, meter replacement, single frontage water main, etc. Transferring our system to SPRWS will eliminate this funding source. ➢ Staffing Impact provides for the possible addition of one Public Works employee to meet future workloads. While staff is not advocating this addition at this time, we wanted to reflect a "worst- case" scenario to ensure we were not understating our current situation. An advantage of transferring our system to SPRWS is we would free up time in Public Works (estimated at .75 persons) and the Office (.75 persons) areas if we were not dealing with our water system. ➢ Depreciation Shortfall reflects our attempts to quantify the dollars needed to replace our system based on expected useful lives of the various components. This is obviously somewhat subjective. However, our calculations show us we should be funding another $19,483 per year to ensure we have adequate funds to deal with system replacement over time. ➢ Adjust Rates to Breakeven is the amount we would have to increase /decrease our rates to cover all costs. In the Current Contract example, ($2,333) means we would have to increase our rates by that amount to cover the costs. In the Wholesale example, the $71,691 is the amount we could reduce rates by (savings to our customers) and still break even. ➢ Compared to St. Paul is the yearly financial advantage turning our system over to them would generate. While it is a fairly dramatic savings compared to our current situation, it only saves an additional $13,107 if we attain the wholesale rate they have offered to Roseville. That impact swings the other way if we do not add any staff (another $52,000)! It could also be even greater if Roseville negotiates a better rate than SPRWS is currently offering and we can obtain the same contract. The analysis leads us to the conclusion that the "risks" do not justify the potential "rewards" in contemplating a turnover to SPRWS. Financially, it is virtually a breakeven. Turnover also eliminates the added advantage an enterprise funds offers the City to generate dollars other than through taxes. Another concern is the level of maintenance SPRWS performs versus what we do, Specifically, we work every valve and hydrant on a routine basis to help ensure continued operation. This has another benefit of improving our score with Insurance Service Offices for our town class fire rating. SPRWS does not do this. While they have indicated a willingness to work with us in this regard, there could be added costs to do so. That leads us to the conclusion that we should seek an immediate adjustment in our wholesale rate. It is important to note that our contract with SPRWS does not expire until February 10th, 2007. In discussing this option with the new General Manager, Stephen Schneider, he indicated they would be willing to discuss an "early" extension after they complete negotiations with Roseville. (I am concerned that they have no incentive to deal with us any earlier than necessary.) I have questioned this position by pointing out we are already being overcharged under their own philosophy related to water conservation. Another important consideration is our current contract states: "In the event that agreement cannot be reached as to terms of the contract extension, then this agreement will be automatically extended for an additional term of ten (10) years and the rates to be paid by City for its water requirements shall be comparable to the lowest wholesale rates charged by Board to any other suburban community and in effect during the extension period." This would seem to imply that we would get the same rate as Roseville after February of 2007! Conclusion: Staff does not believe it is in our best interests to pursue a transfer of the system assets to SPRWS at this time. However, we would recommend keeping the door open to this option after the next five years or so to ensure that conditions have not changed to result in a different outcome. Staff believes we should immediately pursue an amendment /extension to our current wholesale arrangement that enables us to achieve a reduction in the cost of water. If successful, this will enable us to lower the rates we charge to our residents. 2