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ITEM 3.4 Water/Sewer rates 2017YN otS11.1:eO MINNESOTA V DEPARTMENT INFORMATION Request for City Council Action ORIGINATING DEPARTMENT: REQUESTOR: MEETING DATE: Administration Adam Flaherty, Finance Director February 13, 2017 PRESENTER(s): REVIEWED BY: ITEM #: Adam Flaherty 3.4 AGENDA ITEM DETAILS RECOMMENDATION: It is recommended by staff that the City Council approve the corresponding resolution which will establish the Water and Sanitary Sewer utility rates for 2017. 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 3,269 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. The Finance Director then compiles all of this information into a visual Cash Flow chart & graph, which are attached. The Water Utility fund has a healthy cash balance, and is forecasted to be approximately $4.9 million for year-end 2016. The cash flow includes 2017 budgeted operating expenses with 2% annual inflation for 2018-2026. The cash flow also includes capital expenses for the next 10 years, with $1,764,380 budgeted for 2017. The revenue projections in the cash flow chart include small rate increases throughout, but do not account for customer growth. As indicated on the chart & graph, the cash balance of the fund should be adequate through most of the projection period. The capital budgets include $8 million for water treatment facilities between 2021 and 2024. The need for those facilities is currently unknown; however, due to their significant nature, they have been included within the future budgets. Given that uncertainty, the declining cash balance towards the end of the projection period should not provide for too much concern at this point. The Sanitary Sewer Utility fund has a forecasted cash balance of approximately $640 thousand for year- end 2016. This cash balance decreased significantly during 2016 due to the construction of the digester expansion at the West Wastewater Facility and the aerator improvements at the East Wastewater Facility. Both of those projects were significant expenses, and were paid from cash reserves. The cash flow includes 2017 budgeted operating expenses with 2% annual inflation for 2018-2026. The cash flow also includes some very rough capital expenses for the next 10 years. The revenue projections in the cash flow chart include small rate increases throughout, but do not account for customer growth. When looking at the chart & graph, the cash balance is adequate through 2019, and goes into deficit balances thereafter. This should not be of too much concern at this date as the deficits are the result of very significant capital items, which would have to be constructed with funding from bond issuances. A lot more should be known with the results of the Wastewater System Master Plan completion later this year. Of course things are subject to change, and that is why it is important we look at these projections on an annual basis and determine if rate changes are necessary. Based on the information provided, the Finance Director would propose the following: - Increase of 3% to Water Utility rates for 2017. - Increase of 3% to Sanitary Sewer Utility rates for 2017. These rate recommendations are the same as were discussed during the 2017 budget process. SUPPORTING DOCUMENTS: x ATTACHED NONE • Cash Flow Summaries —Water & Sanitary Sewer Utilities • Proposed Rate Schedules — Water & Sanitary Sewer Utilities • Monthly Utility Bill Estimate Calculations • Resolution 2017-09: Establishing Water & Sanitary Sewer utility rates for 2017. POSSIBLE MOTION Please word motion as you would like it to appear in the minutes. -Motion to approve Resolution 2017-09, Establishing Water & Sanitary Sewer utility rates for 2017. BUDGET INFORMATION FUNDING: BUDGETED: N/A N/A City of Otsego 6,000,000 5,000,000 i l 4,000,000 3,000,000 Water Utility Fund 2,000,000 Cash Flow Summary i 1,000,000 i e 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ! (1,000,000) `(2,000,000) Expenses ! Operating Revenues ---Cash Balance - Ending Revised: January 26, 2017 Rate Increase 0.00%h' _ _ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Estimated Bill (15k Gallons) $ 33.42 $ 34.43 $ 34.82 $ 35.21 $ 35.60 $ 35.99 $ 36.38 $ 36.77 $ 37.16 $ 37.56 $ 37.96 Forecast Budgeted Projected 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Operating Revenues Water Sales $ 976,813 $ 995,850 $ 1,005,809 $ 1,015,867 $ 1,026,025 $ 1,036;286 $ 1,046,648 $ 1,057,115 $ 1,067,686 $ 1,078,353 $ 1,089,146 Water Sales - Irrigation 118,999 119,000 119,000 119,000 119,000 119,000 119,000 119,000 119,000 119,000 119,000 Penalties and Interest 38,622 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 Subtotal 1,134,434 1,153,850 1,163,809 1,173,867 1,184,025 1,194,286 1,204,648 1,215,115 1,225,686 1,236,363 1,247,146 Nonoperating Revenues Antenna Leases 67,782 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 Water Meter Sales 97,784 80,600 80,600 80,600 80,600 80,600 80,600 80,600 80,600 80,600 80,600 Other 19,799 20,988 20,988 20,988 20,988 20,988 20,988 20,988 20,988 20,988 20,988 Total 1,319,799 1,322,438 1,332,397 1,342,455 1,352,613 1,362,874 1,373,236 1,383,703 1,394,274 1,404,951 1,415,734 Expenses Personal Servcies 86,169 91,516 93,346 95,213 97,118 99,060 101,041 103;062 105,123 107,226 109,370 Supplies 207,404 212,486 216,736 221,070 225,492 230,002 234;602 239,294 244;080 248,961 253,940 Services & Other Charges 200,800 467,657 238,975 243,754 248,629 253,602 258,674 263,847 269,124 274,507 279,997 Depreciation 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 Capital Outlay 40;944 - - - - - - - - - - Capital Outlay (CIP) - 1,764,380 - 908,987 300,000 2,000,000 2,000,000 2,000,000 2,000,000 - 750,000 Debt Service Reserve - 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Transfers Out 33,439 38,761 38,761 38,761 38,761 38,761 38,761 38,761 38,761 38,761 38,761 Transfers Out -Jet Vac 10,000 9,800 9,600 8,061 Total 1,088,756 3,194,600 1,207,418 2,125,847 1,520,000 3,231,424 3,243,078 3,254,964 3,267,088 1,279,455 2,042,069 Cash Balance - Beginning 4,090,905 4,899,403 3,537,241 4,172,220 3,898,827 4,241,441 2,882,890 1,523,048 161,787 (1,201,027) (565,531) Balance Sheet Effects 67,455 Revenues 1,319,799 1,322,438 1,332,397 1,342,455 1,352,613 1,362,874 1,373,236 1,383,703 1,394,274 1,404,951 1,415,734 Expenditures (1,088,756) (3,194,600) (1,207,418) (2,125,847) (1,520,000) (3,231,424) (3,243,078) (3,254,964) (3,267,088) (1,279,455) (2,042,069) Noncash -Depreciation 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 510,000 Cash Balance- Ending $ 4,899,403 $ 3,537,241 $ 4,172,220 $ 3,898,827 $ 4,241,441 $ 2,882,890 $ 1,523,048 $ 161,787 $ (1201027) $ (565,53L) $ (681865) Water Utility 6,000,000 5,000,000 i l 4,000,000 3,000,000 I 2,000,000 i 1,000,000 i e 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ! (1,000,000) `(2,000,000) Expenses ! Operating Revenues ---Cash Balance - Ending UABudgeA2018\Cash Flows\Utility Funds 601 -Water City of Otsego Sewer Utility F Cash Flow Sum Y Fund 10,000,000 5,000,000 (5,000,000) 2016 2017 2018 2019 2020 2021 2022 2023 5 2026 (10,000,000) (15,000,000) Expenses ® Operating Revenues Cash Balance - Ending ids Mary Personal Servcies 255,812 274,545 280,036 285,637 291,349 297,176 303,120 309,182 315,366 Revised: January 26, 2017 328,107 Supplies 159,971 164,703 167,997 171,357 174,784 178,280 181,845 185,482 Rate Increase 2.00%. 3,b0% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Estimated Bill (Sk Gallons) $ 36.30 $ 37.37 $ 37.76 $ 38.15 $ 38.54 $ 38.93 $ 39.32 $ 39.72 $ 40.12 $ 40.52 $ 40.92 925,000 Forecast Budgeted 925,000 925,000 925,000 Capital Outlay Projected - - - - - 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Operating Revenues - - - 10,750,000 Debt Service Reserve - 100,000 100,000 Sewer Sales $ 1,502,165 $ 1,534,576 $ 1,549,922 $ 1,565,421 $ 1,581,075 $ 1,596,886 $ 1,612,855 $ 1,628,983 $ 1,645,273 $ 1,661,726 $ 1,678,343 Penalties and Interest 63,162 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 Total 1,565,327 1,598,576 1,613,922 1,629,421 1,645,075 1,660,886 1,676,855 1,692,983 1,709,273 1,725,726 1,742,343 Expenses 10,000,000 5,000,000 (5,000,000) 2016 2017 2018 2019 2020 2021 2022 2023 5 2026 (10,000,000) (15,000,000) Expenses ® Operating Revenues Cash Balance - Ending ids Personal Servcies 255,812 274,545 280,036 285,637 291,349 297,176 303,120 309,182 315,366 321,673 328,107 Supplies 159,971 164,703 167,997 171,357 174,784 178,280 181,845 185,482 189,192 192,976 196,835 Services & Other Charges 749,544 549,382 521,610 532,042 542,683 553,536 564,607 575,899 587,417 599,166 611,149 Depreciation 880,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 Capital Outlay 2,281,974 - - - - - _ - - - _ Capital Outlay (CIP) - 228,635 100,000 - 5,000,000 - - - 10,750,000 Debt Service Reserve - 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Transfers Out 100,316 116,281 116,281 116,281 116,281 116,281 116,281 116,281 116,281 116,281 116,281 TransfersOut -Jet Vac 40,000 39,200 38,400 32,245 _ Total 4,467,617 2,397,746 2,249,324 2,162,561 7,150,097 2,170,273 2,190,853 2,211,845 2,233,256 2,255,096 13,027,372 CashBalance- Beginning 2,618,473 639,089 764,919 1,054,518 1,446,377 (3,133,645) (2,718,032) (2,307,031) (1,900,892) (1,499,875) (1,104,245) Balance Sheet Effects 42,906 Revenues 1,565,327 1,598,576 1,613,922 1,629,421 1,645,075 1,660,886 1;676,855 1,692,983 1,709,273 1,725,726 1,742,343 Expenditures (4,467,617) (2,397,746) (2,249,324) (2,162,561) (7,150,097) (2,170,273) (2,190,853) (2,211,845) (2,233,256) (2,255,096) (13,027,372) Noncash - Depreciation 880,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 925,000 Cash Balance - Ending $ 639,089 $ 764,919 $ 1,054,518 $ 1,446,377 $ (3,133,645) $ (2,718,032) $ (2,307,031) $ (1,900,892) $ (1,499,875) $ (1,104,245) $ (11,464,274) U:\Budget\2018\Cash FlowsUility FL Sanitary Sewer Utility 15,000,000 10,000,000 5,000,000 (5,000,000) 2016 2017 2018 2019 2020 2021 2022 2023 5 2026 (10,000,000) (15,000,000) Expenses ® Operating Revenues Cash Balance - Ending ids 602 -Sewer City of Otsego Public Utility Charges Water Rate Comparison 2017 Actual Increases n/a 2.50% 2.50% 2.50% 0.00% Proposed 2012 2013 2014 2015 2016 2017 Change Base Rate 5/8" Meter $ 8.00 $ 8.20 $ 8.41 $ 8.62 $ 8.62 $ 8.88 3.02% 3/4" Meter $ 8.00 $ 8.20 $ 8.41 $ 8.62 $ 8.62 $ 8.88 3.02% 1.00" Meter $ 8.00 $ 25.00 $ 25.63 $ 26.27 $ 26.27 $ 27.06 3.01% 1.50" Meter $ 8.00 $ 50.00 $ 51.25 $ 52.53 $ 52.53 $ 54.10 2.99% 2.00" Meter $ 8.00 $ 75.00 $ 76.88 $ 78.80 $ 78.80 $ 81.16 2.99% 3.00" Meter $ 8.00 $ 150.00 $ 153.75 $ 157.59 $ 157.59 $ 162.31 3.00% 4.00" Meter $ 8.00 $ 375.00 $ 384.38 $ 393.98 $ 393.98 $ 405.80 3.00% Residential & City Owned Consumption (per 1k) 0 - 10,000 Gallons $ 1.50 $ 1.54 $ 1.58 $ 1.62 $ 1.62 $ 1.67 3.09% 10,000 + Gallons $ 1.60 $ 1.64 $ 1.68 $ 1.72 $ 1.72 $ 1.77 2.91% Commercial, Industrial & Institutional Consumption (per 1k) 0 - 50,000 Gallons $ 1.50 $ 1.54 $ 1.58 $ 1.62 $ 1.62 $ 1.67 3.09% 50,000 + Gallons $ 1.60 $ 1.64 $ 1.68 $ 1.72 $ 1.72 $ 1.77 2.91% Irrigation & Bulk WaterConsumption (per 1k) All Usage $ 1.60 $ 1.64 $ 1.68 $ 1.72 $ 1.72 $ 1.77 2.91% City of Otsego Public Utility Charges Sanitary Sewer Rate Comparison 2017 Actual Increases n/a 2012 Base Rate 5/8" Meter 3/4" Meter 1.00" Meter 1.50" Meter 2.00" Meter 3.00" Meter 4.00" Meter Consumption Per 1,000 Gallons of Water Usage 5.00% 5.00% 5.00% 2.00% 2013 2014 2015 2016 2017 $ 5.00 $ 7.88 $ 8.27 $ 8.68 $ 8.85 $ 9.12 $ 5.00 $ 7.88 $ 8.27 $ 8.68 $ 8.85 $ 9.12 $ 5.00 $ 15.75 $ 16.54 $ 17.36 $ 17.71 $ 18.24 $ 5.00 $ 39.38 $ 41.34 $ 43.41 $ 44.28 $ 45.61 $ 5.00 $ 78.75 $ 82.69 $ 86.82 $ 88.56 $ 91.22 $ 5.00 $ 157.50 $ 165.38 $ 173.64 $ 177.11 $ 182.42 $ 5.00 $ 393.75 $ 413.44 $ 434.11 $ 442.79 $ 456.07 $ 5.00 $ 4.88 $ 5.13 $ 5.38 $ 5.49 $ 5.65 Proposed Change 3.05 3.05 2.99% 3.00% 3.00 3.00% 3.00% 2.91 City of Otsego Public Utility Charges Monthly Bill Estimations 2017 Proposed 2012 2013 2014 2015 2016 2017 Change Residential (Winter = 5,000 Gallons) Base Fee $ 8.00 $ 8.20 $ 8.41 $ 8.62 $ 8.62 $ 8.88 Consumption: 0-10K Gallons $ 7.50 $ 7.70 $ 7.90 $ 8.10 $ 8.10 $ 8.35 Subtotal - Water Charges $ 15.50 $ 15.90 $ 16.31 $ 16.72 $ 16.72 $ 17.23 3.05% Base Fee $ 5.00 $ 7.88 $ 8.27 $ 8.68 $ 8.85 $ 9.12 Consumption (5K Gallons) $ 25.00 $ 24.40 $ 25.65 $ 26.90 $ 27.45 $ 28.25 Subtotal - Sanitary Sewer Charges $ 30.00 $ 32.28 $ 33.92 $ 35.58 $ 36.30 $ 37.37 2.95% Total Monthly Estimated Bill $ 45.50 $ 48.18 $ 50.23 $ 52.30 $ 53.02 $ 54.60 2.98% Residential (Summer = 16,000 Gallons) Base Fee $ 8.00 $ 8.20 $ 8.41 $ 8.62 $ 8.62 $ 8.88 Consumption: 0-10K Gallons $ 15.00 $ 15.40 $ 15.80 $ 16.20 $ 16.20 $ 16.70 Consumption: 10K+ Gallons $ 8.00 $ 8.20 $ 8.40 $ 8.60 $ 8.60 $ 8.85 Consumption: Irrigation $ 4.80 $ 4.92 $ 5.04 $ 5.16 $ 5.16 $ 5.31 Subtotal - Water Charges $ 35.80 $ 36.72 $ 37.65 $ 38.58 $ 38.58 $ 39.74 3.01% Base Fee $ 5.00 $ 7.88 $ 8.27 $ 8.68 $ 8.85 $ 9.12 Consumption (SK Gallons) $ 25.00 $ 24.40 $ 25.65 $ 26.90 $ 27.45 $ 28.25 Subtotal - Sanitary Sewer Charges $ 30.00 $ 32.28 $ 33.92 $ 35.58 $ 36.30 $ 37.37 2.95% Total Monthly Estimated Bill $ 65.80 $ 69.00 $ 71.57 $ 74.16 $ 74.88 $ 77.11 2.98% CITY OF OTSEGO COUNTY OF WRIGHT STATE OF MINNESOTA RESOLUTION NO: 2017-09 ESTABLISHING WATER & SANITARY SEWER UTILITY RATES FOR 2017 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 and capital requirements of the Water and Sanitary Sewer utility systems. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OTSEGO, MINNESOTA: That the following rates, fees and charged be imposed on users of the Water utility system: a. Base Charge (All Users) 2017 Base Meter Size Charge 5/8" $ 8.88 3/4" $ 8.88 1.00" $ 27.06 1.50" $ 54.10 2.00" $ 81.16 3.00" $ 162.31 4.00" $ 405.80 b. Usage Rates (Per 1,000 Gallons of Consumption) 2017 Customer Type Consumption Rate Residential & City Owned 0 - 10,000 Gallons 1 $ 1.67 Residential & City Owned 10,000+ Gallons 1 $ 1.77 Commercial, Industrial & Institutional 0 - 50,000 Gallons $ 1.67 Commercial, Industrial & Institutional 50,000+ Gallons $ 1.77 Irrigation & Bulk Water I All 1 $ 1.77 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 6.875% 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 (All Users) 2017 Base Meter Size Charge 5/8" $ 9.12 3/4" $ 9.12 1.00" $ 18.24 1.50" $ 45.61 2.00" $ 91.22 3.00" $ 182.42 4.00" $ 456.07 b. Usage Rates (Per 1,000 Gallons of Average December -February Water Usage) 2017 Customer Type Consumption Rate All Users All $ 5.65 c. 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 $37.07. That the rates, fees and charges outlined in this resolution shall be effective for all billings issued on or after March 1, 2017. ADOPTED by the Otsego City Council this 13th day of February, 2017. ATTEST: CITY OF OTSEGO Jessica Stockamp, Mayor Tauri Loff, City Clerk MOTION made by Council Member and SECONDED by Council Member IN FAVOR: OPPOSED: