HomeMy WebLinkAbout2012 Utility Rate StudyCITY OF
OAK PARK
HEIGHTS
WATER AND SEWER
RATE STUDY
2012
REPORT ON
WATER AND SEWER RATE STUDY
OAK PARK HEIGHTS, MINNESOTA
2012
David Beaudet
Les Abrahamson
Mary McComber
Michael Runk
Mark Swenson
Eric Johnson
Mayor
Council Member
Council Member
Council Member
Council Member
Administrator
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Table of Contents
Introduction................................................. ............................... 4
WaterUser Charges ....................................... ...............................
General.............................................. ............................... 5
Water Usage Estimates ........................... ............................... 5
Customer Base ...................................... ............................... 7
Water Department Expenditures ................. ............................... 8
WaterRates ......................................... ............................... 9
SewerUser Charges ...................................... ...............................
General.............................................. ............................... 10
System Flow Estimates ........................... ............................... 10
Sewer Department Expenditures ................. ............................... 12
SewerRates ......................................... ............................... 13
Conclusions and Recommendations ..................... ............................... 14
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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 2012 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 of infrastructure.
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
greatly dependent upon climatic conditions during the summer growing season. It is an estimated average
that 57% of our customers use 15,000 gallons or less of water per quarter in 2011 as compared to 56% in
2010 and 50% in 2009.
The following is a consumption average for the last 3 years:
Estimated Average Use Per Rate Tier -2011
Tier
0- 15,000
15,001- 50,000
50,001- 99,000
99,001-200,000
200,001- 999,999
Total Usage /Tier
58,113,000
30,844,000
15,132,000
16,868,000
67,381,000
188,338,000
Estimated Average Use Per Rate Tier -2010
Tier
0- 15,000
15,001- 50,000
50,001-99,000
99,001- 200,000
200,001- 999,999
Total Usage /Tier
58,489,000
31,580,000
15,185,000
16,629,000
66,947,000
188,830,000
( ' ) Customers
722
429
55
22
34
1,262
( ' ) Customers
714
443
52
24
32
1265
( ' ) Estimated
Avg Use
9,000
24,000
69,000
138,000
701,000
( ' ) Estimated
Avg Use
9,000
24,000
70,000
136,000
723,000
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Estimated Average Use Per Rate Tier -2009
( ' i Estimated
Tier
Total Usage /Tier
( ' ) Customers
Avg Use
0- 15,000
60,575,000
643
9,000
15,001- 50,000
40,486,000
510
26,000
50,001-99,000
18,164, 000
70
74,000
99,001- 200,000
19,287,000
24
160,000
200,001- 999,999
72,594,000
33
749,000
211,106, 000
1280
(1) Based on customers that ended in this tier
level
On average records indicate that normal water consumption in the City of Oak Park Heights is equal to
about 118 gallons per capita per day (2010 pop 4,339). This amount appears higher than other similar
municipalities because of the large institutional users in the City. Actual residential customer
consumption is calculated at approximately 68 gallons per day.
Based on past records, it is projected water usage in 2011 will be approximately 188 million gallons. 2010
actual usage was 188,830,000 gallons. Water consumption has been steadily decreasing. The following
chart shows gallons billed from 2007 to 2011.
Million Gallons
225000
220000
215000
210000
205000
200000
195000 ■ Million Gallons
190000
185000
180000
175000
170000
2007 2008 2009 2010 2011
This reduction could be due to experiencing an above average rainfall for the summer of 2010 and the
spring /summer of 2011, and /or the reduction may be due to conservation methods taken by the users. For
the purposes of this study the 188 million gallons will be used to calculate the proposed rates.
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Customer Base
The city's customer base consists of residential, commercial /industrial, public and sprinkler- irrigation
accounts. The chart reflects the billings /revenue generated compared to the consumption and the number
of customers.
Type
#of Customers
Customers
Billing (estimate)
100
1,107
99,382
90
Commercial
P
35,600
$118,516
Public
e
80
$165,611
Sprinkler
0
18,139
$ 81,289
Total
r
70
$648,700
C
60
e
50
n
40
t
30
a
9
e
20
10
0
Residential Comm /Ind Public Sprinkler
■ #of Customers Consumption Billings
Type
#of Customers
Consumption (estimate)
Billing (estimate)
Residential
1,107
99,382
$283,284
Commercial
123
35,600
$118,516
Public
6
37,210
$165,611
Sprinkler
41
18,139
$ 81,289
Total
1,277
190,331
$648,700
The chart indicates that the residential customer is approximately 85% of the total customers, while
generating less than 44% of the revenue with approximately 52% of the consumption; Commercial
generates 18% of the revenue with 18% of the consumption; Public generates 26% of the revenue with
19% of the consumption; and Sprinklers generate 13% of the revenue with 10% of the consumption.
The variation in the amount of revenue based on the consumption is because the City has adopted a tier
system of billing with high end consumption being charged at a higher rate.
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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 (reallocated in 2012)
d. System renewal and replacement
For 2012 Council directed that the Administrative Charge (7% of current expenditures) be allocated to the
Renewal Replacement Fund. In prior years this was transferred to the General Fund for the Utilities share
of administration, accounting and billing. This reallocation of funds does not increase the expenditures of
the water fund. This amount is still calculated and transferred out to the Renewal and Replacement Fund
instead of the General Fund.
All of the expense items listed are related to capacity and usage.
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. The City presently plans for current and future improvements
within the current budget. Transfers for current capital outlay are transferred to the Budgeted Projects
Fund. Transfers for capital improvements are transferred to the Capital Project Funds for Tower, Well
and Renewal and Replacement for future improvements and replacement of facilities.
Operation expenditures and capital improvement transfers result in the total estimated expenditures for the
Water Department in 2012 of $600,494. A summary of those expenditures as well as previous years'
expenditures is shown in the following tabulation.
WATER DEPARTMENT EXPENDITURES
The large increase in 2011 was for the addition of $15,000 for the well head protection update and
$17,500 for increase in personal services due to step increase and unemployment expense. Budgets for
2011 and 2012 reflect an increase in expenses for an additional $20,000 transfer of funds each year to
fund the water meter change out plan.
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2008
2009
2010
2011
2012
Item
Actual
Actual
Actual
Budget
Budget
Operation & Maintenance
$295,215
$318,407
$346,411
$370,355
$346,132
Renewal & Replacement
110,950
116,170
119,811
119,800
142,945
Capital Outlay
240,051
117,300
136,150
131,300
111,417
Total
$646,216
$551,877
$602,372
$621,435
$600,494
The large increase in 2011 was for the addition of $15,000 for the well head protection update and
$17,500 for increase in personal services due to step increase and unemployment expense. Budgets for
2011 and 2012 reflect an increase in expenses for an additional $20,000 transfer of funds each year to
fund the water meter change out plan.
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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 unit cost, the
City is also required to submit $6.36 per water connection per year to the State of Minnesota for water
connection service fees.
The Water Utility Fund had a cash deficit for the year ending December 31, 2008 of $170,357. In the
2010 Water Rate Study it was established that the city would fund this deficit over 4 years through the
new rates. For operating rate purposes, $44,000 per year for the next 4 years was used in the calculation
based on an additional expected deficit for 2009. The expected deficit for 2009 was not incurred, and the
amount to recover has been reduced to $42,500 per year for the 4 year period. Due to reduced
consumption in 2010 $26,000 of the expected $44,000 was recovered. An expected $42,500 is to be
recovered in 2011. The $42,500 is included in the calculation of the 2012 rates. The rates are calculated
on conservative estimates and additional increases in revenue, if experienced will add to the reduction of
this deficit.
The resulting computations are as follows: (All gallons equal)
Operating Rate - $600,494 _ 188,000,000 gallons = $3.19/1,000 gallons
Deficit Recovery $42,500 _ 188,000,000 gallons = $.23/1000 gallons
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 @ $3.19/1,000 gallons $47.85 /quarter
Deficit Recover — 15,000 gallons @ $.23/1,000 gallons $ 3.45 /quarter
State Water Connection Fee $ 1.59 /quarter
Minimum Charge $52.89 /quarter
The current minimum monthly rates are as follows:
Operating charge — 15,000 gallons @ $1.89/1,000 gallons $28.32 /quarter
State Water Connection Fee $1.59 /quarter
Current Minimum Charge $29.91 /quarter
The current established water rates for all users are as follows:
Minimum Charge $1.59 /quarter for State Water Connection Fee
$28.32 /quarter for up to 15,000 gallons
$2.48/1,000 gallons for usage from 16,000 to 50,000 gallons /quarter
$2.97/1,000 gallons for usage from 51,000 to 99,000 gallons /quarter
$3.81/1,000 gallons for usage from 99,000 to 200,000 gallons /quarter
$4.61/1,000 gallons for usage over 200,000 gallons /quarter
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Our present rate structure would generate enough revenue to fund the proposed Water Fund Budget for
2012 if consumption remains consistent with the past 2 years - approximately 188,000,000 gallons per
year. As indicated in the chart of customers, a decrease in usage, especially by a high volume user could
impact the expected revenue. For 2012 the City should raise the rates based on the implicit price deflator
of 2.8% (June of 2011). This would help to level future increases. This proposed increase would result in
the following scale of charges.
Minimum Charge $1.59 /quarter for State Water Connection Fee
$29.11 /quarter for up to 15,000 gallons
$2.55/1,000 gallons for usage from 16,000 to 50,000 gallons /quarter
$3.05/1,000 gallons for usage from 51,000 to 99,000 gallons /quarter
$3.92/1,000 gallons for usage from 99,000 to 200,000 gallons /quarter
$4.74/1,000 gallons for usage over 200,000 gallons /quarter
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 2012.
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 total 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 City of Oak Park Heights 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
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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 2012
is based on the flows from July 1, 2010 through June 30, 2011. Since we 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.
For informational purposes, population estimates, metered sewage flows and estimates, and flow per
capita data for billing years 2006 through 2012 are shown in the following table.
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 flow for sewer for 2011 is 155,000,000 gallons which will be used for calculating
2012 rates. The difference in flow metered by MCES compared to the amount billed by the city results in
a 20% discrepancy or 39,900,000 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.
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Estimated
MCES Flows
Year
Population
Flow (Mill. Gals.)
Per Capita/Day
2006
4,664
204.95
120
2007
4,676
211.00
124
2008
4,751
209.95
121
2009
4,653
208.74
123
2010
4,339
196.95
124
2011
4,339
201.05
127
2012
4,339
194.90
123
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 flow for sewer for 2011 is 155,000,000 gallons which will be used for calculating
2012 rates. The difference in flow metered by MCES compared to the amount billed by the city results in
a 20% discrepancy or 39,900,000 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.
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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 and 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
e. System renewal and replacement
For 2012 Council directed that the Administrative Charge (7% of current expenditures) be allocated to the
Renewal Replacement Fund. In prior years this was transferred to the General Fund for the Utilities share
of administration, accounting and billing. This reallocation of funds does not increase the expenditures of
the sewer fund.
All of the expense items listed are related to capacity and flows .
The Metropolitan Council Environmental Services fee is based on the "firm flow" allocation method and
will be $361,275 for 2012 as compared to $407,280 for the year 2011. This represents a 9% decrease in
MCES fee. This is due to reduced flows as compared to other cities that have an infiltration problem.
The calculation period for the 2012 fee included an extreme amount of rainfall, which produced a reduced
percentage of total flow for the City as compared to the other communities.
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.
A summary of 2012 Budgeted expenditures as well as previous years' expenditures is shown below:
Sewer Department Expenditures
Ite m
2008
Actual
2009 2010
Actual Actual
2011 2012
Budget Budget
MC ES Billing $
356,245
$ 366,195
$ 390,106
$ 407,280
$ 361,275
Operation & Maintenance
233,000
228,148
283,965
257,365
223,137
Capital Outlay
33,800
31,216
36,150
56,500
56,530
Renewal & Replacement
81,416
81,557
81,710
81,577
122,417
Total $
704,461
$ 707,116
$ 791,931
$ 802,722
$ 763,359
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Sewer Rates
Sewer user rates can be computed by simply dividing the various operating costs by the estimated flow.
MCES Charge $361,275 - 155,000,000 $2.33/1,000 gallons
Local Cost $402,084 - 155,000,000 $2.59/1,000 gallons
Operating Rate $4.92/1,000 gallons
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. @ $2.33/1,000 gallons $34.95 /quarter
Local Charge 15,000 gal. @ $2.59/1,000 gallons 38.85 / quarter
$73.80 /quarter
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: Revenue -- customer billings $773,000
Minimum charge $60.41 /quarter for up to 15,000 gallons
$4.31/1,000 gallons for usage over 15,000 - 50,000 gallons
$4.77/1,000 gallons for usage above 50,000 gallons
The existing sanitary sewer rates along with additional revenues from interest and permits will be
sufficient to fund the 2012 projected expenditures. This is in part due to the reduction of $46,005 in the
MCES billing. This is an unusual reduction and should be considered an irregularity in the expenditures
for 2012.
A straight 2.8% increase in the present rates based on the June 2011 implicit price deflator would enable
the City to meet the 2012 operating and capital needs for the Sewer Utility Fund, with a projected overage
of $45,000. The sewer rates would be as follows:
Proposed sanitary sewer rates are as follows: Revenue — customer billings $793,600
Minimum Charge $62.10 /quarter for up to 15,000 gallons
$4.43/1,000 gallons for usage over 15,000 - 50,000 gallons
$4.90/1,000 gallons for usage above 50,000 gallons
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Revenue generated by tier is estimated to be as follows:
Total Average No. of
Revenue Bill Customers
Minimum < 15,000 $ 305,316 $ 62.10 851
15,001- 50,000 $ 90,464 $ 93.11 305
>50, 000 $ 397,836 $ 1,584.25 75
$ 793,616 1231
Conclusions and Recommendations
Based on the studies reported on herein, it is concluded that a rate increase is required to generate
adequate revenue and to level future rate changes for the operations of the Waterworks Fund and the
Sanitary Sewer Fund.
The above amounts were determined based on prior year's history and usage. A change in consumption
can have a major effect on the amount of revenue generated. If customers shift to lower tiers based on
reduced consumption because of conservation methods, revenue for the Waterworks fund could fluctuate
from the projection for 2012. This is due to the billing rate disparity in the lower tiers. The only way to
stabilize this would be to increase a base rate for all customers. At this time, it would result in a large
increase to residential customers. Likewise if MCES flows continue to vary with actual billing flows
(based on water consumption), we will have to continue to increase our billing rates.
In order to help sustain the water and sewer funds during fluctuations in consumption it is recommended
that there be an increase with less disparity in rates. The proposed increase would raise all customers by
2.8% for water and sewer.
It is recommended that the following water and sewer user rates be adopted as of January 1, 2012 to
operate the Utility Funds of the City of Oak Park Heights in 2012:
Water Rates
Rate Schedule
Minimum Charge $29.11 /quarter for up to 15,000 gallons
$ 1.59 /quarter for State Water Connection Fee
$ 2.55/1,000 gallons for usage from 16,000 to 50,000 gallons /quarter
$ 3.05/1,000 gallons for usage from 51,000 to 99,000 gallons /quarter
$ 3.92/1,000 gallons for usage from 1000,000 to 200,000 gallons /quarter
$ 4.74/1,000 gallons for usage over 200,000 gallons /quarter
Sanitary Sewer Rates
Minimum Charge $62.10 /quarter for up to 15,000 gallons
$ 4.43/1,000 gallons for usage from 16,000 to 50,000 gallons /quarter
$ 4.90/1,000 gallons for usage over 50,000 gallons.
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