Item 3.8 Sewer and Water rates 2021CITY
0t eF o
MINNESOTA
DEPARTMENT INFORMATION
Request for
City Council Action
ORIGINATING DEPARTMENT
REQUESTOR:
MEETING DATE:
Administration
City Administrator/Finance Director Flaherty
February 8, 2021
PRESENTER(s)
REVIEWED BY:
ITEM #:
Consent
3.8
STRATEGIC VISION
MEETS:
THE CITY OF OTSEGO:
X
Is a strong organization that is committed to leading the community through innovative
communication.
Has proactively expanded infrastructure to responsibly provide core services.
Is committed to delivery of quality emergency service responsive to community needs and
expectations in a cost-effective manner.
Is a social community with diverse housing, service options, and employment opportunities.
Is a distinctive, connected community known for its beauty and natural surroundings.
AGENDA ITEM DETAILS
RECOMMENDATION:
City staff is recommending that the City Council approve a resolution establishing water & sanitary sewer
utility rates for 2021.
ARE YOU SEEKING APPROVAL OF A CONTRACT?
IS A PUBLIC HEARING REQUIRED?
No
No
BACKGROUND/JUSTIFICATION:
The City has a public utility system with Water and Sanitary Sewer operations. The current system is
comprised of 4,365 customers who include both residential and commercial accounts. Those customers
receive monthly utility bills for usage of the water and sanitary sewer utility system. The monthly charges
include both a base fee, and a consumption fee which is calculated on their actual usage of the system.
The utility rates for the water and sanitary sewer systems are analyzed by the Finance Director on an
annual basis. This analysis includes: reviews of budget-to-actuals, preparation of the operating budget,
preparation of the capital improvement plan, and future projections.
In addition to analysis by City staff, the City Council commissioned a Utility Rate Study with Ehlers during
2020, which evaluated: funding capital projects, managing revenue volatility, reviewed billing structure,
competitiveness of rates and adequacy of connection fees. The summary of the Utility Rate Study is
attached with this packet which provides:
- Narrative summary on each of the areas evaluated
- Proposed rate structures for implementation in 2021
- Impact analysis by customer type
The Utility Rate Study was reviewed with the Administrative Subcommittee at their October 14, 2020
meeting and by the City Council at their October 26, 2020 meeting. The recommendations for utility rates
were factored into the 2021 Water and Sanitary Sewer Operating budgets.
SUPPORTING DOCUMENTS ATTACHED: I
• Ehlers Utility Rate Study Summary
• Resolution 2021-07
POSSIBLE MOTION
PLEASE WORD MOTION AS YOU WOULD LIKE ITTO APPEAR IN THE MINUTES:
Motion to approve Resolution 2021-07, Establishing Water and Sanitary Sewer Utility Rates for 2021.
BUDGET INFORMATION
FUNDING: BUDGETED:
N/A N/A
r
-�*-EHLERS
W PUBLIC FINANCE ADVISORS
MEMORANDUM
TO: Adam Flaherty, City Administrator &Finance Director
FROM: Nick Anhut and Jeanne Vogt, Ehlers
DATE: February 2, 2021
SUBJECT: Utility Rate Study Summary
The City of Otsego contracted with Ehlers to complete a utility rate study ("the Study") of the water
& sewer utility funds. The scope of work for the Study included:
• Funding future capital projects
• Managing revenue volatility (review of base fee, meter charges and user rates)
• Review conservation tiers (water only)
• Competitiveness
• Connection fees
Overall Impact on Utility Customers
Attached is the Impact Analysis for "Residential" and "Other Users" of the system. We looked at
quartiles, which is defined as the number of accounts in the bottom quarter (25% quartile), mid-
point (50% quartile) and top quarter (75% quartile) of total users. Also included in "Other Accounts"
are the City's two largest commercial accounts at the 100% quartile. Lastly, the impacts on each
councilmember's projected utility bill, (when available) are included so you have a relatable
foundation when speaking with rate payers.
Bottom Line: While we are recommending changes to the meter charge and utility rates, the
overall impact on rate payers is minimal. It is important to note, the projected 2021 utility bills
include inflationary increases.
All our rate structure recommendations in the study are considered "revenue neutral." This
means we first analyzed a target revenue needed to maintain adequate fund balances using
the existing rate structures, and then designed a recommendation for changes in the rate
structure which generates the same amount. For example, because we are recommending a
change in structure for meter charges, that potential change in overall revenue is offset within
recommended changes in the tiering structure for water rates.
Below are brief summaries of how the goals included in the scope of work were met;
Funding Future Capital Projects
The Study looked at the timing and cost of capital projects over the next ten years. We recommend
a combination of cash -on -hand and bonding to pay for projects for water and sewer. This allows
funds balances to remain stable, while minimizing impact on rate payers. Bonding for the larger
capital projects also ensures that future, as well as current, rate payers are paying for the capital
costs of the system.
BUILDING COMMUNITIES. IT'S WHAT WE DO. ® info@ehlers-inc.com (;� t(900)552-1171 Er1j www.ehlers-inc.com
Managing Revenue Volatility
The Study looked at the fixed vs. variable costs of the funds. Fixed costs are defined as those the
City will incur regardless of water used. This includes utility billing, administrative overhead, and
personnel expenses. These fixed costs should be paid for with the Base Fee/Meter Charge. For
water, current charges cover approximately 250% of actual costs. For sewer, it is about 88% of
costs. We recommend decreasing the fixed charges for water and increasing the fixed charges for
sewer to cover 100% of the fixed costs of the system. This will provide revenue stability to the funds
in the future.
To promote conservation, we also looked at the existing water usage charges to see if current tier
breaks were appropriate. After analyzing 2019 usage data by customer type, we are recommending
shifting existing Residential tiers so that usage falls into the following "buckets":
• Tier 1: Essential usage (at least 80% of winter usage)
• Tier 2: Summer usage (at or around 90% of summer usage)
• Tier 3: Excessive usage (over 90% of summer usage)
For other commercial accounts, we do not recommend any changes to the current structure. We
looked at promoting conservation, while keeping rates affordable for small businesses which is the
case with the current structure.
Competitiveness
We compared Otsego's existing 2020 and proposed 2021 rates to comparable communities. Both
show rates that are similar for surrounding communities.
Connection Fees
We reviewed current connection fees for water and sewer. We do not recommend any changes at
this time. Currently the City has strong cash balances through 2024 with conservative estimates.
The currents rates are sufficient to pay for future eligible capital costs and still remain competitive.
Summary
The study and recommendations were presented to the Administrative Services Sub -committee
and City Council in October, 2021. Since that time, the City has finalized its 2021 budget. We have
reviewed the rate study's projected cashflows against the updated budget and have confirmed the
recommendations of the rate study remain adequate. The recommended rates structures for the
water and sewer fund are attached.
Please contact either of us at 651-697-8500 with any questions.
City of Otsego, MN
Utility Rate Study Memo Page 2 February 2021
METER CHARGE
1 5/8 inch & 3/4 inch
2 1 Inch
3 1.5 Inch
4 2.0 Inch
5 3.0 Inch
6 4.0 Inch
TOTAL BASE AND METER CHARGES
CONSUMPTION CHARGES
7 Residential
8
9 Total Residential Revenues
10 Commercial
11
12 Total Commercial Revenues
13 Irrigation
14 Total Irrigation Revenues
Meter Charge
1 5/8 inch & 3/4 inch
2 1 Inch
3 1.5 Inch
4 2.0 Inch
5 3.0 Inch
6 4.0 Inch
7 TOTAL METER CHARGES
City of Otsego
Rate Structure Option Summary
For Monthly Billings
29,28
58,55
87,82
175.65
439,13
Current
Tiers (1,000 gal.)
0 to 101000 $
Over 109000
0 to 50,000 $ 1.80
0 Over 50,000 1.92
�d Rate Structures for 2021
Proposed Rates
$ 4.00
10.00
20,00
32,00
70,00
120.00
$ 10.19 3,849 $ 470,656
31,04 22 81195
62,06 27 20,107
93,09 91 101,654
186,19 5 11,171
465,48 3 16,757
$ 1.91 230,364 $ 4391995
2,04 151,132 3081309
381,496
$ 1,91 13,711 $ 26,188
2,04 221400 451696
36,111
$ 2,04 64,248 $ 131,066
3,849 $ 184,752
22 2,640
27 6,480
91 34,944
5 4,200
3 4,320
3,997
1
Consumption Charge Proposed Tiers (1,000 ga1.)
8 Residential - to 5,000 $ 2.22 168,167 1,210 $ 373,330
9 51000 to 15,000 25% 2.78 1001950 ,031 280,642
10 Over 15,000 25% 3,48 1121379 21056 391079,�91079
11 Total Residential Revenues 381,496 41297
12 Commercial Users to 501000 $ 2.22 13,711 26 $ 30,439271
13 Over 501000 25% 2,78 22,400 24 62,�271
14 Total Commercial Revenues 36,111 50
15 Irrigation to 999,999 $ 3,48 64,248 89 $ 2231584
16 Total Irrigation Revenues 64,24811 89
TOTAL17 •
Note: Rate Structure has a -0.4% buffer included
10/1/2020 Page 1-Rate Summary
�� FREERS
PiJ•LIf: FINAN('F ADVILOR9
7 TOTAL METER CHARGES
City of Otsego
Rate Structure Option Summary
For Monthly Billings
29,28
58,55
87,82
175.65
439,13
Current
Tiers (1,000 gal.)
0 to 101000 $
Over 109000
0 to 50,000 $ 1.80
0 Over 50,000 1.92
�d Rate Structures for 2021
Proposed Rates
$ 4.00
10.00
20,00
32,00
70,00
120.00
$ 10.19 3,849 $ 470,656
31,04 22 81195
62,06 27 20,107
93,09 91 101,654
186,19 5 11,171
465,48 3 16,757
$ 1.91 230,364 $ 4391995
2,04 151,132 3081309
381,496
$ 1,91 13,711 $ 26,188
2,04 221400 451696
36,111
$ 2,04 64,248 $ 131,066
3,849 $ 184,752
22 2,640
27 6,480
91 34,944
5 4,200
3 4,320
3,997
1
Consumption Charge Proposed Tiers (1,000 ga1.)
8 Residential - to 5,000 $ 2.22 168,167 1,210 $ 373,330
9 51000 to 15,000 25% 2.78 1001950 ,031 280,642
10 Over 15,000 25% 3,48 1121379 21056 391079,�91079
11 Total Residential Revenues 381,496 41297
12 Commercial Users to 501000 $ 2.22 13,711 26 $ 30,439271
13 Over 501000 25% 2,78 22,400 24 62,�271
14 Total Commercial Revenues 36,111 50
15 Irrigation to 999,999 $ 3,48 64,248 89 $ 2231584
16 Total Irrigation Revenues 64,24811 89
TOTAL17 •
Note: Rate Structure has a -0.4% buffer included
10/1/2020 Page 1-Rate Summary
�� FREERS
PiJ•LIf: FINAN('F ADVILOR9
Current
Tiers (1,000 gal.)
0 to 101000 $
Over 109000
0 to 50,000 $ 1.80
0 Over 50,000 1.92
�d Rate Structures for 2021
Proposed Rates
$ 4.00
10.00
20,00
32,00
70,00
120.00
$ 10.19 3,849 $ 470,656
31,04 22 81195
62,06 27 20,107
93,09 91 101,654
186,19 5 11,171
465,48 3 16,757
$ 1.91 230,364 $ 4391995
2,04 151,132 3081309
381,496
$ 1,91 13,711 $ 26,188
2,04 221400 451696
36,111
$ 2,04 64,248 $ 131,066
3,849 $ 184,752
22 2,640
27 6,480
91 34,944
5 4,200
3 4,320
3,997
1
Consumption Charge Proposed Tiers (1,000 ga1.)
8 Residential - to 5,000 $ 2.22 168,167 1,210 $ 373,330
9 51000 to 15,000 25% 2.78 1001950 ,031 280,642
10 Over 15,000 25% 3,48 1121379 21056 391079,�91079
11 Total Residential Revenues 381,496 41297
12 Commercial Users to 501000 $ 2.22 13,711 26 $ 30,439271
13 Over 501000 25% 2,78 22,400 24 62,�271
14 Total Commercial Revenues 36,111 50
15 Irrigation to 999,999 $ 3,48 64,248 89 $ 2231584
16 Total Irrigation Revenues 64,24811 89
TOTAL17 •
Note: Rate Structure has a -0.4% buffer included
10/1/2020 Page 1-Rate Summary
�� FREERS
PiJ•LIf: FINAN('F ADVILOR9
�d Rate Structures for 2021
Proposed Rates
$ 4.00
10.00
20,00
32,00
70,00
120.00
$ 10.19 3,849 $ 470,656
31,04 22 81195
62,06 27 20,107
93,09 91 101,654
186,19 5 11,171
465,48 3 16,757
$ 1.91 230,364 $ 4391995
2,04 151,132 3081309
381,496
$ 1,91 13,711 $ 26,188
2,04 221400 451696
36,111
$ 2,04 64,248 $ 131,066
3,849 $ 184,752
22 2,640
27 6,480
91 34,944
5 4,200
3 4,320
3,997
1
Consumption Charge Proposed Tiers (1,000 ga1.)
8 Residential - to 5,000 $ 2.22 168,167 1,210 $ 373,330
9 51000 to 15,000 25% 2.78 1001950 ,031 280,642
10 Over 15,000 25% 3,48 1121379 21056 391079,�91079
11 Total Residential Revenues 381,496 41297
12 Commercial Users to 501000 $ 2.22 13,711 26 $ 30,439271
13 Over 501000 25% 2,78 22,400 24 62,�271
14 Total Commercial Revenues 36,111 50
15 Irrigation to 999,999 $ 3,48 64,248 89 $ 2231584
16 Total Irrigation Revenues 64,24811 89
TOTAL17 •
Note: Rate Structure has a -0.4% buffer included
10/1/2020 Page 1-Rate Summary
�� FREERS
PiJ•LIf: FINAN('F ADVILOR9
$ 10.19 3,849 $ 470,656
31,04 22 81195
62,06 27 20,107
93,09 91 101,654
186,19 5 11,171
465,48 3 16,757
$ 1.91 230,364 $ 4391995
2,04 151,132 3081309
381,496
$ 1,91 13,711 $ 26,188
2,04 221400 451696
36,111
$ 2,04 64,248 $ 131,066
3,849 $ 184,752
22 2,640
27 6,480
91 34,944
5 4,200
3 4,320
3,997
1
Consumption Charge Proposed Tiers (1,000 ga1.)
8 Residential - to 5,000 $ 2.22 168,167 1,210 $ 373,330
9 51000 to 15,000 25% 2.78 1001950 ,031 280,642
10 Over 15,000 25% 3,48 1121379 21056 391079,�91079
11 Total Residential Revenues 381,496 41297
12 Commercial Users to 501000 $ 2.22 13,711 26 $ 30,439271
13 Over 501000 25% 2,78 22,400 24 62,�271
14 Total Commercial Revenues 36,111 50
15 Irrigation to 999,999 $ 3,48 64,248 89 $ 2231584
16 Total Irrigation Revenues 64,24811 89
TOTAL17 •
Note: Rate Structure has a -0.4% buffer included
10/1/2020 Page 1-Rate Summary
�� FREERS
PiJ•LIf: FINAN('F ADVILOR9
1 Meter Charge
2 5/8 inch & 3/4 inch
3 1 Inch
City of Otsego
Rate Structure Option Summary
For Monthly Billings
$ 561,232
2,045
4 1.5Inch 55.32 60.85 27 19,715
5 2,0Inch 110.66 121,73 15 21,911
6 3.0Inch 221,29 243,42 4 11,684
7 4.0Inch 553.23 608,55 3 21,908
8 Consumption Charge
9 All Users $ 6,86 $ 7,55 2441599 $ 118469722
10
11 Flat Fee 45,36 49,90 193 1151568
12
TOTAL13 ' • 21600785
Base Charge Proposed Rate
1 All Users $ 14,11 31899 $ 660,179
2 Flat Fee 51,61 51000 / unit 193 1191529
Consumption Charge
3 All Users 7,50 244,599 11834,493
TOTAL•3t899 11
Note: Rate Structure has a 0.5% buffer included
0 1 =11W
Now age
Proposed I 1 1
i
Proposed Rate
1 Base Charge $ 47,76 1 $ 191
2 Consumption Charge 2.64 51935 15,674
TOTAL-•
11.06
$
12.17
22.13
24,34
10/1/2020 Page 2 -Rate Summary
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CITY OF OTSEGO
COUNTY OF WRIGHT
STATE OF MINNESOTA
RESOLUTION NO: 2021-07
ESTABLISHING WATER &SANITARY SEWER
UTILITY RATES FOR 2021
WHEREAS, Otsego City Code Chapter 7; Section 2 outlines that in order to pay for the costs associated with
Water and Sanitary Sewer utility systems, that a just and equitable charge will be imposed upon users of
those systems; and
WHEREAS, the Otsego City Council has identified and reviewed the operating, capital and debt service
requirements of the Water and Sanitary Sewer utility systems.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OTSEGO, MINNESOTA:
1. That the following rates, fees and charged be imposed on users of the Water utility system:
a. Base Charge (Monthly for All Users)
2021 Base
Meter Size Charge
5/8"
$
4.00
3/4"
$
4.00
1.00"
$
10.00
1.50"
$
20.00
2.00"
$
32.00
3.00"
$
70.00
4.00"
$
120.00
b. Usage Rates (Monthly Per 1,000 Gallons of Consumption)
2021
C iictnmar Tf I Consumption Rate
Residential
0 - 5,000 Gallons
$
2.22
Res i
den ti a I
5,000 - 15,000
Ga I I ons
$
2.78
Residential
15,000+Gallons
$
3A8
Commercial,
Irrigation
Industrial
&Institutional
0 - 50,000 Gallons
$
2.22
Commercial,
Industrial
&Institutional
50,000+Gallons
&Bulk Water All
1
c. Bulk Water
In order to access bulk water from the system, a meter rental from the City is required.
There is a $200.00 deposit required for that meter. The rental fee for that meter is a
minimum of $50.00, which includes the first month, with each additional month being
charged at $50.00.
The consumption tracked by the meter will be billed at the rates identified in
paragraph 1(b) of this resolution. The local sales tax rate of 7.375% will also apply to
the entire bulk water rental and consumption charge incurred.
2. That the following rates, fees and charged be imposed on users of the Sanitary Sewer utility system:
a. Base Charge
2021
r,ictnmPr TvnP Freauencv Rate
All Otse o Users
Monthl
$ 14.11
All Wholesale Users
Qua rterl y
47.76
b. Usage Rates (Per 1,000 Gallons ofAverage December -February Water Usage)
2021
Customer Type FrequencV Rate
All Otsego Users Monthly $ 7.50
c. Usage Rates (Per 1,000 Gallons of Actual Water Usage)
2021
Customer type Fre uen Rate
All Wholesale Users Quarterly
d. Minimum Charges
These charges come into effect for new accounts where there is less than three
months of usage history to base the average off of. This minimum monthly charge is
$51.61.
3. That the rates, fees and charges outlined in this resolution shall be effective for all billings issued on
or after March 11 2021.
ADOPTED by the Otsego City Council this 8th day of February, 2021.
MOTION BY:
SECONDED BY:
IN FAVOR:
OPPOSED:
3
CITY OF OTSEGO
Jessica J. Stockamp1 Mayor
ATTEST:
Audra Etzel, City Clerk