Utility Rate StudyCITY OF HOPKINS
MEMORANDUM
Date: September 13, 2016
To: Mayor & City Council
From: Christine Harkess, Finance Director
Steve Stadler, Public Works Director
Subject: Utility Rate Study
Due to the implementation of new finance software and especially the utility billing software we
delayed further action on the utility rate structure that was presented earlier this year. We have
updated the information and are ready to present a rate structure for a January 1, 2017
implementation.
The rate structure we are presenting for consideration is a tiered rate structure along with a fixed
rate component. The fixed rate component is important as our customers continue to be
conservation minded. There is a fixed cost to providing the infrastructure to supply the water
and remove the wastewater. These costs need to be covered regardless of how much water is
used.
The power point slides are attached for your review. We will be looking for direction on a rate
structure so that we can present it for approval and begin communication efforts to our customers
for a January 1, 2017 implementation.
FINANCE/PUBLIC WORKS
DEPARTMENTS
1
Utility Rate Analysis
Water & Sanitary Sewer
Stacie Kvilvang – Ehlers
September 13, 2016
Update
•Last presented in January 2016
•Council was in support of findings/recommendations
and wanted to proceed with roll out of increased rates
through the City’s various communication venues
•Decided not to do mid-year increase in 2016 so
complete required increases in 2017
•Rate structures are similar as presented prior, but
cash balances/reserves are impacted
2
Key Findings – 2016 Water Rates
•Water Rates
1.Usage assumptions are not aligned with actual usage patterns
• Rates were based on an average single family use of 7,000 gallons per month
Actual average single family use is 3,000 gallons per month
• Propose use of tiers based upon actual usage patterns
2.A flat rate is necessary
• To provide funding for a portion of fixed costs
• To provide a financial buffer for wet weather years
3.Continued pressure on cash balances
• Due to on-going utility improvements as part of road reconstruction projects
•$17.8M estimated from 2016-2026
•Take Away:
1.Revenues have been declining and future capital is driving future rate increases
Key Findings – 2016 Sewer Rates
•Sewer Rates
1.Past rate increases have not kept pace with the financial needs
of the Fund
2.Continued pressure on cash balances
• Due to on-going utility improvements as part of road reconstruction projects
•$10.070M estimated from 2016-2026
• 5%-6% annual increases in MCES (Met Council) sewer charges over
next 5 years
•Take Away:
1. Insufficient cash balances, future capital needs and MCES cost increases
are driving future rate increases
3
Water Usage Patterns
• Recommended tiers shown by the dark blue line
Prop
Tier 1
Prop
Tier 2
Prop
Tier 3
Water Usage Patterns
•Proposed Tiers
1.Tier One – usage up to 3,000 gallons per month
• This captures 39%of single family use
2.Tier Two – usage between 3,000 and 5,000 gallons
per month
• An additional 33%of single family users fall in this range
3.Tier Three – usage over 5,000 gallons per month
• Accounts for the remaining 28%of single family users
4
Water Usage Patterns
•Balances usage revenue and usages by user
type
•One user type isn’t substantially subsidizing
another user type
% Water % Water
User Type Used Usage Rev
Single Family Residential 27.98% 27.98%
Multi Family Residential 43.14% 41.56%
Commercial 23.22% 24.47%
Irrigation 5.65% 5.99%
Water CIP
City of Hopkins
Water System
Capital Improvement Program
Projects 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
CAPITAL EQUIPMENT
Vehicles and equipment 35,000 222,000 6,800 46,900
PROJECTS
Street improvements 907,000 1,500,000 700,000 1,250,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Public Works building/garage upgrades 80,000 18,000 10,000
Light rail transit station 350,000
Eighth Ave artery project 200,000
St Louis Park emergency connection
Blake Rd corridor improvements 500,000 500,000
Blake water tank rehab 340,000
Moline water tank rehab 650,000
TOTAL (2015 Dollars) 2,012,000 1,922,000 1,550,000 1,768,000 1,510,000 1,500,000 1,500,000 1,506,800 1,500,000 1,500,000 1,546,900 17,815,700
5
Water Capital Improvements
•2016 Projects
–Street reconstruction improvements
–Public Works building/garage upgrades
–Blake tank rehab
–Moline tank rehab
–Capital equipment
–Total $2,012,000
•2017-2026 Improvements
–Annual street reconstruction
–Public Works Building improvements
–Light Rail transit station
–Eighth Avenue Artery project
–Blake Road corridor improvements
•Total CIP 2016-2026
–Estimated $17.815 Million (doesn’t include inflation in costs)
•Cash balances are insufficient to fund this level of capital and
operations
Current
2015 2016 2017 2018 2019 2020
Flat Rates
Residential - '5/8" Meter 2.25 2.39 2.53 2.68 2.84
Residential - 1" Meter 2.25 2.39 2.53 2.68 2.84
Apt/Commercial - 1 1/2" to 2" Meter 4.50 4.77 5.06 5.36 5.68
Apt/Commercial - 3" Meter 6.75 7.16 7.58 8.04 8.52
Apt/Commercial - 4" Meter 9.00 9.54 10.11 10.72 11.36
Apt/Commercial - 6" Meter 13.50 14.31 15.17 16.08 17.04
Residential and Multi Family
All usage 2.18
0 - 3,000 gallons 2.30 2.44 2.58 2.74 2.90
3,001 - 5,000 gallons 2.65 2.81 2.98 3.16 3.35
Over 5,000 gallons 3.05 3.23 3.43 3.63 3.85
Commercial
All usage 2.18
0-10,000 gallons 2.20 2.33 2.47 2.62 2.78
10,001 -20,000 gallons 2.53 2.68 2.84 3.01 3.19
Over 20,000 gallons 2.91 3.08 3.27 3.47 3.67
Irrigation
All usage 2.60 2.75 2.92 3.09 3.28 3.47
Monthly Water Rates
Proposed Rates
Proposed 2016 Water Rates –
Not instituted
6
Current
2016 2017 2018 2019 2020
Flat Rates
Residential - '5/8" Meter 2.39 2.55 2.72 2.91
Residential - 1" Meter 2.39 2.55 2.72 2.91
Apt/Commercial - 1 1/2" to 2" Meter 4.77 5.09 5.44 5.80
Apt/Commercial - 3" Meter 7.16 7.64 8.16 8.71
Apt/Commercial - 4" Meter 9.54 10.18 10.87 11.61
Apt/Commercial - 6" Meter 14.31 15.28 16.31 17.41
Residential and Multi Family
All usage 2.18
0 - 3,000 gallons 2.44 2.60 2.78 2.97
3,001 - 5,000 gallons 2.81 3.00 3.20 3.42
Over 5,000 gallons 3.23 3.45 3.68 3.93
Commercial
All usage 2.18
0-10,000 gallons 2.33 2.49 2.66 2.83
10,001 -20,000 gallons 2.68 2.86 3.05 3.26
Over 20,000 gallons 3.08 3.29 3.51 3.75
Irrigation
All usage 2.60 2.92 3.12 3.33 3.55
Proposed Rates
Monthly Water Rates
Proposed 2017 Water Rates –
Same as before in 2017 and slight changes
in future years
Water Fund Cash Balances
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Water Fund Capital Cash Reserves
Target Cash Balance Actual Cash Balance
Was better in early
2016, but based
upon how fund
performed due to
increased costs and
less revenue, cash
balances were
depleted
7
Sewer CIP
City of Hopkins
Sanitary Sewer System
Capital Improvement Program
Projects 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
CAPITAL EQUIPMENT
Telephone system 6,800
Truck 33,600 40,300 45,200
Jet vactor 425,000
Generator 36,000 43,000
SCADA 70,000
PROJECTS
Street improvements 652,800 500,000 500,000 500,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000
Public Works building/garage upgrades 80,000 18,000 10,000
Light rail transit station 150,000
Eighth Ave artery project 100,000
Lift station #4 160,000
Lift station #7 700,000
Blake Rd corridor improvements 375,000 375,000
Total CIP (2015 Dollars) 766,400 1,831,000 1,025,000 1,053,000 760,000 750,000 793,000 756,800 790,300 750,000 795,200 10,070,700
Sanitary Sewer Capital
•2016 Projects
–Street Improvements
–Public Works building/garage updates
–Capital equipment
–Total $766,400
•2017-2025 Improvements
–Annual street reconstruction
–Capital equipment
–Light rail station
–Eighth artery project
–Public Works Building improvements
–Lift Station #4 & #7
–Blake Road corridor improvements
•Total CIP 2016-2026
–Estimated $10.070M
•Cash balances are insufficient to fund this level of capital and
operations
8
Sanitary Sewer Rates
•MCES disposal charges increased for 2016 by 10%
Usage rates fund these charges
•Projections assume an annual 5%-6% increase in MCES
charges for the next five year
Current
2015 2016 2017 2018 2019 2020
Usage Rate 4.30 5.38 5.70 6.04 6.40 6.79
Monthly Sewer Rates
Proposed Rates
Current
2015 2016 2017 2018 2019 2020
Usage Rate 4.30 4.30 5.81 6.12 6.46 6.82
Monthly Sewer Rates
Proposed Rates
January 2016
presentation
Today
Impact on Sewer Fund
9
Current
2015 2017 2018 2019 2020
Single Family Residential Property (Low User)
Water (3,000 gallons) 6.54$ 9.71$ 10.37$ 11.07$ 11.81$
Sewer (3,000 gallons) 12.90 17.42 18.37 19.38 20.45
Total Monthly Utility Bill 19.44$ 27.13$ 28.74$ 30.45$ 32.26$
$ Increase/(Decrease) 7.69 1.61 1.71 1.81
Single Family Residential Property (Median User)
Water (8,800 gallons) 19.18$ 27.60$ 29.47$ 31.46$ 33.58$
Sewer (4,800 gallons) 20.64 27.86 29.40 31.01 32.72
Total Monthly Utility Bill 39.82$ 55.47$ 58.86$ 62.47$ 66.30$
$ Increase/(Decrease) 15.64 3.40 3.61 3.83
Single Family Residential Property (High User)
Water (36,000 gallons) 78.48$ 115.46$ 123.25$ 131.57$ 140.45$
Sewer (5,800 gallons) 24.94 33.67 35.52 37.47 39.54
Total Monthly Utility Bill 103.42$ 149.13$ 158.77$ 169.05$ 179.99$
$ Increase/(Decrease) 45.71 9.65 10.27 10.94
Proposed Monthly Bills, Usage and Fixed Fee
Impact Analysis on Rate Payers
Utility Bill for Average Customer-
Residential
Current
2015 2017 2018 2019 2020
Single Family Residential Property (Low User)Molly Cummings
Water (3,635 gallons) 7.92$ 11.49$ 12.27$ 13.10$ 13.98$
Sewer (3,627 gallons) 15.60 21.05 22.21 23.43 24.72
Total Monthly Utility Bill 23.52$ 32.55$ 34.48$ 36.53$ 38.71$
$ Increase/(Decrease) 9.03 1.93 2.05 2.17
Single Family Residential Property (Low User)Jason Gadd
Water (1,817 gallons) 3.96$ 6.82$ 7.28$ 7.78$ 8.30$
Sewer (1,817 gallons) 7.81 10.55 11.13 11.74 12.39
Total Monthly Utility Bill 11.77$ 17.37$ 18.41$ 19.52$ 20.69$
$ Increase/(Decrease) 5.60 1.04 1.10 1.17
Single Family Residential Property (Low User)Katy Campbell
Water (2,170 gallons) 4.73$ 7.68$ 8.20$ 8.76$ 9.35$
Sewer (1,884 gallons) 8.10 10.94 11.54 12.17 12.84
Total Monthly Utility Bill 12.83$ 18.62$ 19.74$ 20.93$ 22.19$
$ Increase/(Decrease) 5.79 1.12 1.19 1.26
Single Family Residential Property (Low User)Arron Kuznia
Water (4,060 gallons) 8.85$ 12.69$ 13.55$ 14.46$ 15.44$
Sewer (4,060 gallons) 17.46 23.57 24.86 26.23 27.67
Total Monthly Utility Bill 26.31$ 36.26$ 38.41$ 40.69$ 43.11$
$ Increase/(Decrease) 9.95 2.15 2.28 2.42
Single Family Residential Property (Low User)Kristi Halverson
Water (1,267 gallons) 2.76$ 5.48$ 5.85$ 6.25$ 6.67$
Sewer (1,267 gallons) 5.45 7.35 7.76 8.19 8.64
Total Monthly Utility Bill 8.21$ 12.84$ 13.61$ 14.43$ 15.30$
$ Increase/(Decrease) 4.63 0.77 0.82 0.87
Impact Analysis on Rate Payers
Proposed Monthly Bills, Usage and Fixed Fee
Utility Bill for Council Members
10
Current
2015 2017 2018 2019 2020
Commercial Property (Low User with a 1" meter)
Water (3,000 gallons) 6.54$ 9.38$ 10.01$ 10.69$ 11.41$
Sewer (3,000 gallons) 12.90 17.42 18.37 19.38 20.45
Total Monthly Utility Bill 19.44$ 26.80$ 28.39$ 30.07$ 31.86$
$ Increase/(Decrease) 7.36 1.59 1.69 1.79
Commercial Property (High User with a 2" meter)
Water (35,000 gallons) 76.30$ 101.07$ 107.89$ 115.17$ 122.95$
Sewer (35,000 gallons) 150.50 203.18 214.35 226.14 238.58
Total Monthly Utility Bill 226.80$ 304.25$ 322.24$ 341.31$ 361.53$
$ Increase/(Decrease) 77.45 18.00 19.07 20.21
Proposed Monthly Bills, Usage and Fixed Fee
Impact Analysis on Rate Payers
Utility Bill for Average Customer-
Commercial
Summary
•City needs to increase utility rates to
Reflect actual usage of consumers
Provide a tier system to align usage with fees charged
Assist in paying for required capital and operational needs of the
systems
•Tried to impose rate increases that would be
palatable, while providing necessary dollars for
each Fund
Higher increase in first year (2017)
Annual increases thereafter are lower and relatively small
11
Recommendation
•Water Fund
1.City needs to implement flat fee/rate to pay for base needs of
system
2.City needs to implement tier system to provide “fairness” in usage
3.City needs to annually increase rates to keep up with capital
needs of system
•Sewer Fund
1.City needs to adopt 2016 increase and annually increase rates to
keep up with MCES increases and capital needs of system
•Update the utility rate study every couple of years