HomeMy WebLinkAbout2010 Utility Rate Study
CITY OF OAK PARK HEIGHTS
WATER AND SEWER RATE STUDY
2010
REPORT ON
WATER AND SEWER RATE STUDY
FOR
OAK PARK HEIGHTS, MINNESOTA
2010
David Beaudet Mayor
Les Abrahamson Council Member
Mary McComber Council Member
Michael Runk Council Member
Mark Swenson Council Member
Eric Johnson Administrator
Table of Contents
Introduction …………………………………………………………………….. 2
Water User Charges ……………………………………………………………. 3
General ………………………………………………………………….. 3
Water Usage Estimates …………………………………………………. 3
Water Department Expenditures ………………………………………... 3
Water Rates ……………………………………………………………... 4
Sewer User Charges …………………………………………………………… 6
General ………………………………………………………………….. 6
System Flow Estimates …………………………………………………. 6
Sewer Department Expenditures ………………………………………... 7
Sewer Rates ……………………………………………………………… 8
Conclusions and Recommendations ……………………………………………. 10
Page 1
INTRODUCTION
The City of Oak Park Heights regularly reviews the water and sewer rate schedule to assure receipt of
adequate funding for operation of the utility systems. This report represents the results of a study
undertaken to review the costs to operate and maintain the water and sewer systems in the City of Oak
Park Heights. The purpose of the study is to determine the user rates required to adequately and equitably
finance the proposed 2010 operating budgets of the Water and Sewer Funds.
This report contains an analysis of the past and projected flows, usages, and system connections as well as
a review of costs and projected expenditures for operation and maintenance.
In summary, this report contains a review of the past and present schedules and practices relating to water
and sewer user charges in the City and recommendations for rates which will produce the required
revenues in a fair and equitable manner.
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Water User Charges
General
It is necessary to periodically study the water user rates to determine if adequate revenue is being
produced to operate the water supply and distribution system and to meet other financial obligations for
capital improvements and for renewal and replacement.
The study contained in the following sections of this report reviews projected water sales as well as
budgeted expenditures and other financial obligations. Using this information, rates are computed which
will produce sufficient revenue to operate and maintain the waterworks system for the coming year.
Water Usage Estimates
Each dwelling and structure connected to the City waterworks system is equipped with a water meter to
measure water usage. Each well supply is also equipped with a water meter to measure water produced.
These two sources are then used to verify and estimate water consumption.
It is very difficult to predict water usage with any accuracy for a given year because usage will vary
tremendously dependent upon climatic conditions during the summer growing season. It is estimated that
50% of our customers use 15,000 gallons or less of water per quarter. An average of 9,000 gallons per
month was used for all of our minimum usage customers. For the customers that have an average use
between 16,000 and 50,000 gallons per quarter an average of 26,000 gallons per quarter per account was
used. For the customers that have an average use between 51,000 and 99,000 gallons per quarter an
average of 70,000 gallons per quarter per account was used. On average, records indicate that normal
water consumption in the City of Oak Park Heights is equal to about 122 gallons per capita per day. This
is higher than other similar municipalities because of the large institutional users in the City. Based on
past records, it is projected water usage in 2010 will be approximately 210 million gallons with about 220
million gallons to be pumped.
Water Department Expenditures
To determine a water use rate schedule, it is necessary to estimate the amount of the expenditures
anticipated or revenue required. Expenditures can be generally classified in the following categories:
a. Operation and maintenance
b. Reserve for capital improvements
c. Administration, accounting and billing
d. System renewal and replacement
All of the expense items listed are related to capacity and usage except for administration, accounting and
billing which are proportional to number of connections.
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Operation and maintenance costs are to be included in the rate calculation and are taken directly from the
City Budget. The City has issued bonds in the past to finance waterworks improvements with a portion of
the debt service being paid from revenue. However, more recently, the improvements made to the system
have been made through bonding with repayment through a system of area charges and connection
charges.
The other cost which is part of expenditures in the water rate computation is an allowance for major
repairs and for future replacement of facilities.
Combining all of the data described above results in the total estimated expenditures for the Water
Department in 2010. A summary of those expenditures as well as previous years’ expenditures is shown
in the following tabulation.
WATER DEPARTMENT EXPENDITURES
2006 2007 2008 2009 2010
Item Actual Actual Actual Budget Budget
Operation & Maintenance $310,545 $299,522 $295,215 $313,710 $299,830
Renewal & Replacement 88,221 88,212 110,950 110,800 92,150
Capital Outlay 10,800 192,300 240,051 133,000 174,800
Total $409,566 $580,034 $646,216 $557,510 $566,780
2010 WATER DEPARTMENT EXPENDITURES
Operation & Maintenance $278,630
Capital Outlay 174,800
Renewal & Replacement 92,150
Operating Expenditures $545,580
Administration & Billing 21,200
Total Expenditures $566,780
The administration and billing fee represents approximately 7% of the operation and maintenance cost.
Water Rates
The estimated unit cost to produce and supply water in the City of Oak Park Heights can be determined
by dividing the estimated operating expenditures by the assumed flow. In addition to the operating rate,
revenue for administration, billing and accounting can be computed by dividing the estimated
administrative and billing costs by the number of connections. In addition the City is required to submit
$6.36 per water connection per year to the State of Minnesota for water connection service fees.
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The Water Utility Fund had a cash deficit for the year ending December 31, 2008 of approximately
$156,000 and possible cash deficit for 2009 of $20,000. For operating rate purposes, $44,000 per year for
the next 4 years is added to the operating expenditures to cover the 2008/09 cash deficits. The resulting
computations are as follows:
Operating Rate - $589,580 210,000,000 gallons = $2.60/1,000 gallons
Administration Rate - $21,200 1,280 accounts = $4.14/quarter
State Water Connection Fee = $1.59/quarter
Using the minimum monthly flow of 15,000 gallons per connection results in the user rate schedule
shown below:
Operating charge – 15,000 gallons @ $2.60/1,000 gallons $39.00/quarter
Administration $4.14/quarter
State Water Connection Fee $1.59/quarter
Minimum Charge $44.73/quarter
The rate computation shown above represents a 58% increase in the minimum charge and a 72% increase
in the operating rate.
The current minimum monthly rates are as follows:
Operating charge – 15,000 gallons @ $1.51/1,000 gallons $22.71/quarter
Administration $4.01/quarter
State Water Connection Fee $1.59/quarter
Current Minimum Charge $28.31/quarter
The current established water rates for all users are as follows:
Minimum Charge $1.59/quarter for State Water Connection Fee
$26.72/quarter for up to 15,000 gallons
$1.96/1,000 gallons for usage from 16,000 to 50,000 gallons/quarter
$2.68/1,000 gallons for usage from 51,000 to 99,000 gallons/quarter
$3.23/1,000 gallons for usage over 99,000 gallons/quarter
In order to have a minimal impact on the residential and small business users and to further comply with
th
Minnesota Statutes to encourage water conservation a 5 tier could be added to our rate structure. This
will enable the City to meet the 2010 operating and capital needs for the Water Utility Fund. The
recommended waterworks rates are as follows:
Minimum Charge $1.59/quarter for State Water Connection Fee
$26.72/quarter for up to 15,000 gallons
$1.96 /1,000 gallons for usage from 16,000 to 50,000 gallons/quarter
$2.68/1,000 gallons for usage from 51,000 to 99,000 gallons/quarter
$3.23 /1,000 gallons for usage from 100,000 to 200,000 gallons/quarter
$3.91 /1,000 gallons for usage over 200,000 gallons/quarter
Page 5
Sewer User Charges
General
The City of Oak Park Heights regularly reviews, adopts, and/or modifies its sewer user rate schedule to
assure that sufficient revenue is being generated for the payment of all expenditures associated with the
operation and maintenance of the sewage collection system and treatment facilities. This review is also
undertaken to verify that all classification of sewer users are charged for service in a manner which is fair
and equitable as defined in State and Federal regulations.
The following sections of this report will describe the system usage, financial obligations, and budgeted
expenditures as well as a suggested rate schedule to provide adequate revenues to operate and maintain
the system in 2010.
System Flow Estimates
Utility use rates can be established by equating the amount of service sold to the estimated expenditures
anticipated by the utility. In the case of a sanitary sewer system, the use or service can be measured by
sewage flow with projections for future use being dependent upon growth by number and type of
connection to the system.
The Metropolitan Council Environmental Services (MCES) maintains flow-measuring devices which are
supposed to totalize all flows from the entire City. In the past, the recorded flows were very erratic, but
between 1985 and 1993 there has been some fluctuation, but generally the flow has been proportional to
the number of connections and estimated population served. In July of 1994, the MCES replaced the
metering equipment for the Oak Park Heights meter; which resulted in a 16% increase in Oak Park
Heights’s flow. The installation of the new meter equipment resulted once again in wide fluctuations in
recorded flows, which resulted in differences in estimated flows and recorded flows and resulting costs.
In 1998 MCES initiated a new billing system where cities were billed based on metered flows with a two
quarter lag rather than estimated flows with a two-year lag in adjustment. This did not change the
accuracy of the metering but made the fluctuations less apparent. Beginning in 2005 the MCES adopted a
“firm flow” allocation method in order to stabilize the flow revenue for the MCES and the charges to the
municipalities. This means instead of estimating a system flow, the MCES will use the last known flow
numbers to allocate their budget for the coming year. To determine the annual billing amount, the
calculation is based on flows from July 1 and ending June 30. An example of the amount billed for 2010
is based on the flows from July 1, 2008 through June 30, 2009. Since we now know what our annual
charge is, we are billed a flat amount each month for the calendar year.
Because we no longer receive quarterly flow data from MCES showing the actual flows for Oak Park
Heights and the estimated flows MCES uses for billing purposes, the flows estimated by the City based
on number of connections, water sales, population, and similar data will be used for the sewer rate
computations.
Page 6
For informational purposes, population estimates, metered sewage flows and estimates, and flow per
capita data for billing years 2006, 2007, 2008, 2009 and 2010 are shown in the following tabulation.
Estimated MCES Flows
Year Population Flow (Mill. Gals.) Per Capita Per Day
2006 4,664 204.95 120
2007 4,676 211.00 124
2008 4,751 209.95 121
2009 4,708 208.74 121
2010 4,708 196.95 115
While the total sewage flow from the City is being metered with questionable accuracy, means are not
available for measuring sewage flows from individual connections. Therefore, some assumptions and
estimates must be used to apportion flows and resulting costs to the various types of users on the system.
The estimate of billed consumption for sewer for the year 2010 is 159,543,000 gallons
Water meters exist at each connection which measures the water purchased, but does not provide
information on the quantity discharged to the sewer. Generally, almost all water purchased enters the
sewer system with the exception of that water used for lawn irrigation. Lawn sprinkling is primarily
confined to single family, townhouse, and similar land uses. Where large institutional facilities or other
uses have high irrigation demands, separate meters are becoming common so that sewer billing is limited
to the non-sprinkler water usage only.
Based on the above comments, sewage flows from residential connections are assumed to be equal to the
quarterly water usage experienced during the winter months when no lawn sprinkling occurs. However,
each monthly water meter reading is used for sewage discharge billing for all commercial, industrial,
institutional and high end residential connections.
Sewer Department Expenditures
In addition to estimating the volume of sewage flow, the other basic factor required in establishing user
rates is the amount of expenditures anticipated or revenue required. Expenditures can be generally
classified in the following categories:
a. Metropolitan Council Environmental Services billing
b. Local operation and maintenance
c. Administration, accounting, and billing
d. System renewal and replacement
All of the expense items listed are related to capacity and flows with the exception of the administration,
accounting, and billing costs, which are proportional to the number of connections only.
Page 7
The Metropolitan Council Environmental Services fee is based on the “firm flow” allocation method and
will be $390,106.13 for the year 2010. This represents a 6.5% increase in MCES fee.
Local operation and maintenance costs are incorporated into the rate structure and have been taken
directly from the City Budget or from actual expenditures when available.
Combining all of the data described above results in the total estimated expenditures for the Sewer Fund
in 2010. A summary of those expenditures as well as a tabulation of previous years’ expenditures is
shown below:
Sewer Department Expenditures
2006 2007 2008 2009 2010
Item Actual Actual Actual Budget Budget
MCES Billing $316,304 $322,126 $356,245 $366,195 $390,110
Operation & Maintenance 267,426 207,165 233,000 249,775 244,115
Renewal & Replacement 77,296 77,168 81,416 81,710 81,710
Capital Outlay 11,141 71,800 33,800 26,650 51,750
Total $672,167 $678,259 $704,461 $724,330 $767,685
2010
SEWER DEPARTMENT EXPENDITURE
MCES Billing $390,110
Operation & Maintenance 199,265
Renewal & Replacement 81,710
Capital Outlay 55,250
Operating Expenditures $726,335
Administration 41,350
TOTAL EXPENDITUES $767,685
Sewer Rates
Sewer user rates can be computed by simply dividing the various operating costs by the estimated flow.
In addition to operating rate, revenue for administration, billing and accounting can be determined by
dividing the estimated administrative costs by the number of connections.
MCES Charge $390,125 ÷ 196,950,000 $1.98/1,000 gallons
Local Cost $336,225 ÷ 196,950,000 $1.71/1,000 gallons
Operating Rate $3.69/1,000 gallons
Administration Rate $41,350 / 1,285 accounts $8.04/quarter
Page 8
At the present time, the minimum charge is based on the discharge of 15,000 gallons per quarter per
account. Using the rates established above, the minimum charge is shown in the following computation.
MCES Charge 15,000 gal. @ $1.98/1,000 gallons $29.70/quarter
Local Charge 15,000 gal. @ $1.71/1,000 gallons 25.65/quarter
Administration 8.04/quarter
$63.39/quarter
The existing sanitary sewer rates along with additional revenues from interest and permits will not
completely cover the 2010 projected expenditures. In all cases, it is assumed that the billing to single
family, townhouse, condominium and other similar residential units will be based on the winter quarter
water meter reading. All other land uses such as apartments, institutions and commercial and industrial
facilities will be billed quarterly based on actual meter readings.
Current sanitary sewer rates are as follows:
Minimum charge $54.28/quarter for up to 15,000 gallons
$3.70/1,000 gallons for usage over 15,000 gallons
A 10% ($5.43) increase as of January 1, 2010 in the minimum charge with a 15% ($.56/1,000 gallons)
increase in rates for usage above 15,000 gallons would enable the City to meet the 2010 operating and
capital needs for the Sewer Utility Fund. The sewer rates would be as follows:
Minimum Charge $59.71/quarter for up to 15,000 gallons
$4.26/1,000 gallons for usage over 15,000 gallons
rd
In order to have a minimal impact on the residential and small business users a 3 tier could be added to
our rate structure. A 5% ($2.71) increase in the minimum charge, 10% ($.37/1,000 gallons) increase in
ndrd
the 2 tier and adding a 3 tier for $4.50/1,000 gallons usage above 50,000 gallons would enable the City
to meet the 2010 operating and capital needs for the Sewer Utility Fund. The sewer rates would be as
follows:
Minimum Charge $56.99/quarter for up to 15,000 gallons
$4.07/1,000 gallons for usage from 16,000 gallons up to 50,000 gallons/quarter
$4.50/1,000 gallons for usage over 50,000 gallons/quarter
Page 9
Conclusions and Recommendations
Based on the studies reported on herein, it is concluded that a rate increase is required to generate
adequate revenue for the operation of the Waterworks Fund and the Sanitary Sewer Fund.
It is recommended that the following water and sewer user rates be adopted as of January 1, 2010 to
operate the Utility Funds of the City of Oak Park Heights in 2010:
Rate Schedule
Water Rates
Minimum Charge $26.72/quarter for up to 15,000 gallons
$1.59/quarter for State Water Connection Fee
$1.96 /1,000 gallons for usage from 16,000 to 50,000 gallons/quarter
$2.68/1,000 gallons for usage from 51,000 to 99,000 gallons/quarter
$3.23/1,000 gallons for usage from 100,000 to 200,000 gallons/quarter
$3.91/1,000 gallons for usage over 200,000 gallons/quarter
Sanitary Sewer Rates
Minimum Charge $56.99/quarter for up to 15,000 gallons
$4.07/1,000 gallons for usage from 16,000 to 50,000 gallons/quarter
$4.50/1,000 gallons for usage over 50,000 gallons
Page 10