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TO: Mayor Walsh and Council Members <br />FROM: Ron Olson, Finance Director <br />DATE: October 28, 2019 <br />SUBJECT: 2020 Utility Billing and Rates <br />Attachments: <br />1. Rate Study <br />As part of the utility fund's budget process, staff has been looking at the rates that are needed to fund <br />our utility systems. In conjunction with this review of rates staff has identified some possible changes <br />that could be made to our billing process. The changes are: transitioning from a quarterly to a monthly <br />billing cycle, instituting a water shutoff policy, examining sewer service connections. The rates and <br />other changes will be explained in the rest of this memo. <br />Rate Study <br />Staff has been working on updating the annual rate study on which to base future utility rates. Some <br />of the challenges that have been encountered include the following: <br />• Higher than normal capital expenditures in the near term due to delayed projects <br />• Relatively low number of water users especially on the North system <br />• Low density of users on the sewer system <br />• A complex sewer collection system with 45 lift stations <br />• High levels of I&I in the sewer system <br />• An increase of road projects impacts utilities in the road corridors <br />Because our water system has a low number of users, the overhead of two water plants, four wells, <br />and two water towers is spread over far fewer customers that some of our neighboring cities. This <br />puts significant pressure on our water rates. With 45 lift stations we have approximately one lift <br />station for every 50 connections. A city like Plymouth, with a higher population density and less <br />geographical challenges, has approximately one lift station for every 5,000 connections. When the <br />complexity of our system is combined with our I&I issues, there is significant upward pressure on <br />sewer rates. <br />The rates being presented are calculated based on the following: <br />• Maintain an operating reserve of 25% of operating expenditures — City Policy and Best <br />Practice <br />• Maintain a capital reserve of 25% of capital expenditures — City Policy and Best Practice <br />• Normalize capital expenditures <br />• Normalize revenue to meet expenditures <br />• Capture 100% of Depreciation <br />• Create a stable rate structure that does not require borrowing or Special Assessments <br />