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TO: Mayor Walsh and Council Members <br />FROM: Maggie Ung, Accountant <br />DATE: October 26, 2020 <br />SUBJECT: 2021 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. The rates 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 the I&I issues, there is significant upward pressure on <br />sewer rates. <br />The rates being presented are calculated based on the following goals: <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 />Staff is recommending the following increases for next year: 10% to Water, 10% to Sewer, 1% to <br />Stormwater, and 10% Recycling. These increases next year allows the City to meet funding goals <br />while keeping rates lower in future years. <br />Exhibit A