CR 92-231 Proposed Water Utility Rate Increase
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. November 9, 1992 " Council Report #92-231
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PROPOSED WATER UTILITY RATE INCREASE
ProDosed Action.
Staff recommends adoption of the following motion: "Adopt Resolution 92-102 increasing the water
utility rate effective on billings rendered from and after January 1. ] 993. II
Overview.
The present water rate of $0.85 per 1,000 gallons of water used has been in effect since 1984. The
strong cash position built up over the years is now rapidly declining because of increased construction
cost, operating costs and a decline in the ability to earn interest revenue due to a decline in the cash
balance and investment rates.
An increase of the water rate to $1.05/1,000 gallons is recommended.
Primary Issues To Consider.
e 0 Projected large construction projects during the next five years.
0 Need to restore working capital balance.
0 No rate increase since 1984.
SUPDortiDl! Information.
0 Resolution 92-102.
0 Background.
0 Five year cash flow analysis.
0 MontWy utility bill comparison (1992 vs, 1993) at various levels of usage.
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. Proposed Water Utility Rate Increase
Report 92-231
Page 2
Detailed Back2round.
During the years prior to 1991, the requirements for new construction and capital outlay were relatively
small. At the same time, the accumulation of a good cash reserve and higher interest rates allowed the
water operation to function well without a rate increase since 1984.
The above scenario has now reversed itself and will require a rate increase of $0.20/1,000 gallons of
water to maintain a working capital balance over the next two years. A further rate increase will be likely
in two to three years.
In the past few years, rate increases had been contemplated, in light of anticipated future construction, at
lower increments, but with a fairly good working capital level and the imminent need to raise other utility
rates, a water rate increase was delayed. Now the delay and future needs project a $0.20 increase, with
other increases to follow.
n is better to finance the capital improvements as they are constructed then to have even larger rate
increases to alleviate future negative cash positions. Bonding only spreads out the need for more revenue
e and adds the cost of interest and issuance",
Eight years ago, when the last rate increase was approved, the fund ended 1984 with a cash balance of
$218,000. In the ensuing years through 1990, the cash balance had risen to $1,428,000 even with
increased operating cost, because of high demand for water in some dry years, and virtually no
construction or high maintenance. By 1991 revenue had fallen in four consecutive years with operating
costs increasing 4 to 5% annually and the construction phases had begun.
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e WA TER FUND - CASH FLOW
(000 omitted)
1993 1994 1995 1996 1997
Cash Balance Begin Year 549 291 56 91 56
Add from Operations 252 229 460 443 425
Rate Increase ($.20 1993)
($.20 1995)
CIP 420 430 400 460 325
Capital Outlay 90 34 25 18 30
Balance 12/31/1997 126
CIP:
e Elmo Park 275 325 300 100 -
Moline 25 225 250
Well Rehab 120 30
Telemetering Controls 25 60
Street Reconstruction 75 75 75 75
420 430 400 460 325
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e TOT AL MONTHLY UTILITY BILL
Comparison of 1992 vs. 1993 at Various Levels of Usage
Proposed Monthly
Usage 1992 Rates 1993 Rates Increase
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2,000 28.32 29.22 0.90
4,000 35.02 36.32 1.30
5,000 38.37 39.82 1.45
8,000 48.42 50.52 2.10
10,000 55.12 57.62 2.50
15,000 71.87 75.37 3.50
20,000 88,62 93.12 4.50
. 1992 1993
Rates:
Refuse + Tax 19.12 19.12
Water 0,85/1000 gal 1.05
Sanitary Sewer 2.50/1 000 gal 2.50
Storm Sewer 2.50 3.00
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CITY OF HOPKINS
e Hennepin County, Minnesota
RESOLUTION NO. 92-102
WATER UTILITY RATE INCREASE
WHEREAS, Section 715 of the 1986 Hopkins Code of Ordinances defines sewer and water rates and
Ordinance 91-680 allows adoption of fees through a resolution, and
WHEREAS, it is estimated the present water rate will result in operating losses over the next ensuing
years and will not provide sufficient funding for construction projects identified in the 1993-1997
Capital Improvement Plan;
. NOW THEREFORE BE IT RESOL YED, that the City Council of the City of Hopkins hereby sets:
The gross water service usage charge for all classes of users on the system at $1.05 per 1,000
gallons of water used plus 10% of the water charge.
EFFECTIVE DATE: The provisions of this resolution shall take effect and be in force in connection
with all billings rendered hereunder from and after January 1, 1993.
. Adopted by the City Council of the City of Hopkins this 17th day of November, 1992.
By
Nelson W. Berg, Mayor
ATTEST:
James A Genellie, City Clerk
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