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515 Little Canada Road, Little Canada, MN 55117-1600 <br />(651) 766-4029 / FAX: (651) 766-4048 <br />www.ci.little-canada.mn.us <br />MEMORANDUM <br />MAYOR <br />John Keis <br />COUNCIL <br />Rick Montour <br />Michael McGraw <br />Tom Fischer <br />Christian Torkelson <br />ADMINISTRATOR <br />Joel R. Hanson <br />TO: Mayor Keis and Members of the City Council <br />FROM: Joel Hanson, City Administrator <br />DATE: January 26, 2015 <br />RE: St. Paul Regional Water Service (SPRWS) Contract Amendment <br />Attached is a proposed amendment to our contract for wholesale water purchases from SPRWS. <br />This amendment reflects the cost of service analysis undertaken by SPRWS for Little Canada in <br />2013 that was based on 2011 data. As a reminder, in 2010, SPRWS issued approximately $30 <br />million in bonds to fund improvements to the water system. None of the improvements made had <br />any benefit to the City of Little Canada nor were they related to the cost of water production. (The <br />improvements funded new water meters for all retail customers, a new reservoir in Roseville, and <br />the removal of lead water services in St. Paul.) Debt service for this bond issue was built into the <br />rate structure and as a result, Little Canada is helping to retire that debt even though we had no <br />benefit. <br />We approached SPRWS about the equity of this situation and were essentially told the contract <br />allowed for them to include this in our rates. This is in contract to the philosophy that as a whole <br />sale customer, we were not to be paying for distribution costs. That is why we paid 71% of St. Paul <br />retail rates. <br />In response to our concerns, SPRWS agreed to conduct a rate analysis. That was completed in 2013 <br />and was based on 2011 data. The result of that study indicated that Little Canada should be paying <br />65% of St. Paul retail rates. (Due to its length, I'm not including the study in the agenda packet, but <br />if you would like to review it, let me know and I'll forward it to you.) <br />Little Canada staff asked SPRWS to rebate our overpayments (71% versus 65%) back to the study <br />year of 2011. SPRWS declined to do that. They will rebate us back to 1/1/2013. We also asked for <br />some clarification in the contract amendment to ensure we are not overpaying going forward. (See <br />blue lined and redline contract amendment attached — both colors were our suggested language.) To <br />accomplish that, a rate study is to be done every five years. We asked that any revisions be back <br />dated to the study date. That request was rejected. We also asked that a study could be ordered at <br />any time during the five-year period if it was deemed an "event" of significance occurred. That too <br />was rejected, but they did allow us to conduct a study that they would "consider" with no <br />commitment for contract modifications. Further, we asked that if the study indicated a lower rate <br />1 <br />