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HomeMy WebLinkAbout2.c. Water/Sewer Rate Discussion CITY OF ROSEMOUNT EXECUTIVE SUMMARY FOR DISCUSSION COMNIITTEE OF THE WHOLE DATE: March 4, 1997 AGENDA ITEM: Water/Sewer Rate Discussion AGENDA NO. PREPARED BY: Bud Osmundson I��_�A �� Ci En ineer/Public Works Director ��/� ATTACHMENTS: October 31, 1996 Letter, Executive Summary from the 1994 Sewer/Water Rate Stud In 1994 the City hired SEH to complete a comprehensive sewer/water rate study to determine the appropriate charges for sewer/water usage. The Executive Summary from the final report is attached. Basically the City changed many minor details far the invoicing of sewer/water usage with the goal of eliminating many confusing credits and policies and modifying the rates to provide adequate funding far infrastructure repair and replacement. The attached information should explain that in more detail. Furthermore, the rates were to remain in effect for 5 years at which time they would be re-evaluated. A major change in the billing structure was to eliminate the"sprinkler credit". Currently the sewer usage bill is calculated by utilizing the actual reading of the water meter each quarter. With a"sprinkler credit" system the residents would be charged the first quarter water reading for the third quarter usage. This would result in billing the sewer customers a first, second, first and fourth quarter water reading schedule. Hence the sprinkler credit for the third quarter during the year when most of the watering is done. Since we eliminated the sprinkler credit, the people who water their lawns e�ensively do pay more in sewer usage. However, there is no feasible method of inetering sewage usage so the residents sprinkling the most, pay a larger sewer bill than actually used. It should be noted that prior to 1994 the sewer rate was $1.85 per thousand gallons and now the rate is $1.35 per thousand. During the last three years we have had some residents come forward to the Utility Commission to complain about this method of sewer rate billings. Most of these residents were new residents who sodded their lawns and used a large amount of water in establishing their lawns. In 1996 the drought intensified this situation. The Utility Commission has discussed this issue many times. We are here tonight to discuss it with the City Council. Staf�s recommendation is to leave the bitting as is until 1998, at which time the sewer/water rates should be reviewed again. C1TY OF ROSEMOU NT z8�5`;TM�hA�tW�t P.O.Box 510 Every�hing's Coming Up Rosemount!! Ro�mo��t,MN 55068-0510 Phone:612-d23•4411 Fax:612-423-5203 October 31, 1996 Re: Sewer Usage Bill Dear Resident: We have received your letter and/or request to investigate sewer billing policies and appreciate your concerns. The Utility Commission discussed this issue at their October 7, 1996 meeting. The existing sewer rate is S 1.35 per thousand gallons of water usage plus a fixed charge of 519.10 per account. This pays for the Sanitary Sewer Operating Budget ' which was 5795,525 in 1996. The major cost item in this budget is to pay the ' Metropolitan Council Environmental Services (MCES1 for sewage treatment in the amount of 5416,000. The City's sewage is treated at either the Rosemount or li Empire Wastewater Treatment Plants which are operated by the MCES. The 1996 �, budget also includes SZ00,000 for total replacement of sanitary sewer lines which 'I took place on Lower 147th Street and Cameo Avenue this past summer and fall. The � remainder of the budget pays for operating expenses such as salaries, electrical I power fo� pumping stations, operating supplies, insurance and minor equipment. Therefore at the end of the year the City needs 5795,525 to pay for the Sanitary Sewer Operating costs. If this budget amount is based on 540,000,000 gallons sent to the Metropolitan Council Environmental Services for treatment, it equates to the $1.35 per thousand gallon cost. If the City calculates the cost on a "sprinkling credit" basis and gives each customer a credit of, say, 50,000 gallons, this would lower the total amount of sewage to 365,000,000 gallons that the billing would be based on. If the 5795,525 budget was based on 365,000,000 gallons, the City would have to charge 52.00 per thousand gallons to break even for the year. In other words, each customer's sewer bill would remain at the same total dollar amount, but the per gallon rate would be higher. This was the case prior to July, 1994 when the new rate went into effect. Prior to July, 1994, the sewer rate was S 1.85 per thousand gallons of sewage usage. This change in sewage bill calculation does mean that those residents who water their landscaping in larger quantities than normal, do pay mo�e in sewage usage costs. ,.: However, part of the Metropolitan Council's directive towards the City is to enact procedures and programs which conserve water. This sewage rate and billing � ,,nnld un iKYtMlIUN'� /M�J�mM)OYr �,mr..mwmr+�nufmalt. � � � May 9, 1994 � � Comprehensive Water --� and Sewer Rate Stud Y -� Rosemount, Minnesota �� Executive Summary . � Background -� The Rosemount Utility Commission, City staff and SEH began •working in December of 1993 to develop recommendations on updated sewer and water rates. Some of the City's goals were to -� simplify the rate structure as much as possible and at the same time provide an incentive to conserve water and reduce sewer flows. Implicit in the approach was the need to maintain a comfortable reserve balance in the various funds after expenses. This need had -¢;� to be balanced with the desire to keep rates comparable with adjacent con�munities. '� One of the key challenges of this study was to develop a method for ,I funding proposed Capital Improvement Projects(C.I.P.)and Capital ,, -� Replacement Projects(C.R.P.). The C.R.P.is proposed to be funded through the Operating Funds and the C.I.P.is proposed to be funded through the Core Funds. For the most part, the C.R.P. and C.I.P. projects can be accommodated through the proposed rate � adjustrnents. However, lazge additions to the system (such as storage tanks and wells)may require transfers from different funds or bonding. r� Fixed and Variabie Ex�enses , -� A key criteria which was used to evaluate the proposed rate alternatives dealt with the concept of fixed and variable expenses. A fixed expense is an expense that is incuned regardless of how � much water is sold or how much sanitary sewage is generated. For A-ROSEM9402.01 Page t - � � I �� example,expenses such as staff salaries,office supplies,and routine i equipment repair/maintenance are considered fixed expenses. On the other hand, expenses such as electricity to run well pumps, chemical additives for water treatment,and fuels for running motors � aze considered variable expenses because they will vary depending on the amount of water sold or sewage generated. '� The fixed expenses are estimated to be about 64% of the total expenses for the water utility. For the sewer utility, the fixed expenses are estimated to be about 93%of the total expenses. The � � percentage of fixed expenses for the sewer utility is higher than for -,� the water utility because of the MWCC charges which are considered a fixed expense. � Ideally,the"fiaced charge"(or minimum charge)for water and sewer should be high enough to co�er 100% of the fixed costs for each -F utility. This would provide funds to pay for all fixed expenses even under the theoretical case where no water is sold in a particular quarter. However,the disadvantage to a high fixed charge is that it -� reduces the incentive to conserve water because it tends to reduce � the consumption and disposal rates per 1000 gallons. Therefore,it places more of a burden on the low end users and less of a burden on �-� the high end users. Summary of Pr000sed Rates :� A more realistic approach is to structure the rates such that the fixed charge will cover a certain percentage of the fixed expenses. After -� reviewing many different rate"scenazios",it appeazs that the Utiliry Commission is the most comfortable with the 50% rate models for both sewer and water. That is, 50% of the fixed expenses will be � covered by the fixed chazge,and the remainder of the expenses will be covered by the consumption or usage chazge. � Using this criteria,the proposed fixed chazges were calculated to be � $7.90 per quarter for water and $19.10 for sewer. In order to maintain the desired fund balances after expenses, the proposed _ water and sewer rates per 1000 gallons of usage were then calculated :� to be$0.95 and$1.35 respectfully. ,� In addition, the "minimum gallons" for water is proposed to be � redyced from 18,000 gallons to zero. Likewise,the minimum gallons of usage for the sewer bill is proposed to be reduced from 15,000 � � � Camprehensive Water and Sewer Rate Study A-ROSEM9402.01 Rosemount, Minnesota Page 2 � � �, � gallons to zero. This will help to promote conservation because � customers will pay for what they use. To further promote conservation, the large water users (1" meters � and above) will continue to pay the current meter maintenance chazges. However, residential units with 5/8" meters will not pay any meter maintenance fee. This will help to distribute the costs _� more heavily to the lazge water users. The water surcharge rates aze proposed to be raised by 33%to offset � debt service expenses. For a single family residential unit, the water surchazge will increase from$4.50 to$6.00 per quarter. Even at this moderate increase, the surcharge revenues will only cover a small '� percentage of the debt service expenses. The remaining expenses are proposed to be paid for out of the Water Core Fund (as they are currently). � The connection fee or availability fee for water and sewer is proposed to be raised by 5% per year for the next five years. The —� average availability fee for a single family residential unit over the next five years will then be $1,185 for water and $1,185 for sewer. The availability fee is a one-time fee per home that is paid at the time � of utility hook-up. Another proposed change to the rates deals with the various credits -� that are currently used. It is proposed that all credits be dropped because the credits do not promote conservation. In addition,it is proposed that the third quarter billing for sanitary sewer be based on -� actual water usage in the third quarter rather than on the first quarter usage. Again,this will tend to increase conservation during the sprinkling season. ,_� Finally,a summary of the existing and proposed rates aze shown on the following pages. A computer printout is also attached for both the water and sewer models. This will help to show the differences � between the two rate structures.. w� _.� � � Comprehensive Water and Sewer Rat�Study A-ROSEM9402.01 Rosemount, Minnesota Page 3 �