HomeMy WebLinkAbout5.a. Water Utility Rate Review 4 ROSEMOUNT EXECUTIVE SUMMARY
UTILITY COMMISSION
Utility Commission Meeting: August 17, 2015
AGENDA ITEM: Water Utility Rate Review AGENDA SECTION:
Old Business
PREPARED BY: Patrick Wrase, PE, Director of Public Works /
City Engineer and Christine Watson, P�blic AGENDA NO.
Works Coordinator Cly
ATTACHMENTS: Comparison Spreadsheets; DNR Memo APPROVED BY:
RECOMMENDED ACTION: Motion to Recommend City Council Approval of Water Utility
Rate Changes for 2016.
ISSUE
At the July 20, 2015 Utility Commission meeting, members of the Commission requested that staff
investigate the impact of adjusting the tiers and/or rates in such a way as to encourage more water
conservation by the high-end water customers.
BACKGROUND
As part of our investigation,we reviewed the activity over the past 10-years:
• 2005 to 2006: WSB &Associates performed a Water and Sanitary Sewer Rate Analysis. This
study helped establish the appropriate base rate for the water utility at that time ($1.02 per 1000
gallons).
• 2008 to 2009: City staff developed the first iterations of our current water rate model,with tiered
rates to comply with Department of Natural Resources (DNR) standards for water conservation.
The step increases were set at roughly 25%between each tier.
• 2009: Tiered rates were approved by Council for implementation in 2010.
• 2010: Tiered rates were implemented in March 2010.
• 2011 through 2015: Rates stayed flat in 2011, followed by annual rate increases of 5% across all
rate tiers.
Based on methodology in the American Water Works Association (AWWA) M1 Principals of Water Rates
and Fees, the average winter quarter usage can be used as a threshold for defining the first tier. In
Rosemount, the average winter quarter usage is 11,200 gallons for residential customers and 106,000
gallons for commercial/industrial/institutional customers. A review of other metro cities and industry
technical documents would suggest that doubling each tier thereafter is a typical practice. Based on this
information, staff began the investigation with the following changes to the tier parameters:
G:\Utilities\Rates\20150817 UC Water Rates.docx
Current Alternate
Residential Tier 1 0 - 10,000 0 - 12,000
Residential Tier 2 11,000 - 30,000 13,000-24,000
Residential Tier 3 31,000 - 60,000 25,000-48,000
Residential Tier 4 > 60,000 > 48,000
Comm / Ind / Inst Tier 1 0 - 100,000 0 - 100,000
Comm / Ind / Inst Tier 2 101,000 - 200,000 101,000 -200,000
Comm / Ind / Inst Tier 3 201,000 - 300,000 201,000 -400,000
Comm / Ind / Inst Tier 4 > 300,000 > 400,000
Adjusting the tiers in this manner will ensure that most of the low and average users will fall into the
lowest tier,while more of the high-end users will fall into the highest tier with the highest rate.
In addition to adjusting the tier parameters, staff studied the impact of adjusting the rates so that there was
a larger gap between the last two tiers. This is a suggested practice as outlined in the attached DNR memo
from July 2008.
ATTACHMENT ONE highlights the changes that were made to the tiers and rates,and provides a
comparison of the impact on the Water Utility Fund year-end balance. ATTACHMENT TWO shows how
the changes to the tiers and rates are expected to impact the 2016 revenues at each tier.
Staff will have the full spreadsheet models available for review at the Utility Commission meeting.
SUMMARY
Staff is requesting Utility Commission recommendation to the City Council to approve the proposed water
utility rate changes for 2016,which include adjustments to both the tier parameters and the rates.
G:\Utilities\Rates\20150817 UC Water Rates.docx
Attachment One
Comparison of Tiers and Rates
Current Model for 2016
Fixed Rate $12.65 4.0% Annual Increase % of readings in tier Average Usage
Residential Tier 1 (0 - 10,000 gal) $1.14 4.0% Annual Increase 30.0% 6,800
Residential Tier 2 (11,000 -30,000 gal) $1.40 4.0% Annual Increase 50.0% 17,300
Residential Tier 3 (31,000-60,000 gal) $1.77 4.0% Annual Increase 15.0% 42,200
Residential Tier 4 (>60,000 gal) $2.41 4.0% Annual Increase 5.0% 96,500
Irrigation Meters (Multi Fam/Comm/Ind/Inst) $2.54 Equal to Comm Tier 4 100.0% 100,000,000
Comm/Ind/Inst Tier 1 (0- 100,000 gal) $1.33 4.0% Annual Increase 70.0% 27,500
Comm/Ind/Inst Tier 2 (101,000 -200,000 gal) $1.65 4.0% Annual Increase 15.0% 141,000
Comm/Ind/Inst Tier 3 (201,000 - 300,000 gal) $2.02 4.0% Annual Increase 7.0% 240,000
Comm/Ind/Inst Tier 4 ( > 300,000 gal) $2.54 4.0% Annual Increase 8.0% 1,175,000
2016 Year-End Blance _ $6,310,889
2020 Year-End Blance $5,505,001
2025 Year-End Blance $4,770,427
Alternate Model for 2016
Fixed Rate $12.65 4.0% Annual Increase % of readings in tier Average Usage
Residential Tier 1 (0 - 12,000 gal) $1.14 4.0% Annual Increase 40.0% 8,000
Residential Tier 2 (13,000 -24,000 gal) $1.43 25.0% Increase over Tier 1 40.0% 17,000
Residential Tier 3 (25,000-48,000 gal) $1.79 25.0% Increase over Tier 2 10.0% 33,000
Residential Tier 4 (>48,000 gal) $2.68 50.0% Increase over Tier 3 10.0% 79,000
Irrigation Meters (Multi Fam/Comm/Ind/Inst) $3.12 Equal to Comm Tier 4 100.0% 115,000,000
Comm/Ind/Inst Tier 1 (0 - 100,000 gal) $1.33 4.0% Annual Increase 70.0% 27,000
Comm/Ind/Inst Tier 2 (101,000 -200,000 gal) $1.66 25.0% Increase over Tier 1 15.0% 142,000
Comm/Ind/Inst Tier 3 (201,000 -400,000 gal) $2.08 25.0% Increase over Tier 2 8.0% 262,000
Comm/ Ind/ Inst Tier 4 ( >400,000 gal) $3.12 50.0% Increase over Tier 3 7.0% 1,300,000
2016 Year-End Blance $6,430,960
2020 Year-End Blance $6,170,770
2025 Year-End Blance $6,293,417
Attachment Two
Side-by-Side 2016 Revenue Comparison
Current Alternate
0- 10 $ 66,232.11 $ 103,893.50 0 - 12
11 -30 $ 307,769.75 $ 237,007.06 13 -24
31 - 60 $ 260,058.43 $ 133,316.47 25 -48
> 60 $ 256,310.00 $ 445,301.36 > 48
$ 291,824.00 $ 358,800.00
0- 100,000 $ 18,919.01 $ 19,121.36 0- 100,000
101,000 - 200,000 $ 24,431.58 $ 23,142.91 101,000- 200,000
201,000 - 300,000 $ 23,054.39 $ 26,051.58 201,000 -400,000
> 300,000 $ 165,414.91 $ 187,451.26 > 400,000
$ 1,414,014.17 $ 1,534,085.50
•
.
July 31, 2008 () (P'`
Dear Public Water Supplier:
RE: WATER CONSERVATION RATE REQUIREMENT
Department of Natural Resources(DNR)records indicate that ROSEMOUNT,CITY OF
has a,water supply system that serves more than 1,000 residents. This letter is intended to inform you of
the 2008 amendment of Minnesota Statutes,section 103G.291,that requires all public water suppliers
serving more than 1,000 people to adopt a conservation rate structure:
subd.4.Conservation rate structure required.(a)For the purposes of this section,"conservation rate
structure"means a rate structure that encourages conservation and may include increasing block rates,seasonal
rates,time of use rates,individualized goal rates,or excess use rates.The rate structure must consider each
residential unit as an individual user in multiple-family dwellings.
(b)To encourage conservation,a public water supplier serving more than 1,000 people in the metropolitan
area,as defined in section 473.121,subdivision 2,shall use a conservation rate structure by January I,2010.All
remaining public water suppliers serving more than 1,000 people shall use a conservation rate structure by
January 1,2013.
(c)A public water supplier without the proper measuring equipment to track the amount of water used by its
users,as of the effective date of this act,is exempt from this subdivision and the conservation rate structure
requirement under subdivision 3,paragraph(c).
In addition,Minnesota Statues, section 103G.291, was further amended (underlined portion)to read:
Subd.3.Water supply plans; demand reduction.(c)Public water suppliers serving more than 1,000 people '
must employ water use demand reduction measures,including a conservation rate structure,as defined in
subdivision 4,paragraph(a),unless exempted under subdivision 4,paragraph(c),before requesting approval
from the commissioner of health under section 144.383,paragraph(a),to construct a public water supply well
or requesting an increase in the authorized volume of appropriation. Demand reduction measures must include
evaluation of conservation rate structures and a public education program that may include a toilet and
showerhead retrofit program.
Therefore, effective immediately, public water suppliers serving more than 1,000 residents will need to
adopt a conservation rate structure before requesting well construction approval for a public water supply
well or before requesting an increase in permitted volume for their water appropriation permit.
A conservation rate is defined as one that encourages conservation such as an increasing block rate,
seasonal rate,time of use rate, individualized goal rate, or excess use rate. These conservation rate
structures are described on the DNR web page at:
flies.dnr.state.mn.us/waters/watermgmt_section/appropriations/conservation rate structures.pdf
Please note that rates that include a basic block volume that exceeds the average household use for the
community will not be considered a conservation rate. Suppliers will need to statistically justify their
block structure.
If you have any questions,please feel free to contact Joe Richter at(651)259-5703,
joe.richter a,dnr.state.mn.us or the Area Hydrologist for the county in which your community is located:
files.dnr.state.mn.us/waters/area_hydros.pdf.
Conservation Rates
Minnesota Statutes,section 103G.291,was amended in 2008 to include a requirement for public water
suppliers serving more than 1,000 people to adopt a water rate structure that encourages conservation:
Minn.Stat. 103G.291,Subd.4.Conservation rate structure required.(a)For the purposes of this section,
"conservation rate structure"means a rate structure that encourages conservation and may include increasing
block rates,seasonal rates,time of use rates,individualized goal rates,or excess use rates.The rate structure
must consider each residential unit as an individual user in multiple-family dwellings.
(b)To encourage conservation,a public water supplier serving more than 1,000 people in the metropolitan
area,as defined in section 473.121,subdivision 2,shall use a conservation rate structure by January 1,2010.All
remaining public water suppliers serving more than 1,000 people shall use a conservation rate structure by
January 1,2013.
(c)A public water supplier without the proper measuring equipment to track the amount of water used by its
users,as of the effective date of this act,is exempt from this subdivision and the conservation rate structure
requirement under subdivision 3,paragraph(c).
Examples of Conservation Rates:
Below are examples of rate structures that encourage conservation.Many variations and combinations of
these examples are possible.
NOTE: Rate structures often include a service charge(base rate)and a volume based charge. Service
charges may cover fixed costs(capital improvements)and the volume charge is often for operation and
maintenance costs.Volume charges usually use units of 1,000 gallons or 100 cubic feet(748 gallons).
Increasing Block Rates: Cost per unit increases as water use increases within specified"blocks"or
volumes.The increase in cost between each block should be significant enough(25%or more and 50%
between the last two steps)to encourage conservation.
Example: 0-6,000 gallons=$2.50/1000 gallons.
6,000-12,000 gallons=$3.15/1000 gallons.
12,000-24,000 gallons=S4.00/1000 gallons.
Above 24,000 gallons=$6.00/1000 gallons.
Seasonal Rates: The rate per unit increases in the summer to encourage the efficient use of water during
peak demand periods caused by outdoor water uses. Seasonal rates can take the form of a surcharge added
to the normal rate or a separate fee schedule for winter and summer periods.
Example: Surcharge method-$1.00/1000 gallons is added on top of the regular fee schedule for all
water use between May 1 and October 1.
Time of Use Rates:Water rates are higher at times of the day when water use demands are high.This rate
requires specialized meters that can monitor water use during specified segments of time,for instance,
every 15 minutes.
Example: Water rates are reduced by$0.75 for customers that agree not to use water for certain
purposes or over a set volume of water during certain times of the day or periods of high
water demands.
Page 1
Conservation Rates
Page 2
Individualized Goal Rate(Water Budget Rate): A rate with tailored allocations developed for each
customer.The rates increase as the allocation is used or exceeded by the customer. The allocation is
generally based upon winter or January use.
Example: A family of four used 6,200 gallons in January.Summer use is higher than January use so
a factor is applied to determine a summer allocation(1.5 x 6,200 gallons=9,300
gallons).
0-6,000 gallons=$2.50/1000 gallons.
6,000-9,300 gallons=$2.75/1000 gallons.
9,300-18,600 gallons=$4.00/1000 gallons. (Allocation is exceeded.)
Above 18,600 gallons=$6.00/1000 gallons.
Excess Use Rates: Cost per unit increases greatly above an established level in order to trigger a strong
price signal that discourages excessive use.This rate is similar to an increasing block rate but with much
higher charges for the larger volume blocks.
Example: 0-6,000 gallons=$2.50/1000 gallons
6,000-12,000 gallons=$3.15/1000 gallons
12,000-24,000 gallons=$5.00/1000 gallons (Excessive Use Rate)
Above 24,000 gallons=$7.50/1000 gallons (Excessive Use Rate)
Multiple—Family Dwellings:Total water use in a multiple-family dwelling,which has only one water
meter for the entire dwelling,may exceed that of a single-family dwelling.The statute does not require
individual water meters for each residential unit within a multiple-family dwelling;however,the required
conservation rate at which the multiple-family dwelling's water use is billed must consider the number of
residential units within that multiple-family dwelling.
Example:A four-plex uses a total of 18,000 gallons per month or approximately 4,500 gallons per
residential unit.Water use for each residential unit falls within the first block(0-6,000 gallons)of the
above Excess Use Rate example.A rate of$2.50/1000 gallons would apply up to a total use of 24,000
gallons for the multiple-family dwelling.Thereafter,the rate increases according to the rate schedule,
always considering each residential unit as an individual user.
Non-conservation rate examples:
Declining(Decreasing)Block Rates:The cost per unit of water(cubic foot or gallon)decreases as the
water use increases beyond the basic block. This rate structure provides no incentive to conserve because
the cost of water per unit decreases with increased use.
Flat Rates:A set fee allows the use of an indefinite amount of water. This rate structure is used where
water is unmetered and provides no incentive to conserve water because cost is unrelated to volume used.
Uniform Rates:The cost per unit is the same regardless of the volume used.This rate structure is
considered conservation neutral.
Service Charge(Base Rate)that includes a Minimum Water Volume: The inclusion of a minimum
volume of water in the service charge(base rate)discourages conservation especially if the minimum
volume exceeds average customer usage.
Conservation Rates 8-18-08.pdf